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Draft National Infrastructure Plan
5.2. Improve long-term investment planning | He whakapai ake i ngā whakamahere haumitanga tauroa
5.2.1 Context
Infrastructure investment requires us to think about the future. Long-term planning for investment and asset management enables us to build new projects at the right time and adequately maintain and renew assets. To be effective, long-term plans should be linked to funding and pricing decisions, to ensure we have a credible way to pay for them.
The existing top-down approach makes future-focused planning challenging. This is because the amount of money available to implement these plans is limited by top-down fiscal constraints. These constraints do not reflect information about local investment demands. A more effective investment management system would include a mechanism for aligning top-down fiscal constraints with bottom-up investment planning.
New Zealand’s current approach results in an unstable and short-term view of future investment. Budget forecasts consistently over-estimate capital investment in the short term and under-estimate it in the long term (Figure 28). This reflects over-optimism about how quickly newly funded projects can be designed and delivered, combined with under-estimation of longer-term infrastructure investment pressures. Change is needed so that central government long-term investment planning enables us to meet our infrastructure needs consistently and sustainably.
Budget forecasts do not project a stable view of long-term investment demand
Note: BEFU = budget economic and fiscal update. Source: Analysis of the Budget Economic and Fiscal Updates, 2015-2025. The Treasury. (2024).
Figure 28: Treasury Fiscal Strategy Model forecast versus actual net purchases of physical assets
5.2.2. Strategic directions
Central government agencies plan ahead for future needs
Long-term investment planning and asset management are important for infrastructure. They clarify what may be needed to maintain and renew existing assets to maximise their useful life at lowest lifecycle cost. This allows for improved integrated planning for any new investments that may be required under various future scenarios. This enables fiscal pressures to be managed by deferring costly new investments until they are absolutely required.
Our forward guidance on future investment demand is a start, but asset owners are best placed to do detailed long-term planning. Our analysis, presented in Section 3, provides a broad view of the level and mix of investment that is likely to be affordable and needed in the long term. However, our forecasts do not seek to provide a highly detailed view on individual assets or demands on specific parts of infrastructure networks. A core competency of any capital-intensive central government agency should be the ability to produce integrated long-term plans that provide a detailed view on assets and current and future demands across their networks. Strengthening the compliance requirements around this will go so far, but real change needs to be led from the core. For example, in the case of Crown agencies, the responsible Minister and the Board both have a significant role in not only setting expectations but also monitoring and reviewing performance.
Existing requirements are a start, but a more stable and consistent approach is needed. The Investment Management System requires agencies to develop and report long-term investment intentions based on their strategic planning and asset management practices. These expectations are set out in the Cabinet Office Circular on investment management.[76] However, frequent changes to long-term planning requirements limit the effectiveness of these requirements.[77]
Data on long-term investment intentions varies in quality and completeness. Agencies’ investment intentions are collected and reviewed by the Treasury on an annual basis. The Treasury provides Ministers with advice on these intentions through its Quarterly Investment Reporting (QIR), and a partially redacted version of QIR is published several months later. This reporting indicates varying levels of detail on agencies’ strategic intention submissions. Publicly available long-term planning artefacts (for example, comprehensive long-term investment or asset management plans) are also variable across central government agencies.
Align asset management and investment planning with available funding
Long-term asset management and investment planning should be credible, fundable and achievable within fiscal forecasts. Unconstrained plans that exceed the level of funding that is likely to be available may be useful for identifying underlying investment pressures but are of limited use for construction sector engagement. If funding is not available due to other fiscal considerations, asset owners need to be aware of this so that they can address future service delivery risks associated with the lower levels of available funding.
Agencies’ 10-year investment intentions significantly exceed forecast Budget funding.[78] For instance, the recently announced Health Infrastructure Investment Plan includes spending an average of around $2 billion per year for 10 years.[79] The recently announced Defence Capability Plan includes indicative spending of around $3 billion per year for the next four years.[80] For comparison, the 2025 Budget Policy Statement forecasts $3.625 billion available for new capital spending in each of the next four years.
The problems are amplified by the leakage of land transport. Central government’s land transport investment is intended to be self-funded from user charges paid into the National Land Transport Fund. However, expenditure on land transport is now ‘spilling over’ to Budget capital allowances. An estimated $12 billion in Crown grants and loans will be provided to pay for the 2024–2027 National Land Transport Programme, and more money may be needed past this point (Box 8).
Changes are needed to address the systemic misalignment between investment planning and fiscal forecasting. This should clarify the connection between agencies’ long-term asset management and investment planning, the New Zealand Infrastructure Commission’s forward guidance for long-term infrastructure investment demand, and setting of capital allowances for new investment.
