David Hargreaves tries to make sense of the Government's signalled plans to have a spend-up on infrastructure

David Hargreaves tries to make sense of the Government's signalled plans to have a spend-up on infrastructure

Well, there you go. This WAS the year of delivery after all. The year of deferred delivery. The goodies are coming. Honestly. Be there soon. Just hold your horses.

Yes, as I had earlier said, seems the delivery van broke down this year, but wow, look out for next year, which by pure coincidence happens to be an election year.

Finance Minister Grant Robertson is promising, finally, a big infrastructure spend-up, with details to be announced in the Government's Half Year Economic and Fiscal Update (HYFU) on Wednesday, December 11.

As with all these things the devil will be in the detail. In this case: How much are they borrowing/spending and on what?

Given that Robertson has thrown the teaser out there ahead of the December 11 announcement, expectations will be high. Therefore, I would be surprised (and Robertson should expect a disappointed reaction) if the spend-up is anything less than $10 billion. 

Certainly the fact that he's signposted it early and has signalled that the Government will be borrowing, suggests it will be substantial.

As I say, if it isn't substantial, then the reaction is likely to be fairly negative.

The other key thing of course will be to look at what the money will be spent on.

Loosen the belt

Plenty of people have been saying the Government should loosen the fiscal cap and borrow some money while interest rates are low. 

As I've said previously though, the spending plans will need to be very specific. 

We've had a chance while interest rates are so low to borrow money specifically for some large-scale infrastructure projects. We've got the chance to invest in some really good quality assets that will serve the country well for future generations.

My concern remains that what we could see will amount to a blow out in operational spending, with the borrowed money used as a kind of slush fund to spend here and there as the mood takes.

This infrastructure spend-up SHOULD be a one-off, aimed at large scale projects with lasting value and impact. 

Is that what we will get?

Well, we will have to wait and see. But the suspicions would always be there that this might not prove to be the case.

And when will this all happen?

The other key point is that how much of this money will now be spent and what plans will actually be in place before the election?

You would have to think not very much.

Therefore this spend-up could now be put, if one chose to do so, in the cynical re-election strategy ploy basket. 

Yes, re-elect us and you will get all these goodies. Put the other lot in and...well...maybe not.

In that regard it really is a desperate shame that the Government did not decide to do this at least last year.

I won't say the opportunity has been lost, because interest rates are low still. But the clock has been ticking and valuable time certainly has been lost.

Anyway, let's 'see what the Government has for us'. 

A good mood

If the plans look good then this should provide another nice lift for business confidence, following on from the recent strong revival.

If the plans are good also then I reckon we may well have seen the last of the Official Cash Rate cuts by the Reserve Bank.

The RBNZ surprised most people, including yours truly, when it left the OCR unchanged at 1% in its November review. 

At the time the decision did not look clearly justifiable on the available information. But remember the RBNZ did make in its statement the very (I thought) odd comment that "fiscal stimulus could be greater than assumed".

Hey, well, guess what. It IS going to be greater than most of us (though not seemingly the RBNZ) assumed. Good reading of the tea leaves there by the RBNZ, you might say. Wink. Wink.

And if this is to prove to be the bottom of our interest rate cycle - as it might now be - then I reckon we might see people who have been thinking about making a move in the house market now making that move.

I would certainly expect to see a buoyant house market through this summer. 

The signs are already there.

The announcement from the Government on December 11 (providing it hasn't been over-talked-up by Robertson) should further lighten the mood and be more stimulatory.

So, everybody's likely to be in a fairly upbeat mood come the start of next year.

Implementation will be the key

Whether that will be justified depends firstly on just what exactly the Government plans and, crucially, whether it will be able to implement those plans. And implementation has not been this Government's strong suit so far. KiwiBuild, anyone?

It's one thing to announce big projects, quite another to get the money out of the door and the projects up and running - particularly in a small country like this will limited labour and resources. 

What this announced infrastructure splurge has done, however, is left the National Party gasping for air. 

Remember, this is a National Party that was dearly hoping to conduct an election campaign based on scaremongering around capital gains tax.

Fuel for the election

It now instead has to compete with a capital gains tax-less Government promising goodies.

What's the counter to that? 

Do you take the sober, responsible line of fiscal rectitude to the polls? It's the sensible approach, but it's also about as exciting as waking up to a wet mattress as far as the electorate may be concerned.

