Sectoral Analysis

Transport: Roads

Description

Background and history

77. New Zealand's road network supports the delivery of freight and passenger movement services throughout the country as can be seen from a New Zealand road map.

78. Road infrastructure is partly owned by the Crown (state highways) and partly by local councils (local roads). Transit New Zealand was established in 1989 to take over the operational management of state highways from the Ministry of Works and Development (which was funded and guided by the National Roads Board). Funding for Transit came from nationally set user charges[15] less an amount of petrol excise duty, which was retained for the Crown account. The funding arm of Transit was operationally separated in 1996 to form Transfund. Transfund and the Land Transport Safety Authority combined in 2004 to form Land Transport New Zealand. In 2008, Land Transport New Zealand and Transit merged to form the New Zealand Transport Agency (NZTA). Full hypothecation was introduced in 2008; it requires that user charges are fully dedicated to the National Land Transport Fund (NLTF)[16]. Provision of local roads has always been considered a core function of councils and the funding for this work comes from a mixture of rating revenue and funding from the NLTF.

79. Over the last decade it became apparent that New Zealand was under-investing in transport infrastructure. In 1999/2000, New Zealand was investing around $1.1 billion on roads (including public transport), which amounted to 1 per cent of GDP. This was less than the amount collected from user charges, as the Crown retained a portion of Petrol Excise Duty for the consolidated fund.

Assets

80. New Zealand has 90,783 kilometres of roads, of which 10,894 kilometres are state highways and 79,889 kilometres are local roads.[17] As at 30 June 2008, 61,504 kilometres of the network was sealed, with 98.8 per cent of the unsealed roads being rural and special purpose local roads.

81. Current stock of roads:

Source: New Zealand Transport Agency, 2009[18]

Institutional arrangements in the transport sector

82. The New Zealand Land Transport Agency (NZTA) is a Crown Entity. Its main purposes are to collect FED and RUC, to build and maintain state highways and to contribute to the funding of local roads and public transport. Local roads are the responsibility of local government.

Funding and pricing

83. Different categories of projects have different funding sources. State highways are entirely funded from the NLTF. Local road expenditure and passenger transport are part-funded from the NLTF with the remainder predominantly derived from local rate revenue. NLTF funding provided to Local Authorities is subject to a funding assistance rate, which varies according to project and local authorities, but overall, the NLTF funds just under 50 per cent for local road activities. The regions each develop Regional Land Transport Programmes and as part of this process, individual local authorities identify and make requests to the NZTA to fund projects. NZTA assesses individual projects and makes funding decisions according to a multi-criteria analysis (strategic fit, efficiency and effectiveness). The efficiency measure is largely based on the benefit cost ratios.

84. Two notable features of the institutional arrangements in the sector are:

• The NZTA has statutory independence over determining whether particular roading activities should be included in the National Land Transport Plan (NLTP) and approving NLTF funding for roading activities. The purpose of the independence is to de-politicise decision-making about individual road projects.
• Funding of road infrastructure using the ‘pay-go' system. Apart from local road expenditure, which is partly supported from rates, road infrastructure is essentially operated as a ‘pay-go' system. In other words, operating and capital expenditure is substantially funded from current user charges, principally the Fuel Excise Duty (FED) and the Road User Charge (RUC). This contrasts with the more conventional business approach where investment is funded from the capital markets and operating expenditure, including the servicing of debt and equity, is funded from user charges.

85. Before 2007, some FED revenue was retained in the Crown account. From 2007 onwards, the Crown made a net contribution to land transport investment[19], which contributed to the decision to reassess the institutional and funding parameters within the road transport sector.

86. Expenditure is forecast to reach $2.8 billion in 2009/10 and $8.7 billion over the next three years. This spending does not take into account Local Government contributions to the National Land Transport Programme, which will be between $550 million and $755 million[20]. The government policy statement for land transport (GPS) is a 10 year document with greater specificity in the first three years, which guides transport agencies in their planning and funding decisions to give effect to the objectives the government has for transport[21]. The GPS sets out the overall funding available to the sector (predominantly user charges revenue with supplementary Crown investment), sets funding ranges for different activities (such as state highway construction and maintenance, and public transport services and infrastructure) and sets out principles for funding decisions.