Link Budget decision-making to agency investment planning
When agencies do good asset management and investment planning, this should be reflected in Budget decision-making. Agencies should be expected to base Budget funding bids on projects previously identified in their investment and asset management plans. Budget bids should include well-developed business cases. This is important for ensuring that investment is coordinated and prioritised to areas of highest need.
Projects awarded funding through the Budget sometimes have no link to long-term planning, and some needs may not be funded. This undermines incentives for agencies to invest in effective planning because they focus on what funding they can obtain on a year-to-year basis. It generates pressure to make detailed project announcements before planning has been completed, and those announcements then make it more difficult to effectively plan.
Multi-year budgeting could help, but only if planning and monitoring practices were sufficient to support it. The Public Finance Act enables the use of multi-year appropriations, but these are generally used to fund the delivery of specific initiatives, rather than to fund an agency’s overarching multi-year investment plan. Previous attempts to introduce multi-year funding approaches have had limited success due to other gaps in practices.
Getting it right will enable more effective procurement and delivery approaches. More forward visibility over investment funding would help agencies to establish efficient multi-year supply and procurement arrangements, strategically develop a more competitive supplier market, and smooth out their pipeline of work. This would then improve the construction sector’s ability to invest in the people and capabilities needed to deliver investment.
Figure 29: Proposed process for fiscal strategy and long-term planning
5.2.3. Recommendations
Changes are needed to get better long-term asset management and investment planning in central government infrastructure agencies. We make three main recommendations to improve policy and practices in this area. These are intended to align long-term investment planning with available funding, create stronger and more consistent requirements for agency long-term planning, and provide multi-year budgets where appropriate planning and monitoring arrangements are in place.
These recommendations create a mutually reinforcing process to align bottom-up agency investment planning and top-down fiscal strategy (Figure 29). In turn this would help bring greater stability to agency funding for infrastructure, enabling a pipeline of ongoing investment and creating the preconditions to build capability and capacity across the infrastructure sector.
Recommendation 11
Needs based government investment: Fiscal strategy is informed by infrastructure investment and asset management planning and the New Zealand Infrastructure Commission’s independent view of long-term needs.
This recommendation could be implemented by:
- The New Zealand Infrastructure Commission providing the Government with periodic estimates of central government infrastructure investment demand over at least a 10-year time horizon, detailing needs across sectors, by investment type and across years.
- The Government developing a methodology to take account of, and better align, infrastructure needs (informed by the Commission’s estimates alongside agency asset management and investment plans (see below)), in determining its fiscal strategy and the quantum of future capital and operating allowances.
- Informed by the Commission’s estimates and agency investment plans, the Government developing a methodology to plan the approximate expected allocation of its future capital allowances across sectors and agencies.
Recommendation 12
Asset management and investment planning: Central government agencies are legislatively required to prepare and publish long-term asset management and investment plans.
This recommendation could be implemented by:
- Amending the Public Finance Act 1989 to require publication of 10-year asset management and investment plans by government agencies, detailing the capital investment (and associated operating spending) required to deliver services. This should include all financial (estimated expenditure) and non-financial information (for example, asset and risk information) required to justify proposed expenditure relating to the acquisition, upgrade maintenance, renewal and disposal of infrastructure assets.
- As needed, amending other legislation, such as the Land Transport Management Act, to incorporate comparable long-term asset management and investment plan requirements.
- Applying audit requirements to asset management and investment plans.
- Standardising how agencies categorise planned activities and expenditure, for instance distinguishing between different types of assets and between renewal and non-renewal capital expenditure and requiring them to provide information in a standardised format.
Recommendation 13
Stable central government funding: Multi-year Budget funding is available for central government agencies with strong planning, delivery and asset management practices.
This recommendation should only be implemented following improvements to agency long-term asset management and investment planning that can be integrated into fiscal strategy and allowance decisions. It differs from the former Multi Year Capital Allowance which reflects the funding the Government has set aside to meet the costs of future capital investments.
This recommendation could be implemented by:
- Government exercising its ability to extend the decision-making horizon of the Budget process, such that it considers (and provides appropriate transparency on) not only investment proposals to fund in the current year, but also the set of investment proposals that it expects to fund through the next and possibly future years’ Budgets. As a performance incentive, this could extend to allocating funding against those future budgets. Agencies would be required to meet conditions to access funding (for example, signoff of a completed detailed business case), akin to the current ‘tagged contingency’ approach.
- Reviewing the budget evaluation framework to ensure year-on-year consistency by using stable criteria that align with a best practice appraisal framework. Once agency long-term plans are place (see recommendation 2), ensure that the budget evaluation framework requires alignment with agency asset management and investment plans. This need not preclude the framework taking account of the investment priorities of the Government of the day.
- Developing a policy that confines the scope and specificity of project announcements to the project stage, for example, a high-level need statement with potential options at the planning stage, as opposed to anything more definitive at that stage of business case development.