The new Government will turn to the private sector to finance Auckland’s traffic congestion as a way of helping balance its books.

Transport Minister, Phil Twyford told POLITIK yesterday that the rest of the country would not tolerate the costs of Auckland’s marginal growth being paid by the general taxpayer.

Those costs were shown in sharp relief yesterday with the release of the Half Yearly Economic and Fiscal Update.

It shows that the costs of the Auckland Transport Alignment Plan have jumped from $5.9 billion in August to as much as $6.5 billion now just three months later.

Part of that is explained by the Government’s intention to build a light rail system from the city to the airport.

Transport Minister Phil Twyford

So Twyford is talking big private sector involvement in Auckland’s transport, including public-private partnerships and infrastructure bonds.

His attitude stands in stark contrast to that of his colleagues Health Minister David Clark and Education Minister Chris Hipkins who have reversed National’s use of private-public partnerships to build hospitals and schools.

But Twyford probably has little choice.

The HYEFU makes it clear there will be considerable pressure on the Government’s capital budget over the next three years.


Apart from Auckland transport and schools and hospitals, the big pressures will come from restoring contributions to the NZ Super Fund, the  $1 billion Provincial Growth Fund and the Defence White Paper capability procurement programme. 

POLITIK understands that the Government will also consider ways in which non-governmental capital can be brought into the Provincial Growth Fund possibly through joint ventures.

However, the HYEFU said, “the scope of such a fund has yet to be determined including which regions and what types of projects are eligible.”

The fund was a key “win” for NZ First in the coalition negotiations but NZ First has also freed up $100 million of capital spending by insisting the Government scrap the proposed new Ministerial office building.

The other big capital item on the Government’s agenda — the $2 billion Kiwibuild programme

will be spread across the next three budgets starting with $100 million in next year’s Budget.

However, contributions to the NZ Super Fund have been cut from a pre-election promise of a $1 billion a year to $500 million for next year but will reach $1 billion in 2019 and rise up to a forecast $2.5 billion in 2022.

Nevertheless, the capital pressures have the potential to seriously derail the Government’s programme.

The HYEFU allows $3.5 billion of new capital spending for 2018 and 2019 then that’ drops to $3.1 billion in 2020 and $2.7 billion in 2021.

“Capital spending pressures in the pipeline are large, and we will need to step up and address those,” Robertson told the HYEFU briefing yesterday.

“This the largest ever amount of capital expenditure that has been put in.

“It’s significantly larger than the amount of money he previous Government was looking o put in.

“But we have been identifying a large number of capital pressures that have built up over a significant number of years.

“We’ll make sure that we prioritise that expenditure carefully.”

Being able to offload much of the forecast $6.5 billion shortfall in Auckland transport funding spread over ten years will play a key part in that.

Twyford said that the Auckland fuel tax would be an important generating $170 to $190 million a year.

In relation to the light rail investment, which is a multi-billion dollar investment, we are also exploring a full range of options including PPPs, but in particular, we are actively exploring how we can capture value uplift alongside the light rail and how that can be recycled back into investment.”

But Twyford cautioned that sooner or later the Auckland transport Alignment Project would have to be restrained if costs continued to rise.

“Eventually we will have to cut our cloth.

“We have to find ways of Auckland’s growth paying for itself, and that’s why value capture is important; that’s why debt finance serviced by targeted rates is important, and the regional fuel tax is an immediate and simple way of generating extra revenue.

“And in transport and in the property development that takes place around transport infrastructure there are enormous possibilities for the private sector.”

Twyford’s endorsement of the private sector role in providing capital for infrastructure could have been made by a National Minister.

 Treasury Secretary Gabriel Makhlouf; Childrens' Minister, Tracey Martin; Social Development Minister, Carmel Sepuloni and Transport Minister, Phil Twyford at the HYEFU briefing.

Indeed much of the Fiscal Plan outlined by Labour yesterday was not that far away from the caution that characterised the English budgets.

Robertson has allowed $2.6 billion for new spending in the next budget. This will include $1.157 billion for the new families’ package and $469 million for the tertiary education p[ackage.

The surplus track is for a surplus of $2.5 billion next year, $2.8 billion in 2019 and $5 billion in 2020.

 Robertson said these allowances were consistent with reducing net core Crown debt to 20% of GDP within five years of taking office.

There are questions though about the rosy economic forecasts in the HYEFU.

Both Westpac and ASB economists were questioning whether the Treasury forecasts for growth and unemployment could be attained.

“In our view, the economic forecasts that underpin the fiscal projections are too optimistic,” said Westpac economists Dominick Stephens and Michael Gordon.

“Treasury is forecasting 3.6% GDP growth in the year to June 2019, compared to our own forecast of 2.8%.

“ If GDP growth doesn’t accelerate to the extent that the Treasury is projecting, the risk is that the Government revenue will fall short, requiring Government to either rein in some of its spending plans, find additional sources of revenue, or abandon its commitment to reducing net debt so rapidly.”

The immediate reaction from the Opposition was to attack the debt track unveiled in the HYEFU.

“Today’s half-yearly accounts from Treasury have confirmed that Government debt will be going up instead of dropping over the next five years after just 49 days of the new Coalition Government,” said National Party Finance Spokesman Steven Joyce. 

“The previous Government left the books in very good order. Treasury’s Pre-Election Fiscal Update had net Crown debt reducing to $56 billion by 2022 from $59 billion at the start of this financial year.  

“After just seven weeks with Grant Robertson as Finance Minister, this has turned around to an expectation of net debt growing to $69 billion by 2020 despite significant growth in tax revenues.

“And this is just the beginning. The Coalition has set up very tight operating allowances for their future spending and has left very little room for dealing with the ongoing spending pressures that any Government faces. 

“Most of their big spending promises are yet to be included in these accounts.”

But arguing about levels of net debt as a percentage of GDP is hardly likely to form the basis for an election campaign.

In fact, so ingrained now is the concept of fiscal sustainability in both the main political parties in Parliament that debate over fiscal policy in a macro-economic sense is almost pointless.

Instead, the debate will have to focus on what Labour is spending the money on – and what it is taxing to get its revenue.

Even there National is going to have a problem.

Though Labour has announced they are ideologically opposed to public, private partnerships for schools and hospitals, Twyford is embracing them for transport and housing.

And the extra revenue the Government has comes from not implementing a tax cut which was legislated by the National Government but which had not implemented.

Robertson’s first major economic outing revealed a Finance Minister very much in the Michael Cullen tradition.

That won’t make life any easier for the Opposition.