Subscribe to RSSBrash Questions Big Road Projects
Public investment projects must only get the go ahead if they can be justified by the business case - that’s the clear message in the latest Don Brash 2025 taskforce report on closing the gap with Australia.
Otherwise “special interest group”s could drive projects that are not justifiable.
And it signals out Wellington’s Transmission Gully project as one that may not meet such examination.
The report was quickly dismissed by the current prime minister, and sections of the mainstream media as being too right wing, too radical and the public wouldn’t buy it. Ironically it raises questions left wing politicians have been asking.
The section on infrastructure costs got minimal coverage.
Maybe the problem is not so much that the report is too right wing but too close to the truth and if the public thought even Brash was saying it, they would buy into what he is saying.
Says the report: “It is crucial that state investment in infrastructure is only undertaken when robust and transparent cost-benefit analysis shows it is warranted. “We should know whether, for example, building Transmission Gully will provide a net benefit to the economy.
“Transparency is very important, and that transparency must exist across the board. To subject only projects of high quality to rigorous cost-benefit assessment and to exempt those that clearly are not under the guise of political importance, national interest or economic development will produce an even worse mix of projects than an absence of cost-benefit assessment, because some of the good projects may not pass but all of the bad ones will be implemented.”
The report urges introducing more robust analysis of the business case for major public investment projects, particularly through the adoption of best practice private sector methodologies
It says that rigorous analysis of the costs and benefits of infrastructure investment helped reduce the potential for capture of policy by special interests, and of policy bias created by commitments to policy or strategy that override consideration of costs.
“Rigorous analysis of the costs and benefits of infrastructure investment helped reduce the potential for capture of policy by special interests, and of policy bias created by commitments to policy or strategy that override consideration of costs. It also helps improve the ability to undertake auditing and impose accountability.
“Such analysis can help reduce undesirable policy flip-flops; if a project has a cost-benefit rationale that has survived independent assessment, then it is less likely to be the abandoned by a subsequent government. Those projects that have the lowest benefit-cost ratio normally do not survive changes of government.”
The report urges that a full economic cost-benefit analysis should be conducted, and should play a central part in decision-making, when any significant capital, infrastructure, or asset purchase decision is being made. Such cost-benefit analyses should be routinely published, whenever possible before final decisions are made, to enable more informed scrutiny of decision-making by citizens.
A formal review by Treasury should be a requirement for all projects over a certain size (perhaps $50 million), and Treasury should provide robust, published guidelines to all agencies on methodologies to be used in preparing cost-benefit analysis.
It’s only reference to rail is that by contrast to the very low benefit-cost ratios applicable to many rail projects, in recent decades national road projects have often only been funded when they have had a benefit/cost ratio of around 4 (ie economic benefits exceed costs by 4 times).
It says when investment allocation decisions are made by government agencies, because the government has decided to own the assets itself and not charge at point of use, it is important that a realistic assessment of the economic benefits to all users and of the construction and ongoing maintenance costs to the Crown guides decision-making.
But the report does welcome investment in roading. It believes there is good reason to suppose that there has been significant underinvestment in roading infrastructure, a conclusion that was endorsed by the OECD in their recent survey of New Zealand. Urban congestion has real and material economic costs, and better quality inter-city roads would better enable the productivity gains from larger trucks to be achieved.
Both the current and previous governments have recently put priority on increasing spending on road infrastructure. We think that this approach is probably consistent with the direction required to meet the 2025 goal. However, we believe it is important to consider again possible reforms that might lead to a consistently better allocation of capital to roading through time.
This is not a matter of raising total revenue from road users: we have been advised that total excise revenue on petrol, and road user charges, approximately cover the total cost of the roading network. Instead, the critical issue is about sharpening pricing incentives and information, both for road users and for those responsible for decisions on road building.