So, do you promise to spend more - just do it better?!

Whatever the outcome, the election campaign - which was already going to be interesting anyway - just got a lot more interesting.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Calling it now. The spend-up will be bringing forward a bunch of stuff the Govt cancelled once they got in and delivering what they said they'd do in the campaign and so far have not delivered. There will not be anything new in this announcement, and the scrutiny should be on why they committed to campaign promises AND staying below the debt cap when we now know it was totally impossible to do both.

Simply bringing forward some of the public transport, schools and hospital projects for the regions should allow the infrastructure pipeline to swell up over the next decade.
Well-targeted infrastructure investments not only allows multiple generations to reap long-term dividends from an up-to-speed economy but also goes a long way in boosting business and consumer sentiments in the short run.

The schools announcement doesn't give me any confidence that this will be, in any way, targetted.

Scatter-gun is perhaps the a prediction.

"So, everybody's likely to be in a fairly upbeat mood come the start of next year."

Yeah... unless you're renting.

Unfortunately, these announcements are going to make matters a lot worse for renters and future homebuyers in our major cities.
These projects in their early stages will put more pressure on housing in our major cities over the next couple of years due to increased demand for workers to look after the pre-construction workload (business case development, planning and procurement).

Can't even imagine the impact this could have on future construction costs, already running 3x CPI, once public projects start to compete with housing development for limited building resources in a sector already overstretched for capacity.

"My concern remains that what we could see will amount to a blow out in operational spending, with the borrowed money used as a kind of slush fund to spend here and there as the mood takes."
Many would agree with you. Hopefully the govt. doesn't urinate the money against the wall and Winston will put his ore in to reduce profligacy.
... "As with all these things the devil will be in the detail. In this case: How much are they borrowing/spending and on what?"
Grandiose ideas, however well intentioned, can fail when the detail is analysed. Kiwibuild would be a prime example

Yep, ideally money should be wisely spent. Worth bearing in mind that NZ has one of the lowest debt to GDP ratios of all the developed countries. I wonder what happens if the world defaults on it's debt.

I think Mr Orr is a lot smarter than a lot have given him credit for so far. There seems to be a common understanding between Minister and Reserve Bank about fundamental things for NZ. Finally. It was pretty dark there for many years.

It's now or never for CoL. Let's hope it's now. They've already wasted 2 years talking about it, ramping up state service headcounts by 10% & have nothing to show for it. This is what happens when you put the children in charge.

ramping up state service headcounts by 10% & have nothing to show for it

Those headcount increase happened largely because the previous government kept the headcount artificially low by introducing caps when they first took office in 2008. In the 2008-17 period, as per this report from the SSC , the government's consultancy bill far exceeded the wage bill growth that it was intended to reduce.

This was yet another taxpayer-funded corporate handout programme to National's voter base. No wonder business sentiments plunge every time the Labour party comes into power.

It is not really hilarious but it seems so: business and finance elite love to make out, since 2007, that government is big evil, re Ronald Reagan and Thatcher attitude. In 2008-13 new were l=told that government spending was responsible for the GFC and austerity was needed. Now the asset inflating QE rubbish has not worked and banks are admitting it and how much risk all corporates have taken (encouraged by low interest rates) chasing yield that risk is massively higher than in 2008. Now the central banks want government to spend money and borrow to do so? Er? What appended to the big evil State then? Meanwhile the REAL cause of the last 13 years below par growth in OECD, which is deficit of demand, is ignored and its solution (give the money back to bottom 50% that top 10% has been sucking upwards for 45 years) is not to be mentioned.

Meanwhile the top 10% of wealth owners continue to pull away aided by oodles of cheap leverage and rents from those who will never be able to afford houses due to pathetic wage increases lagging house price rises every year. What a sack of garbage. Leadership anyone?

This is merely an old fashioned attempt at pump priming, a la Keynes 1936 general Theory, designed to use State spending to make up for deficit of demand brought on by stuttering housing sales and world GDP shrinkage.

... in certain parts of the country there has been a serious need for upgrading of our roads , new tunnels , new bridges for several decades . .. this is not pump priming so much as a desperate requirement to improve our productivity via better transportation networks ....

The ideologues within the Greens , and our own PDK are dead wrong : we continue to need cars and trucks ... we need the internal combustion engine ....

... if they come up with viable alternatives , I'm all ears ..

