Budget 2020: Infrastructure

Monetary policy’s role in the COVID-19 recovery has effectively reached its limits. With the Official Cash Rate (OCR) currently at 0.25%, there is little room to move lower. The Government is now looking to infrastructure as a key opportunity to keep people employed, stimulate the regions and maintain the productive capacity of the economy, ultimately enabling New Zealand to recover in the quickest time possible.

Infrastructure as an economic stimulus is not a new concept and has historically been used to help create jobs and drive economic growth. COVID-19 has provided us with an opportunity to truly future-proof our economy – but only if the Government invests in a suitable mix of projects that are effectively delivered.

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Sources of stimulus

New Zealand Upgrade Programme

On January 27, 2020, the Government announced the New Zealand Upgrade Programme, a $12 billion programme including investment in additional transport, health and education infrastructure nationwide. 

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Announced projects see around $6.8 billion invested across road, rail, public transport, walking and cycling infrastructure.

Infrastructure Industry Reference Group

The Government has asked the Infrastructure Industry Reference Group to identify infrastructure projects above $10 million that are ready to start within 12 months, and have a public or regional benefit. This is part of its strategy to support the construction industry as it returns to normal, and reduce the economic impact of the COVID-19 pandemic.

The initiative has attracted 1924 project applications across 40 sectors, collectively worth $136 billion. Initiatives range from new innovative proposals to existing projects that sponsors, including councils, are seeking financial and other assistance with progressing. The applicant list is being assessed against eligibility criteria, with the requirement to be shovel-ready likely creating a natural bias towards existing projects.

There is a need to balance competing priorities to ensure the Government can fulfil the objectives of this spend, leading to calls from some that the focus of the initiative should be on shovel-ready projects that also maximise near-term employment opportunities. This is a complex challenge certainly not lost on the Reference Group. The Reference Group is expected to report on a potential package of initiatives in the coming weeks with $3 billion set aside for the chosen projects.

The Reference Group will also provide advice to the Government regarding legislative changes that would speed up infrastructure projects. The Government has signalled its intention to look at fast-tracking consenting processes for infrastructure and development projects as well as examining options regarding procurement.
 

Monitoring project delivery

The Government faces a challenge, balancing the desire to stimulate the economy with the need to ensure that new infrastructure investment is properly justified and monitored. When selecting projects, the Government will need to consider which project delivery agencies and private participants are able to provide high-quality governance and monitoring alongside excellent project delivery.

In the wake of COVID-19, infrastructure will play a critical role in providing economic stimulus the country needs. The current situation presents an opportunity for the Government to future-proof the country and the economy, support its four well-beings, and implement long-standing improvements to the way we deliver infrastructure. However, to capitalise on this opportunity and ensure all the benefits are realised, the Government needs to confirm the appropriate mix of projects are being progressed and that appropriate monitoring is in place.