“Road pricing allows more efficient use of existing infrastructure, which will in turn make delay in investment more valuable. In the short term, further work on the option of congestion charging for central Auckland and Wellington should be pursued as a means of ensuring that we do not invest in more roads when more efficient use of existing roads can reduce the problems that we face. Congestion charging is now an established technology in a number of large cities internationally and we understand that a cost-benefit analysis would now support its use in Auckland. A useful example in overcoming popular resistance to road congestion pricing is provided by Sweden. The citizens of Stockholm adopted a road congestion plan by agreeing in advance to try the proposed system for seven months, going back to the status quo ante, and then having a referendum on whether to bring the system back
“In the longer term, we suspect that full road-use pricing, differentiated by location and time of day, is likely to have a valuable role to play, both in relieving congestion and in ensuring that appropriate pricing signals face the NZTA and other road-builders. The technology exists to make a full electronic pricing model feasible though it is probably not yet economically viable. However, we understand that it is approaching the point where it could be economic for heavy vehicles.
“High-quality infrastructure investment will be needed to meet the 2025 target, and government has an important role in getting the climate right for that to occur. The government can have a direct role in infrastructure projects that cannot efficiently be provided by the private sector, but it is imperative that rigorous, transparent cost-benefit analysis be done on all projects, using modern techniques of analysing the optimal timing of investment. “And while transparency is vital, decisions on whether or not to proceed with such projects need to be made in the light of the results of the cost-benefit analysis. Projects that do not meet such a test waste scarce public resources.”
On the issue of private/ public partnerships, the report said there were risks associated with the use of PPPs, and the contracting requirements may be complex. There is therefore the potential that government will not always strike an advantageous deal when entering into PPPs. But Europe, Canada and Australia are so far ahead of New Zealand in the use of PPPs for infrastructure projects that there is no need for New Zealand to re-learn all the lessons about potential pitfalls that have emerged from their experience. In the right circumstances, the directly measurable savings from the use of PPPs may be substantial, and when combined with the benefits of superior ex anteevaluation of the lifetime costs of projects, timely delivery of projects, and greater management efficiency in the operation of the facility, PPPs are likely to have made a material contribution to increases in GDP in Australia.
As part of the agreement between the National and ACT parties, the Government committed to closing the income gap with Australia by 2025 and to establishing an advisory group both to report annually on progress towards achieving that goal and to make recommendations about how best to achieve it. As a result, the 2025 Taskforce was set up by Government in July 2009. Other Taskforce members are Dr Bryce Wilkinson, Judith Sloan and David Caygill.
On a personal basis, I wish Key would listen and instead of waving away Brash, accept that the gap with Australia is a major priority to keep good people here. I have bumped into two friends this week alone who are making the move across to Australia. They are highly skilled, holding down good jobs here and the country should hang on to them but they have had enough of the lack of vision and seriously worry about New Zealand’s future. Such conversations make one also ponder the question what are we doing here!
9 Comments
“On a personal basis, I wish Key would listen and instead of waving away Brash, accept that the gap with Australia is a major priority to keep good people here” - I hope that was tounge in cheek Brash’s policies would drive even more people away. Nobody should listen to this guy, ever. Those of us who remember what it was like living through the period where many of the ne lib reforms were crashed through know they did nothing for anyone but a small group of elite business men. Rember this type of thing was what caused a massive drop in growth through the 90′s.
Also were we to enact Brash’s vision you can forget about public transport in just about any form, ditto rail freight. Let’s not forget it was =his kind of ideology that has given us a 20 year infrastructure deficit we are scrambling to catch up on. This guy and his mates have done nothing positive for this country.
Key is right not to listen to Brash because Don Brash does not live in the real world he’s a blinkered ideologue. I mean seriously what part of “no thanks” does he not understand? Just fade away old man.
So let’s not give credence to the chicken little rantings of delusional friedmanites they have been saying the same thing for 25 years. The only way they can justify advocating their crackpot “harsh prescription” is if they create a narrative that the country is about to implode and only they can save it. It’s nonsense and even if we were in such a crisis these clowns sure as hell wouldn’t have the answer. Luckily for this country only 2.5% of voters think they do.
Whatever question you ask Brash the answer is always to implement the scorched earth neoliberal policy favoured by his ACT party backers. If you asked what he thought the weather will be like next week the answer would be tax breaks for the rich. HOWEVER, I can’t disagree with him here. At the moment we have vast spending by ministerial fiat, The Gully and the Holiday Highway are pure Pork Barrel projects for the NPs mates. And I agree we must have a disciplined process for spending our precious transport dollars. I’m also sure he wouldn’t say this if he had any idea how good the BCRs are for many rail projects… especially if they are rigourously done an include wider costs and benefits. Like carparking costs included in motorway projects and environmental benefits for rail projects.