I would add that we also need to actually earn the money to pay for petrol, rather than borrow it. Most of the supposedly needed infrastructure is for the extra half a million extra people we supposedly needed. Quite why we needed them isn't quite clear. Were they a good investment or an unfunded liability or just shareholder dilution?

https://en.wikipedia.org/wiki/Stock_dilution

Great question.

Import service and construction workers to do jobs we don't want to do and build houses we need.
Import more service and construction workers because need to service & house people we imported initially;
Import more service and construction workers because need to service & house people we imported to solve the problem;
Import more service and construction workers because need to service & house people we imported to solve...

According to VW leadership EV's will be cheaper than IC vehicles within 5-10years. That's a pretty dependable conclusion given reliable nature of learning curves in manufacturing (~18% drop per doubling for EV batteries) - as they increase in volume ~50-100x the battery cost will at least halve from today (saving up to $10k), and that is without the inevitable performance increase in batteries as the battery industry & R&D grows by 50-100x as well. NZ will need to increase electricity supply by about 20-40% to enable the transition.

AND NO DAMN RAILWAY LINES TO OBSCURE PLACES PLEASE .............. rail is so 1800's

Huge white elephants with non-existence business cases, low quality 'virtue signalling' spending and extensive corrupt pork-barreling is the price of wag-the-dog MMP coalitions.

I appreciate the sentiment, and the hyperbole, but the railway age had hardly got started back then. The modern railway age started in 1964, in Japan. A kiwi engineered, 250 km/hr bullet train from Auckland to Dunedin, anyone?

Think Big, people. Think Big.

https://en.wikipedia.org/wiki/Stephenson%27s_Rocket
https://en.wikipedia.org/wiki/Shinkansen

Um, a Rilly Fast Choo-choo, yes, as a concept, but not, I surmise, on 3'6" gauge and NZ's wonky track beds.....working group needed.....

Just need to buy or make half a dozen tunnel boring machines and get on with it. You could drill the whole darn way from Auckland to Wellington in 14 years with ten machines at 10m a day each. (500km at 100m/day ) The distances aren't that large, the technology is known, and NZ is pretty similar to Japan topographically.

Think of the saving on plane fuel. Travel town centre to town centre. Choose a wide gauge, like the 6ft Russian gauge, for safety. Go in as near a straight line as possible between stations and drill under or through the obstacles. A few billion a year for ten or fifteen years should do it. If we can afford to waste a billion a year on the Shane Jones Fund, we can afford to build something useful.

According to this tunnels cost about $65million a kilometre, so Shane could drill 15 km a year. Should get you to Hamilton in 3 years, surely?
https://assets.publishing.service.gov.uk/government/uploads/system/uploa...

As long as they come up for air at Ohakune so that i can have a fresh 6 week old Railway Pie.

Trains are a dead-end. In UK cost averages out to $0.8/passenger/km Between distant cities planes are cheaper and faster and much lower investment/upkeep. In a couple of years 1st generation air taxis and autonomous vehicles will deliver the coup-de-grace to shorter distance passenger rail as well. Musk's Boring company idea of autonomous EVs in small tunnels looks like it could be the way to permanently fix city congestion for about $50/year/resident in capital costs. A 2-lane Ø5m $10million/km tunnel can carry equivalent of 8 lanes of motorway traffic in computer controlled electric cars.

No chance and no point - rail is a damn good way to get freight from one city to another but for long haul passenger travel there's not the population to justify it. We need to figure out how to make the mode change between rail & road more efficient though.

Where is my helicopter money ?

Put a road tunnel thru the Kaimais and 4 lane between Tauranga and Hamilton.

Road works today between Hamilton and Tauranga, but as the Trucks were huge, 4x4s a Plenty on way to Bay...traffic was horrendous, certainly no new overtaking lanes, one way holdups galore, 30km limits, camper vans with lost overseas drivers, took nearly 2 hours, with bottle necks at most intersections, where the poor drivers could not even get out across the Great Divide, a simple white line in the road....so average speed around 50 with Kaimais locked down to 60km and one needed the patience of a Saint. Some people did not even obey the dotted white lines and yellow divide......but risked it all to get one car ahead.

Get to State Highway one....and the race was on... Rush Hour....maybe 70-80km trying to make up for lost time........Where do all these people come from....I thought ..It was Work time......not even rush hour, go figure....Bottlenecks, are one thing, All State Highways....were potholed and clumping along.... National Disgrace........But Labour, was hardly anywhere to be seen...

