How do we pay for it all?
With a bigger population, climate change and changing needs on the horizon, New Zealand needs more infrastructure than we can afford to build. This doesn’t mean we down tools, but it does require a rethink about what we need, and how we pay for it.
Energy & Waste
7 min read
Infrastructure comes with a big price tag
Infrastructure projects like hospitals, bridges and rail lines are some of the biggest investments New Zealand can make, costing millions or even billions of dollars. These high price tags mean that future generations often pay for decisions made in the past, or people in one part of the country help bear the cost of infrastructure in another.
It’s essential then that we not only choose carefully when it comes to spending big, but that we think hard about how we pay for our infrastructure so we get the best bang for our buck and spread the cost fairly.
Source: Te Waihanga Infrastructure Quarterlies, QV House Price Index (at January 2022)
Taking a principled approach
Currently, the way we pay is different depending on the type of infrastructure. We get a bill for how much power we use, but many of us pay a flat cost for our water through rates. We pay for roads through rates and taxes at the petrol pump, but even that’s different for the trucks that carry our freight. A one-size-fits-all approach will never work, but we can stick to some clear principles, making sure that the way we pay is consistent, easy, transparent and fair no matter the infrastructure being funded.
A one-size-fits-all approach will never work, but we can stick to some clear principles, making sure that the way we pay is consistent, easy, transparent and fair no matter the infrastructure.
We need to make sure that, as much as possible, those who benefit pay their fair share of the cost of infrastructure. There are some exceptions to this, like schools, public transport and healthcare, where costs are more widely shared to ensure everyone can benefit. But for other types of infrastructure, like transport, waste disposal, water and many more infrastructure services, we can better match the cost so that those who benefit pay. This can include approaches like congestion charging, where people pay to use a busy road at peak times – something that has been proven to reduce traffic by encouraging people to travel by public transport or outside peak hours. This can bring down our overall infrastructure bill by getting more out of what we have, before we build more.
Another way of applying this principle is by using targeted rates, a strategy councils already have in their toolbox but which is not used consistently. An example could be where a new train station is built in an area. Those who own the land around it might pay an additional charge in their rates to reflect the benefit the train station brings to them and the resulting increase in the value of their property.
Just like when buying a house, New Zealand will generally need to borrow money to pay for infrastructure. It’s too pricey to buy outright, but the long-term benefits make the investment worthwhile. However, there are restrictions that can make it hard for our councils to do this, even as they face growing populations that will desperately need infrastructure.
How we pay back that debt is important, and can be set up to match the lifespan of the infrastructure itself. That way, New Zealanders both now and in the future are paying their fair share, reducing the risk of one generation footing the bill for another.
There are other tools we can use, like Public Private Partnerships. Here the private sector manages the immediate cost of building infrastructure and is then repaid over time by the government. This won’t work for everything, but there are times when methods like these can help us get better infrastructure solutions, while also spreading the costs over time. This is an option we can’t afford to look past at a time when we need every tool in the toolbox.
Getting smarter about the way we fund and finance our infrastructure won’t solve all our problems, but it will be a major part of the solution.
Some of the changes we’ll need to make
Solving our infrastructure challenge means rethinking the way we pay. The shift is focused on how people pay for infrastructure, rather than an increase in the total amount that people pay.
The New Zealand Infrastructure Strategy explores some of the changes we’ll need to make, including a shift to:
- adopting consistent principles to guide funding decisions.
- changing how people pay for infrastructure based on those principles.
- exploring a wide range of ways to finance infrastructure.
Relevant case studies
The solutions to the issues we face have often been shown to work here and overseas. These case studies are an example to learn from.
How Stockholm implemented congestion charging
Read case study
Should people who benefit the most from infrastructure projects pay more?
Our recommendations to change the way we pay for infrastructure
Read the recommendations in Rautaki Hanganga o Aotearoa.
Reduce barriers to and costs of providing infrastructure services
Improve water infrastructure pricing and provision in cities
Reduce costs by optimising infrastructure corridors
Target transport investment to areas of highest need using signals from congestion pricing
Improve equitable funding of local infrastructure
Reform the transport funding system
Consolidate existing separate infrastructure capital funds
Improve the ability to debt fund infrastructure
Improve funding of infrastructure services through targeted funding tools
Encourage the use of value capture tools to fund infrastructure for growth
Increase infrastructure funding to meet our infrastructure challenges and boost productivity
Ensure that infrastructure charges keep pace with inflation