Also this is naive to believe we can catch up to China’s coal and iron-ore pit on any straight wealth measure, but with the right policies we can beat them on quality of life measures. But not under this gov. or especially by taking Brash’s bitter pill.
Brash, being a former reserve bank govenor, can at least see that spending billions on projects that return millions is a bad idea.
The OECD report did NOT endorse building of roads exactly.
It said investment in highways motorways DID NOT make sense in NZ as the benefits were POOR, but local roading needed more funding.
The National Party Govt has CUT FUNDING to local roads and thrown excessive amounts into highways/motorways.
Good on you for giving the 2025 Taskforce report a considered airing and some analysis. The dismissive response of the Government to its findings is an effort by the Beehive to bury the nation’s collective heads back in the sand for as many electoral cycles as possible. I, for one, am getting tired of the argument that the reports of this Taskforce are extremist and radical. The fact is NZ’s infrastructure investment (and its long term economic outlook) is so bleak that the best the Government can come up with is to try to dumb down the nation and stop the public from questioning its lack lustre, populist approach to staying in power. Dismissing rational economic debate does a great disservice to NZ and its future.
“I’m also sure he wouldn’t say this if he had any idea how good the BCRs are for many rail projects…”
Ironically, with the current funding structure, being above-board and transparent with BCR calculations would change jack shit (if you excuse my words) in terms of where the money would go to. Due to the GPS allocating X amount of money to each type of transport (motorways, local roads, public transport, and then throwing a few crumbs to walking and cycling and TDM) the projects do not compete against each other.
All this would change is that OTHER motorway projects would get funding. Joyce and his mates are safely ensconced behind multiple layers of protective rules and policies.
Oh, its also nice how Brash manages to slip the “heavier trucks will be our salvation” mantra into the call for more money on local roads. Heck, with heavier trucks, our local roads will crumble faster and faster (proven fact, by a factor of x4 on the weight increase), so yes, why not spend more taxpayer money bailing out the roads lobby…
@Greer Agree, well put. It is a debate we all need to have whatever side of the political fence anyone is on.A multiparty approach is what is needed with all views and solutions welcome.
@Greer, I don’t disagree that the report seems to have some valid points, such as the main one Jon C highlighted here. But excuse those of us who, after 20 years of market liberalisation which RAN IN PARALLEL with a continual slip of the comparative living standards / OECD wealth ratings… are just a little bit sceptical of somebody who continues to call for more market liberalisation.
Apart from my above comments about the EFFICIACY of Brash’s proposed remedies, how about I just throw a few more spanners into the LOGIC gears of Brash’s arguments: Why does Australia (who we apparently have to catch up to) decide to keep foreign interests from owning its banks, when in NZ almost all our banks are overseas-owned now? Shouldn’t we flourish with that attitude, and OZ be moribund?
“Good on you for giving the 2025 Taskforce report a considered airing and some analysis” - Analysis of what? It’s not like Brash went away did some research and then came back with his findings he has just regurgitated the same things everyone expected him to. The PM did not take this seriously because he knew it was a joke something he had promised to the ACT party to get their support. As Karl mentioned Australia’s more pragmatic and nuanced approach to reforms left them in a much better state, the PM has also pointed this out.
” I, for one, am getting tired of the argument that the reports of this Taskforce are extremist and radical” Not really an argument more a fact, it was set up by NZ’s most far right wing libitarian politicial party ACT and have a look at the lineup of the task force (Caygill, Brash and others) and ask yourself is this a balanced lineup? Of course it’s not. It’s stacked with neo liberal Friedmanites.
“Dismissing rational economic debate does a great disservice to NZ and its future” - What’s been proposed by this task force is not rational and has nothing to do with the future, it’s more closely associated with our past about 20 years ago.
If you honestly think going down this path again will be good for this country then you were either not around in the 80s and 90s or you have amnesia. It didn’t work then and wont now. It’s being dismissed because it’s been tried before and it was pretty miserable for most people.
One thing i’ll agree is that business cases should add up for large infrastructure although Don Brash’s idea of stacking up would not i would suspect include any indirect or wider benefits.