Perhaps we need a few more Workers, not useless pollies.........to speed up the Works.....not this bunch of talkers and single lane conjoined party planners. Bone of the thousands able to Work......in the Mean Time....stuck in the Car etc.

They can say anything but will they deliver ????.

Kiwibuild and CGT were just a poo on the sidewalk to shoo everyone in the other direction. The govt has long had the means at its disposal to acheive the same outcome without botgering with actually setting up all the new proposals, if you can't see that you shouldn't be driving a car...or allowed out alone. Wheres my helicopter money Robbo?!

Can I suggest, just like NZ earlier 'Think Big' project? - I wonder why the govt. don't use some of their real $ surplus into large scale, sustainable/cyclic process of this world problem on rubbish processing plant? - Imagine if those current plastic rubbish storage dilemma is to be processed by own NZ R&D, start from the energy to supply to the plant, to the good by product which can be used/exported worldwide if not mistaken those plastics can be revert back to oil/asphalt that can be re-used eg. for roading projects. World still waiting...whose going to do this first, not a small scale.. we talking world industrial scale infrastructure.

I believe there are already processes available that can do just what you are talking about, the problem in NZ (the perennial one) is that the funding available never supports the concept because as a country NZ doesn't appreciate long term investment in anthing. The discussion over the future of Tiwai point is a great example, if the NZ govt becomes a cornerstone shareholder and restructures how the smelter operates it could be a winner in the longterm yet much of the commentary is focussed on shutting it down instead. No longterm thinking...screwing NZ since forever!

Fully agreed, we are kind of just teary sad about it - just like most of the audiences here with long term vision. NZ started with the 9yrs last bunch, really advocating towards short term think tank, being digested for few greed top ends of societal benefit. No one able to answer us (including JK & his overlord).. what is the benefit? of steering NZ towards screwing quality of living. Countries with long term vision, seems to benefit the most, yea I can only imagine if the world can follow NZ leads.. for now it stays as that, as imagination.

We've gone full circle. After decades of condemnation, Think Big has been rehabilitated and is back on the winner’s podium. Except this time instead of training a generation of tradespeople and engineers, we'll import the workers and their parents.

And filling up AKL hospitals admissions, with ever increasing specific dietary requirements & forever translation services $ - I hope the local Maori won't be able to see that despite the mumbo jumbo treaty etc?.. the past 5yrs silently, the South East AKL - notably Flat Bush area all schooling has been turned by National Co. into Nat voters based/Chinese - the local school only have two language translations: English & Chinese on the school admin iPAD - the logo could be 'Maori' - but none of those Maori kids brain wash by it's BS - Why? - you'll see the backlash by all immigrants parents notably the Chinese & Indian. We got to thank Nat co. for it.

What is really needed is houses and affordable sections. Their willingness to dive into a whole bunch of actions shows that they think that they can do stuff if they really want to. This illustrates Labours lies and deception about their earnest commitment to providing a competitive market for affordable homes for kiwis. All this is going to do is take away focus, money, resources and staff from what should be our number one priority; homes for Kiwis. You can guarantee that it will create a labour "shortage" in the construction sector and provide them with a calculated excuse to bring in even more immigrants to keep the ponzie economy rolling on.

Correct Chris-M, but Lab knew that around a half of this country population mantra has been turned around by the last bunch/Nat co. - into property ponzi, overshoot by $ launderer from mainland China, even the recent shoot up of RE prices again it's only happening after JK visit to overlord recently. Lab couldn't fight that, even the recent polls showed all based supporter into pushing more about this private debt economy to forever rising, for sure at the expense of next/young generations. Let's wait another 2days about this RBNZ capital requirements. My guess as good as yours, a tone down version - we've seen it around CGT, around LVR, around DTI, and you can hear/see Nat co. think tank will float around stating'market self regulatory control' etc. - Lab lies based on tactical reasons, imagine if they not lying. Implement all their promises, just to be overturned the next 3yrs cycle during Nat - won't you agree? - remember that.. they almost split in voter numbers, Lab only hope is the young idealistic voters, Nat will still put a hope for their import voters & $ addicted RE publicans. Game on again... next year.

Wouldn't it be better to print money to pay for this instead of borrowing it? Either way we are increasing the money supply and we never pay it down as we use debt as a percentage of GDP.