Draft National Infrastructure Plan

7.2. Land transport | Ngā tūnuku whenua

7.2.1. Institutional structure

Service delivery responsibilities

• Land transport infrastructure provided by mostly ‘monopoly’ service providers.
• The land transport sector includes state highways (provided by the New Zealand Transport Agency (NZTA), a central government agency), local roads and paths (provided by local road controlling authorities), local public transport services (planned and contracted by regional councils, with some routes provided by commercial entities) and rail (infrastructure, rolling stock, and freight and inter-regional passenger services provided by KiwiRail, a central government state-owned enterprise.

Governance and oversight

• Within-sector governance features rail and road networks regulated by NZTA.
• NZTA sets rules and standards for state highways, local roads, rail, walking and cycling, and public transport infrastructure and services.
• The NZTA Board makes independent decisions on which activities to include in the National Land Transport Plan (NLTP) but must give effect to direction and funding allocations in the Government Policy Statement on Land Transport (GPS), which is set by the government.
• The Ministry of Transport provides policy advice to government on the overall transport system.

7.2.2. Paying for investment

• Historically, land transport has been fully funded through user charges. However, in recent years, delivering Government’s investment priorities for both road and rail infrastructure have required substantial Crown grants and loans in addition to user charges. Without changes to pricing or investment priorities, this is expected to continue in the future.
• Road networks and urban public transport are, or should be, primarily funded through a combination of user charges and rates. The National Land Transport Fund, managed by NZTA, obtains revenues from fuel excise duty, road user charges, and vehicle and driver registration and licensing fees. These charges are set by Cabinet. Local authorities use rates, public transport fares and other transport charges to co-fund council road and public transport networks.
• NZTA allocates funds from the National Land Transport Fund through activity classes across its nationally delivered activities and local transport initiatives put forward by councils.
• Rail networks are, or should be, primarily funded by users in the form of track user charges. This includes contributions from urban public transport users and local governments, for access to urban passenger rail networks.

7.2.3. Historical investment drivers

• Investment in new transport networks is initially driven by technological innovations (for example, invention of railways and cars), and then by improving connectivity and maintaining the existing network. 
• As networks mature, maintaining and renewing existing assets becomes a major driver of spending. Road age, increasing network use and natural hazard events, including climate-related events, influence maintenance and renewal spending demands.
• Once an extensive network is built out, further improvements are driven by population growth (concentrated in certain areas to relieve congestion), economic development (also concentrated), and rising level of service expectations among users.

7.2.4. Community perceptions and expectations

• There generally seems to be agreement that the performance of New Zealand’s land transport system is not always meeting New Zealanders’ expectations. However, views on how to improve performance and willingness to pay higher charges are more varied. Equity, accessibility, safety and ongoing service provision are major considerations.
• Because transport costs are the largest infrastructure-related spending item in household budgets, changes in costs matter to consumers, particularly for fuel prices which feed into general cost-of-living concerns.

7.2.5. Current state of network

New Zealand’s difference from comparator country average

• New Zealand has an average-sized, sparsely used road network, which is also the case for our comparator countries. Across broad metrics of quality, we are about average, except for the safety of our roads, which have higher fatality rates than our peers. 
• Our rail networks are characterised by very low levels of investment and low usage, for both passenger and freight rail. The length of our network is comparable to our peers, although our network electrification is low. New Zealand’s rail services also score comparatively poorly on measures of rail quality.
• The Commission also publishes performance dashboards that can be used to understand changes in the performance of New Zealand’s transport sector over time.^[104]

7.2.6. Forward guidance for capital investment demand

• Overall, slowing population and income growth are expected to put downward pressure on the population’s willingness to pay for significant expansions or quality improvements to land transport networks.
• Renewal needs will therefore make up a rising share of total investment demand. Resilience to natural hazards will add to this. Large investments in state highways during the 2010s will require future renewal during the forecast period. Similarly, with rail, if we choose to keep our current network size, investment will need to increase, although not to the levels observed in the last 10 years.
•  Demand shifts associated with meeting legislated net-zero carbon emissions pathways will also lead to a shift in the composition of investment demand. Climate Change Commission modelling for the Fourth Emissions Budget suggests that this will lead to a shift in travel demand from private vehicle travel to public transport and active modes, even after accounting for increased electric vehicle usage. Roughly speaking, this will offset expected road demand growth from population and income growth. This will lead to increased demand for public transport infrastructure investment and reduced demand for road capacity investment, primarily for state highways which have historically been more responsive to increased private vehicle demand. The above figures include the net impact of these two shifts.

7.2.7. Current investment intentions

• Road and rail investment has risen in recent years. It is expected to continue rising, based on infrastructure providers’ project intentions and programme-level investment intentions.
• The following chart shows that projected spending to deliver initiatives in planning and delivery in the Pipeline (blue bars) and programme-level intentions in local government Long Term Plans and central government’s reporting to the Treasury’s Investment Management System (red and orange bars) are significantly higher than the Commission’s investment demand outlook (black lines) over the 2025–2035 period.
• A large share of investment intentions reported to the Treasury and shown in later years in the Pipeline are currently unfunded.

7.2.8. Key issues and opportunities

• Pricing and governance: On the whole, network costs should be paid for with user charges because most benefits flow to current users. However, investment intentions and user charges are currently not aligned. Resolving this issue could ensure that investment plans are better matched by the users’ willingness to pay. Other pricing mechanisms used in other jurisdictions, such as tolling and congestion charging, could also be used to manage congestion and demand for new capacity in the face of uncertain income and population growth.
• Improved coordination: Spatial planning done well can help identify where transport (as lead infrastructure) is required to support urban growth and regional development. Spatial planning is also important for maximising the benefits of investment in transport when paired with technology and travel demand initiatives, while managing network adaptation to climate change impacts.
• Policy certainty: Consistent policy priorities for land transport investment could help local government to deliver their own investment plans and the construction industry to deliver. Government policy approaches for meeting emissions goals will have an impact on the sector by affecting the mix of investment in relative modes of transport.
• Investment planning: Long-term planning for the level and mix of investment in land transport could be informed by the Commission’s investment demand outlook to ensure that land transport is not crowding out other sectors.
• Project appraisal: In recent decades, the value for money of funded transport projects has declined, as other factors, such as alignment with government objectives have taken priority. There is a role for strengthened project appraisal prior to investment decisions.