A peculiar economic paradox appears to govern infrastructure development in modern New Zealand: the more we spend on infrastructure, the less we seem to get for it.
This uncomfortable reality was a key takeaway from last week’s launch of the New Zealand Infrastructure Commission’s Draft National Infrastructure Plan.
The statistics tell a story of spectacular inefficiency. New Zealand ranks among the top 10% of OECD countries for infrastructure spending, investing 5.8% of GDP annually – roughly $4,500 per person. Yet we occupy the bottom 10% for value-for-money. Our roads are congested, our hospitals leak, and our schools crumble, despite this enormous expenditure. The problem is not insufficient investment but dreadfully poor deployment of resources.
The Commission’s diagnosis cuts through decades of obfuscation. Our regulatory apparatus features 1,175 different land-use zones across 68 councils. For comparison, Japan – a country with a population approximately 24 times larger than ours – manages with 13 zones. Infrastructure consenting alone wastes $1.3 billion annually. Half of major government projects seeking Budget funding arrive without basic business cases. These figures are more than just bureaucratic inefficiency. They expose systematic institutional failure.
The draft plan makes 19 recommendations. A very important set of recommendations are about affordable and sustainable funding. The Commission considers it appropriate for infrastructure for public hospitals, schools, defence and law and order to be funded by the taxpayer. In contrast, network infrastructure should be funded by user charges.
This matters because current arrangements misallocate resources. When road users face no direct cost for their infrastructure consumption, expensive projects proliferate whilst essential maintenance languishes. Transport exemplifies this dysfunction. A $12 billion funding gap has been accumulated over three years because investment decisions remain divorced from users’ willingness to pay.
When councils charge for water and wastewater based on metered volumes, wastage is reduced, leaks are repaired, and the need for expensive upgrades and new facilities is reduced. This should make user charges a no-brainer, yet far too many councils continue to use rates to fund their water services.
In contrast, electricity, telecommunications, ports and airports are funded by prices and charges. It is telling that they do not have the same funding problems – although they suffer just as badly from consenting costs and hold-ups.
The plan's maintenance emphasis deserves particular attention. Asset management represents the most predictable infrastructure requirement, yet New Zealand ranks fourth-to-last among OECD countries for asset management practices. Shockingly, many government agencies do not know what assets they own, let alone what state they are in. Deferred maintenance creates a vicious cycle: neglected assets deteriorate faster, meaning that they require replacement sooner and cost more in the long run. Schools teach in buildings with failing roofs whilst planners design flash new facilities they cannot afford to maintain.
Central government further contributes to the widening infrastructure investment gap by failing to use deprecation funding to maintain or renew the assets for which funding is appropriated. Instead, government departments make bids in the yearly Budget rounds for capital injections to get bailed out, claiming critical failures and urgency if the investment does not take place. This creates a serious moral hazard in the way they manage their assets.
Local government gets a bad rap on many things, but on asset management it seems to do better, at least in aggregate, than many central government agencies. That is because councils have been forced to do so by legislation. Now it is time for central government to legislate for its own agencies.
Governance reforms address another critical weakness. The Auditor General’s 2023 report Making Infrastructure Decisions Quickly found many projects in the 2020 New Zealand Upgrade Programme and Covid-19 Shovel Ready Programme were announced before anyone had confirmed their affordability or deliverability. The proposed Infrastructure Priorities Programme would subject all Crown-funded projects to independent assessment before funding approval. This will be a crucial circuit-breaker. Transparent, independent evaluation should eliminate announcements without business cases.
The workforce analysis reveals additional challenges. New Zealand needs more infrastructure workers but also smarter deployment of existing capacity. The construction sector's boom-bust cycles reflect political rather than economic logic, creating skills shortages during peaks and unemployment during troughs. Long-term workforce planning aligned with infrastructure needs rather than electoral cycles would offer more rational resource allocation.
Many of the draft plan’s findings have been known and discussed for years. What is different now is an apparent commitment to do something about these long-standing issues.
The way the plan has been handled by Minister Chris Bishop may also herald a much-needed change in political dynamics. Infrastructure planning has suffered from persistent political discontinuity. Successive governments have reversed predecessors' decisions, including on water services arrangements, roading and rail projects, ferries, and hospitals.
Bishop's description of the draft plan as "New Zealand's plan” rather than the government's plan signals welcome recognition that infrastructure decisions must transcend electoral cycles.
That it was launched at Parliament at a symposium called ‘Building Common Ground’ showed a focus on building political consensus. It featured a facilitated discussion between Minister Bishop and Labour’s Infrastructure spokesperson Kieran McAnulty. The talk was encouragingly constructive, but the good vibes will be tested the next time there is debate over a political party’s flagship promise.
New Zealand's infrastructure paradox need not persist indefinitely. We possess the resources to build and maintain world-class infrastructure. What we have lacked is institutional mechanisms and commitment to deploy them effectively. The Commission's draft plan provides those mechanisms and commitment.
A remaining question is whether political leaders possess sufficient courage to implement change that prioritises value for money over political convenience.
The draft plan offers no miraculous solution. Decades of accumulated dysfunction will not disappear overnight. It does, however, provide something valuable: a coherent analytical framework for making better decisions, and some hope for consensus.
The peculiar paradox that we spend more whilst achieving less ultimately reflects choices. We can make better choices. For the sake of the future, we must.
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