The announcement of $7 billion set aside over 10 years for capital spending is not enough to allay concerns about a lack of a national vision for our major infrastructure and a fear that decisions are being made by shortsighted politicians competing for votes
Whangārei Hospital is unsafe, and unfit for purpose. That’s not just the view of the patients who have lodged many complaints about the conditions there – those are the words of the man responsible for running the hospital, the chief executive of Northland District Health Board.
Despite spending $200m on building and maintenance works, they still need another $220 million over the next 20 years, just to keep treading water. Even that’s not enough, chief executive Dr Nick Chamberlain tells Newsroom.
“This will not address our old, cramped, under-sized, asbestos filled, hot, fire and earthquake prone hospital, and in many cases, there are no buildable or economically viable solutions to our infrastructure backlog apart from a new build,” he says.
Whangārei Hospital officially opened in April 1901. Building on the surgical and service wings commenced in 1956 – so a significant part of Whangarei Hospital is 65 years old. “It’s at retirement age for a human, let alone a building which was designed to last way less than that,” Dr Chamberlain says.
When former health minister Jonathan Coleman opened a new cancer treatment centre at Whangārei Hospital in 2014, there were high hopes he would announce the funding needed to rebuild the ageing hospital. It wasn’t to be.
When his successor David Clark opened a new hospital building at Kawakawa in 2018, locals expected he would use the visit to announce funding for a new outpatients and primary care centre in the town, as well as a major upgrade of Whangarei Hospital. Those hopes were dashed. “We won’t be able to do everything that needs to be done at once,” Clark said.
But he hoped to find the money within the term of that government. Those hopes were dashed, too.
Now they’re looking to a new health minister, Andrew Little. Dr Chamberlain says of the ageing hospital: “We will need to spend up to $11m a year to just keep it going. This is money that should be spent on healthcare.”
Perhaps the people of Northland timed their runs wrong. 2014, 2018, 2021 – they’re not election years. And infrastructure spending has, for decades, been caught in in a mercenary cycle of political expediency – the only way to get the big ticket items, it sometimes seems, is to offer big votes.
Hamish Glenn, the strategy director of Infrastructure NZ, says health infrastructure will be acknowledged by politicians as one of the most pressing capital spending needs, and at the front of that queue is Whangārei Hospital. Yet for too long, he says, governments have funded infrastructure back-to-front. They have commissioned projects when they have a few million dollars left over after all the day-to-day costs, rather than working out actually needs to be done, how much it will cost, and prioritising it.
“Central government has been notorious for not publishing its long-term infrastructure needs,” Glenn argues. “This is one of the key reasons for being for the new Infrastructure Commission – that it builds longer term understanding and a pipeline of infrastructure requirements.”
A national pipeline for fixing broken infrastructure
The Infrastructure Commission is due to publish its strategy this year; advice that the Government can then accept or disregard. Bear in mind, by the time ministers return from considering the Commission’s advice over the next summer break, they will be on the downhill run to the next election … So how significant is it that this week, Finance Minister Grant Robertson announced he taking advantage of improved debt forecasts through to 2034/35, to set aside $7 billion in the capital allowances for infrastructure other than NZ Transport Agency projects?
That sounds like a lot of money. To use the tried-and-true vernacular, it’s enough to pay for nearly 5 million hip replacements. (Or at least for the hardware; the surgeon’s hourly rate will cost somewhat more).
But spread over nine years (2026 – 2034/35) that’s a little over $750m a year – in the order of a 6 percent annual increase on the $56.6b in capital spending that the Treasury has already included on the books for the next five years. “So, not to be dismissed lightly, but also not a game changer,” says Glenn.
“More important is whether the Government intends to use population growth as the principal means to drive economic activity, as happened following the GFC, as higher population growth will require higher capital spending to avoid increasing inequality and decreasing productivity.”
In other words, that much money could easily disappear into the bottomless pit, without even an echo as it hits bottom.
“If population growth escalates in the wake of New Zealand’s strong Covid performance, it will chew up that $7 billion not in 10 or 14 years but in the blink of an eye,” Glenn says. “If you think about the additional costs and expectations of infrastructure in terms of achieving environmental and social outcomes, that will also chew through that $7 billion.
