How will we pay for New Zealand’s infrastructure challenges?

Recently, we’ve been asked to comment on how New Zealand is going to address its current infrastructure challenges. As the New Zealand Infrastructure Strategy and our recent research suggests, it’s just not a matter of spending more.

One of New Zealand’s biggest infrastructure challenges is investment efficiency. As outlined in recently published research, New Zealand spends an average of 5.8% of GDP on public and private infrastructure. International comparisons show that our infrastructure investment levels are higher than Australia and the median OECD country. However, New Zealand ranks near the bottom 10% of high-income countries for the efficiency of that spend.

This is especially true in the face of rising infrastructure costs. Infrastructure prices have risen one-third faster than prices elsewhere in the economy, while infrastructure construction productivity has grown at one-third the rate of the overall economy. Capacity constraints continue to be a significant issue for project delivery teams.

Funding our way out of the infrastructure issues before us is unaffordable. As we note in our Briefing to the Incoming Minister (BIM), we estimate that attempting to fund the predicted demands (which total 9.6% of GDP) of all publicly provided infrastructure would require a 21% increase in the average income tax paid per taxpayer. Sense Partners allude to this in its 2021 report on New Zealand’s infrastructure challenge, stating:

The size of the challenge is too large to fix by simply investing more. Adding more infrastructure doesn’t always lead to better economic outcomes either. For example, more roads can also lead to more driving and hence more congestion, which is a cost to society. Rather, we need to invest more as well as reduce demand, increase efficiency and do better integrated spatial planning.

We need a focus on getting smarter in how we plan, deliver and use our existing infrastructure. New investment will be important, but it will only get us part of the way. We can spread the load on our roads, water networks and other infrastructure through better regulation, education, pricing and design. Demand can be spread to avoid building for the peak. Better spatial planning can lower infrastructure costs through land protection; water metering can identify and fix leaks; zoning flexibility can allow more houses to be built in areas where there’s already infrastructure in place.