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Beyond the numbers: What’s in the Budget 2024 pipeline for infrastructure?

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The 2024 Budget is coming out a little later than normal, due to the time taken to form the coalition Government, and with clear indications that while infrastructure is a priority, the state of the books (and the Government’s fiscal approach) means there is not a lot of money available for new infrastructure announcements. 

So, given this, how will the Government deliver on its identified key Budget priority of ‘developing a long-term, sustainable pipeline of infrastructure investments'?

Setting (clearing) the table

The first six months of the Government’s term has seen significant action in terms of ‘setting the table’ to facilitate the new infrastructure agenda. Significant legislative adjustments including the Fast Track Approvals Bill, Three Waters repeal, RMA & SPA Repeal and amendments to the Building Act will have a significant impact on how - and which - infrastructure is delivered.

We have also seen previous Labour government's key projects either paused or stopped completely including Auckland Light Rail, Let’s Get Wellington Moving, and the iReX (Interislander ferry and terminals) project with the Government flagging that it is running the ruler over numerous other allocations carried over from Labour in the existing infrastructure pipeline, including the remaining $2.8 billion sitting in the National Resilience Fund.

The culmination of these changes, plus reviews on Kāinga Ora and the Ministry of Education’s infrastructure programmes, should be evident in the Budget, enabling a shift to more clarity on the Government's infrastructure priorities including key projects that will be funded to commence in this term.

Challenging conditions for the sector

2024 looks like tough going for the infrastructure sector with contractors citing a one-year gap in the development cycle and many already commencing workforce reduction programmes. On the ground, there is increased insolvency activity (over and above other industries) and a worrying increase in the lead indicators of 60 and 90-day payment arears.1

Globally, New Zealand’s negative infrastructure outlook is at odds with much of the rest of the world (including Australia) which is seeing an overall confidence uptick (with the notable exception of China) according to the RICS Global construction sentiment index

To this end, last month, Association of Consulting Engineers (ACE), Infrastructure New Zealand, Civil Contractors New Zealand and Master Builders Association took the unusual step of writing to the Minister for Infrastructure seeking support in the form of ‘an accelerated and immediate package of renewals work, particularly in the water and transport sectors’. Part of the argument was that if the industry has too much of a dip, human capital will move offshore, and the sector won’t be able to respond when the economy rebounds.

There is a counter argument that the infrastructure market, as with the rest of the economy, needs to come off its high and adjust to a reduced, but more sustainable and consistent pipeline. 

In any case, it is clear the infrastructure budget is tight and will be targeted in a few key areas aligned to the Government's stated policy objectives.

Implications by portfolio

Transport is a major area of focus for the Government with the 15 Roads of National Significance it would like delivered “as quickly as possible.” Based on previous announcements, there are up to seven of these roads (over $8 billion) that the Government will look to allocate funding to so they can commence planning within the first term. 

The Government has signalled most, if not all, of these roads will be tolled, with some potentially delivered via a PPP-style model, which may affect how the Budget commitment is calculated. 

Health New Zealand has the largest vertical build infrastructure portfolio with several high-profile cost overruns. The Government will likely need to provide a further top up (or at least restated) commitment to the massive New Dunedin Hospital (NDH) and may look to avoid a repeat via breaking up other big builds into smaller stages. This has recently happened with Nelson hospital and the slow moving $759M Whangārei project may be next. Staging is a practical approach to effective delivery (NDH has clearly shown the challenges of one-off mega builds in the regions), and will also help from a budget cashflow perspective.

Corrections’ most significant infrastructure spend is the recently announced 810-bed extension to Waikeria Prison (most likely to be delivered via the existing PPP project vehicle). There is also potential for some initial funding allocation to a similar sized expansion in Christchurch and funding to regional court facilities.

Funding for regional development is addressed (in part at least) via the $1.2 billion Regional Infrastructure Fund (RIF) - a product of the New Zealand First coalition agreement. This agreement also includes a commitment to progress planning for two significant piece of Northland infrastructure; a rail spur connecting Marsden Point to the main trunk line and a dry dock at Marsden Point. The Budget may clarify if these projects are intended to be funded from the RIF or are an additional cost commitment.

Funding for councils via a share of GST revenue seems unlikely to be in the Budget with Local Government Minister Simeon Brown showing little willingness to give up GST on rates, saying he is only considering returning some tax collected on new residential builds via the $1 billion Build-for-Growth incentive payments. This approach means that, in the short term at least, council infrastructure expenditure will remain tight.

Final thoughts

Cognisant of the poor economic conditions and the industry impact of infrastructure policy shifts, we are hopeful the Government will choose to use the Budget forum as a platform for providing greater clarity on the infrastructure pipeline commitment and on enabling actions such as the city deals framework and the role of the National Infrastructure Agency. It is also anticipated that they will look to overtly accelerate some infrastructure expenditure to offset some of the impact of disrupted projects.

 

Endnotes
Creditworks Data Solutions: Arrears as a percentage of debt 60DPD+ at 8.77% and 90DPD+ at 4.62%

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