“Just general inflation – particularly in terms of construction inflation which has been running at about twice CPI inflation – $7 billion will get eaten up in inflation over that period without doubt.”
Local government has committed another $5.4b over a similar period, but given the impact of Covid, isn’t in a position to increase it much further, says Sense Partners economist Shamubeel Eaqub. So the onus is on central government – whose books will continue to look pretty good even after the huge borrowing over the past year.
“There is more headroom for the Government to do more on capital spending, and less need to do something on the tax side,” Eaqub argues.
He earlier calculated that New Zealand’s infrastructure deficit was a breathtaking $75b.
The Government didn’t deny that. In fact, the Treasury acknowledges it in this week’s Budget Policy Statement.
“Prior to Covid-19 New Zealand’s infrastructure deficit was independently estimated to be between $25.9b and $75b,” the statement said. “We enter 2021 with a further $42.2 billion worth of infrastructure investment plans over the next four years, to be added to with future Budget capital allowances.”
So where is the money to be spent?
This week’s Budget Policy Statement says housing will continue to be a major focus for the Government, as it expands existing plans for the number of new public homes delivered by the end of 2024 to more than 18,000. As an example, it notes that 23 percent of respondents to its September survey reported minor problems with dampness or mould in their house or flat, and 4 percent reported a major problem. In addition, 6 percent reported a major problem keeping their homes warms through winter.
“Māori and Pacific, sole parents of dependent children, the unemployed, and those not working due to their own illness, injury or disability were more likely to report that their house or flat had major problems related to dampness, mould or heating,” the Treasury reports.
Beyond housing, the Government’s infrastructure investment programme includes:
- $2.6b of community-focused, shovel-ready infrastructure projects to maintain jobs as part of the Covid-19 response;
- $750m increased capital investment for District Health Boards, building on $3.9b already tagged for projects like Dunedin hospital;
- $4.5b a year on roads, rail and public transport infrastructure through the National Land Transport Fund;
- $280m capital already earmarked for school property;
- $163.5m capital to upgrade court buildings;
- $821m capital to replace ageing locomotives and upgrade KiwiRail’s mechanical maintenance facilities, replace the ageing Interislander ferry assets, and fund ongoing maintenance and renewal of the rail network; and
- funding for an extra 8,000 new public and transitional homes, in conjunction with a $350m fund to stimulate the residential construction sector, create jobs and reduce the housing shortage.
There are glaring omissions from this list. Glenn reckons government needs to invest about $15b in a large health capital programme, over 10 years. “That’s nearly three times what we’ve been spending on health capital investment. That’s a major increase.”
There’s not enough money set aside for schools, he says. And of course there are plans for light rail, in Auckland and potentially in Wellington – those need to be funded, and he says they would sit outside the National Land Transport Fund. There’s inter-regional rail travel, and a new harbour crossing in Auckland. Or shifting Auckland’s port movements to Whangārei or Tauranga. “If you’re going to be bullish about moving the port, that would eat up the $7 billion in no time.”
Eaqub points to the accumulated infrastructure deficit at a local government level – especially the Three Waters (drinking water, wastewater, stormwater) which many councils simply cannot afford to repair and upgrade. The Government is working to consolidate the Three Waters under about four bigger regional authorities, better equipped to manage the complex technology, health and environmental challenges. A paper approved by Cabinet, just before Christmas, costed the country’s water infrastructure needs at up to $50 billion over the next 30 years.
“Many local governments are not keeping up with the Long-Term Plans they put together,” Eaqub says. “But the longer they delay, the bigger the problems become. We see one example with the Three Waters, but suspect will see many local authorities unable to deliver growth infrastructure fast enough.”
He points to rapid growth in districts like Horowhenua, as living costs drive people out of Wellington, and transport connections improve. “Horowhenua hasn’t been able to supply enough infrastructure-connected land on to the market and house prices and rents have soared,” he says. “The median house price in Horowhenua is $525,000, up from less than $250,000 until 2017. But the council has a lot of debt, and relatively low rates that are hard to increase for a low income region.”
And of course, overarching everything, there is the cost of mitigating climate change. The draft report from the Climate Change Commission suggests our transport and industry need to change significantly, Eaqub says, and this will require investment, incentives and regulation from government.
