Policy Context
47. A good National Infrastructure Plan would address the following questions:
- How projects should be selected;
- Whether the projects will meet the needs and opportunities of the future;
- If not, what will be done about it;
- How do we decide whether a project should be the responsibility of the private sector, local government or central government; and
- Where a class of infrastructure is not the direct responsibility of central government, what should Parliament do to ensure that the regulatory environment does not unduly inhibit the development of appropriate infrastructure.
48. In order to address these questions, it is useful to identify principles to guide government decision-making in respect of the selection of projects and the development of the regulatory environment. The purpose of principles is also to enable other parties to foresee how decisions are likely to be made.
Role of Markets and Government
49. New Zealand has a predominantly market-based economy in which the government plays an important supportive role in providing the legal framework for markets to operate efficiently. It also plays a role in providing goods and services in certain circumstances, as set out in the following box. Some infrastructure falls into this category.
50. It is therefore useful to clarify when a particular project should be the responsibility of government, and when it should be left to the market.
Principle 1
The role of government is to provide goods and services where:
- the private sector is unwilling to provide them (due to inability to exclude people and therefore charge a price, or due to excessively high transactions costs): or
- the service is a monopoly and there are advantages in regulating through direct ownership rather than through the Commerce Act: or
- distributional objectives are better achieved through in-kind provision than through income support.
In practice, this means:
- Transport: New Zealand has a pay-go system in which all road user charges are hypothecated to the National Land Transport Fund. This means that, beyond commitments already made, there will be no taxpayer funds to support road transport infrastructure. Any increase in investment would need to be met from higher user charges (FED and RUC).
- Energy: New Zealand has a market-based system for gas and electricity generation. This means funds for additional projects need to come from the market. The government has a role in improving the regulatory framework.
- Telecommunications: New Zealand has a market-based system, but the government has decided that the roll-out of fast broadband is not fast enough, and has therefore decided to inject $1.5 billion. Aside from this commitment, funds for additional projects need to come from the market.
- Urban water: this is the responsibility of local government. See principle 3 following.
- Rural water for irrigation and electricity generation: New Zealand has a private/sector driven system. This means that funding for additional projects needs to come from the private sector (although the Government recognises that there may be some co-ordination issues that need to be better understood).
- Health, education and corrections: These are part of the government sector that faces a capital constraint (see section on “Funding Infrastructure: The Government's Fiscal Constraint”). Capital projects including infrastructure required by these sectors will need to be accommodated within this fiscal constraint.
