Tuesday, April 23, 2024

Transport plans will hit funding crunch, Treasury says

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Investment pipeline is larger than agencies and the market have capacity to deliver, Treasury says.
As NZ emerged from lockdown in mid-2022, household transport emissions spiked by 3%.
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The next government may need to hike fuel taxes or pump in more Crown funds to deal with pressure on the National Land Transport Fund.

The National Party has said it would not hike fuel taxes to pay for its $24 billion transport policy, while Labour has said it would hike the excise duty by 12 cents a litre over three years, beginning next July.

Officials wanted the Labour government to make bigger hikes to cover the revenue shortfall in its $20.8bn government policy statement on land transport; however, the government opted to use Crown funds instead.

The pre-election economic and fiscal update (Prefu) released by the Treasury on Tuesday identified a new risk in the transport portfolio: the need to support the National Land Transport Fund (NLTF).

“There is a risk that fuel excise duty and/or road user charges will need to be increased further, or additional government funding (loan and/or a grant) will be required in order to manage existing pressures on the NLTF,” the update said.

“This relates to both medium-term sustainability of the NLTF and specific potential pressures in the National Land Transport Programme (NLTP) 2021 and NLTP 2024 periods, including public transport operating pressures and emergency work funding.”

The Prefu document identified a number of other significant infrastructure investments that haven’t had funding committed through the NLTF, including Auckland light rail, the additional Waitematā Harbour crossing project and Let’s Get Wellington Moving.

“Due to the scale of works required, much of this expenditure – if agreed to – would be expected to fall beyond the forecast period; however, the fiscal impacts are expected to be substantial, which would require further increases to fuel excise duty and/or road user charges rates and/or further Crown funding.”

The Infrastructure Commission, Te Waihanga, has warned the government that its planned portfolio of investments in the Auckland region, which included light rail, transport improvements funded between central and local government and the extra crossing, may not be able to be delivered due to market and labour constraints. 

Treasury raised a similar point in Prefu.

The government has made significant capital funding allocations in recent years, but its infrastructure pipeline is facing capacity constraints and cost escalations, the document  said.

The $6.8bn transport component of the NZ Upgrade programme, for instance, remains a risk despite extra injections of $1.9bn and $252 million.

“With the current inflationary conditions, and with many projects at an early stage in their lifecycle, there is an ongoing risk further funding may be required to deliver the programme,” Treasury said.

The large capital allocation in transport was in addition to significant funding required to maintain and renew existing assets to acceptable levels of service.

“This has led to an investment pipeline larger than agencies and the market have capacity to deliver,” the document  said.

“In particular, capacity constraints in regional NZ are expected to extend timeframes for the cyclone and flood recovery and infrastructure rebuild, as well as restrict broader aspirations for increased investment in infrastructure.”

The Treasury also noted how constrained operating budgets will affect the government and its ability to deliver new projects.

“While there may be fiscal headroom for increased infrastructure investment, the operating funding requirements for capital investments will also make it challenging to achieve increases in investment given the pressure on operating expenditure,” Prefu said.

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