Playing politics
Tenby Powell was mayor of Tauranga until he quit, just before Christmas, sick with cancer and disillusioned with political bickering.
He tells how, ahead of the last election, he took a call from Opposition leader Judith Collins. “She said they were going to announce a Kaimai tunnel. They were ringing all the mayors, I guess. She said, will you support it?”
Powell would like to see the multi-billion dollar Kaimai road tunnel, linking Waikato with the Bay of Plenty. Of course he would. But he’s frustrated at the lack of a national vision; that the decision would come down to election year politics.
“I’m telling you about this, because it’s germane to how the country needs to look at these projects. We are in dire need of a very different approach to infrastructure spending. I don’t think it can be left to councillors. We need higher level collaboration than what we’ve currently got.”
It’s the same point that Infrastructure NZ is arguing: we need a national strategy for major infrastructure and, at least until the publication of the Infrastructure Commission’s pipeline later this year, we have nothing. The decision have been made, and are made, and likely will continue to be made by politicians competing for votes in their regions.
Shamubeel Eaqub says fiscal policy is an important economic lever, when interest rates are now too low to make a difference. With interest rates at very low levels and huge amount of household debt and high house prices, the Reserve Bank has very limited ability to manage the economy with interest rates like it used to, he says. So the Government will want to have infrastructure pipeline up its sleeve to manage the money flow into the economy.
“So government will be in charge and this requires it to have a range of spending tools at the ready to turn the volume up/down on the economic party,” he argues. “But this needs to deliver more than just short term jobs for infrastructure sector, and I think we will see a return of industrial and regional policy – as we have seen in the UK and Europe in recent years.”
For Grant Robertson, setting aside some capital allowances that can be directed toward unlocking potential around other larger investments will be a useful additional tool.
Competing priorities
Infrastructure NZ’s Hamish Glenn argues good infrastructure shouldn’t just be regarded as a cost, but as an economic opportunity. His organisation is pushing for more transport capital to “unlock” brownfield and greenfield sites for housing development.
“Nobody’s calculating how much it would cost to meet public and promised expectations for congestion reduction, public transport and safety. I suspect the number would be so high as to be politically sensitive, but that’s because we continue to prioritise costs over outcomes.
“Imagine the opportunity if we could decongest our cities so that traffic moved fluidly, so that people had the right options to get to the right places at the right time – we would start to see New Zealand turn around its productivity problem. And if we could do that, we could begin to genuinely grow the pie.
“We would love to see the Government look at transport as an opportunity to improve productivity, improve access to affordable housing and lower the social costs that are coming through the housing crisis by investing in transport that unlocks land for development.”
The mayors of the biggest metropolitan centres are to meet with Grant Robertson in Wellington on Friday. They will plead their case for central government capital investment in their dated and often fundamentally broken water networks, says Hamilton mayor Paula Southgate. Hamilton and its neighbouring district urgently need new wastewater treatment; so does New Plymouth. In Wellington, the sewers are bursting and flooding the streets with faeces.
Drinking water, too, is a problem. In Dunedin, residents of Waikouaiti are being tested for lead poisoning after high levels were detected in their water. Despite the tragedy of the Havelock North gastroenteritis outbreak in 2016 that claimed four lives, progress has been slow on consolidating Three Waters infrastructure.
Amid all the competing priorities, Dr Nick Chamberlain is just hoping the people of Northland aren’t forgotten – again.
They are making progress on a detailed design for a replacement hospital, and hope to hear from Cabinet soon, he says. “We have been planning this for over 10 years with pauses and stops and starts as we built the case for significant Government funding. Now, because of worrying health and safety concerns that can no longer be mitigated, we cannot afford any more delays, and are pressing on regardless.”
The Government acknowledges Whangārei Hospital is the highest priority major hospital redevelopment, he says. “Irrespective of health and safety, more than $500m investment in redeveloping Whangarei Hospital has to be good for Northland’s economy – for four to five years we will have up to 500 extra builders, electricians, plumbers and various specialists working, earning, living, playing and spending in Northland,” Chamberlain argues.
“We have an opportunity to balance the equity scales by investing in such a rapidly growing, high need region with a very high Maori population … Over the last 20 years, most of the significant infrastructure investment in health has been in our large centres and wealthier parts of New Zealand.”
