Introduction (continued)

Context

New Zealand in 20 years will be a very different place to the New Zealand of today, in many important ways. While we can make some predictions about what it might look like, we need to be prepared and flexible enough to face a variety of future scenarios, some more likely than others.

Statistics New Zealand projections suggest that by 2031 New Zealand's population will have increased by approximately 22%, to over five million people. Sixty-two per cent of that growth will have occurred in the Auckland region, which will have a population of almost two million. The growth triangle of Auckland, Waikato and the Bay of Plenty will have experienced 34% growth overall, much of it fuelled by internal migration, compared to 13% for the South Island. There, Christchurch is projected to remain a significant population growth centre.

This growth will put enormous pressure on infrastructure and natural resources in these parts of the country. But we also need to be conscious about managing population decline in other areas: almost half of New Zealand's 73 territorial authorities are projected to have fewer residents in 2031 than they do today.

The structure of our population will have changed dramatically. By 2031, the 65-and-over age group will have almost doubled in size, while younger cohorts are expected to remain relatively static or experience only slight increases. This will put different pressures not only on public finances and services but on our transport infrastructure, which will have to adapt to cater for a large group of less mobile people with different needs. The significant infrastructure investment undertaken during the height of the baby boom years will be at the end of its useful life.

The scientific consensus is that climate change will be a significant environmental and economic issue, one that will affect our day-to-day lives: the way we travel, do business, develop our cities and towns, and produce our agricultural and manufactured exports. In 20 years, energy costs and international obligations will have required us to shift from higher carbon-emitting activities to lower-emitting ones, we will be generating and consuming our energy resources in different ways, and we will be utilising and recycling our water resources more efficiently.

As a result, our economy will need to be different. Even as we shift further towards high value-added activities, and towards weightless economic activities requiring world-class telecommunications infrastructure, we will still be a nation that derives significant value from the land. By 2031, the demand for the transportation of bulk commodities such as coal, milk, wood and aggregate is projected to have increased by 70%.

We start this journey facing some significant challenges. The recent economic crisis has hit New Zealand hard and, though the state of our finances looks positive compared with many other developed countries, we cannot afford to be complacent. Tax receipts have fallen and spending has increased. We moved from an operating surplus of $2.4 billion in 2008 to an operating deficit of $10.5 billion in the year to June 30 2009. Operating deficits are projected to continue until 2015/16. This will result in a doubling of net Crown debt by 2013 and further increases beyond that. The Government has committed to the fiscally responsible path of not letting that debt rise above 40% of GDP and reducing it to reach 30% of GDP by the early 2020s. As a result, the Government is going to have to significantly constrain spending over much of the life of the 20-year National Infrastructure Plan. This will drive the choices the government makes around the way it invests in and manages its infrastructure assets.

Government's strategy for growth

Although the pressures are greater, this doesn't mean that the Government is going to stop investing in the economy. In fact, the opposite is true. Recovering from the recession and positioning New Zealand to succeed, increasing our productivity, growing our exports and narrowing the income gap with our trading partners will require concerted effort. Government spending will still occur, but efforts will be focused on improving business confidence and investment, and on jobs and growth, particularly in the tradable sector - those important industries that earn our foreign exchange or compete directly with imported goods and services.

Maintaining high levels of employment, creating sustainable new jobs and raising productivity are critical because this will help permanently raise New Zealand's living standards, and so have important social benefits. In addition, moving away from a dependence on borrowing and spending towards exporting and productive investment will help reduce New Zealand's vulnerability to future shocks.

The Government has identified six policy drivers that form the core of its economic growth programme over the next three to five years:

• reviewing regulation and red tape
• delivering better, smarter public services
• education and skills
• innovation and business assistance
• reviewing the tax system, and
• investing in productive infrastructure.

This Plan describes the infrastructure part of that economic growth programme.

Infrastructure and growth

Why is infrastructure one of the major components of the Government's economic growth agenda? It is because we believe that good quality infrastructure investment and asset management will be instrumental in New Zealand successfully navigating the challenges and opportunities of the next 20 years. Infrastructure fundamentally supports not only our productivity and economic competitiveness, but also our social and environmental wellbeing.

The OECD suggests that investment in infrastructure - particularly in network infrastructure such as transport and communications - seems to boost long-term economic output more than other kinds of physical investment.[1] This is because infrastructure investment provides positive benefits to other sectors. For example, good transport systems improve business efficiency, innovation, competition and trade, support agglomerations of economic activity, and facilitate a mobile and flexible labour force. The World Economic Forum identified inadequate investment in infrastructure as a particular problem in New Zealand, second only to access to finance as a barrier to doing business.^[2]

More generally, microeconomic considerations suggest that infrastructure projects contribute to economic welfare if the benefits of the investment outweigh the costs (where ‘benefit' and ‘cost' are interpreted widely to include all social, economic and environmental benefits and costs, including negative and positive externalities). In this way, infrastructure spending can generate value for taxpayers. However, not all infrastructure investment is equal, and it is certainly possible to over-invest or invest in the wrong projects.

This reinforces the need to ensure infrastructure investment is focused not on quantity but on quality. New Zealand's medium-term fiscal pressures won't prevent us from investing in infrastructure but they will force us to make smarter, higher-quality investments.

For the period of this National Infrastructure Plan, real GDP is projected to increase by over 60%, from approximately $133 billion in 2008/09 to $213 billion in 2028/29. On an annual basis, this equates to an increase in the 2-3% range. Our aspirations require a much faster growth rate than that, around 4.5% a year. Achieving this growth will place significant additional pressure on our transport, communication, water and energy resources as well as our public services. Infrastructure investment is important because it will give New Zealand the room it needs to grow, and because smart infrastructure investment may actually catalyse some of the required growth.