Roading Now!

21 May 2004

Mr Chairman, as everybody in this room knows, inadequate transport infrastructure is one of the most serious obstacles to New Zealand’s achieving the faster rate of economic growth which we need if we are to have the slightest chance of reducing the gap in living standards between this country and Australia.

That gap is a significant factor behind the net exodus of New Zealanders across the Tasman – an exodus which has seen some 90,000 New Zealanders move to Australia in the last five years alone.  If we want our brightest, most enterprising, most innovative young people to feel that they can give themselves and their families the best possible future in New Zealand, we have to do everything possible to narrow that gap.

When I gave my speech to the Orewa Rotary Club back in January, I thought I might give a single major speech on each of the economy, education, social welfare, security, and the Treaty.  I have since realised that some of these issues are too large for a single speech, and that is certainly true of the economy.  So I will be giving several major speeches on this theme, and this morning I am talking about what the next National Government will do about dealing with the problem of our inadequate roads.

Business New Zealand has pointed out that, while New Zealand spends a little under 1% of GDP on roads, the United States spends 1.33%, Australia spends 1.60% and Japan spends just over 2% of their GDP.  On a “road-spend-per-motor-vehicle” basis, New Zealand’s spending on roads is significantly lower than all but two (Hungary and the Netherlands) of 21 OECD countries surveyed.1

There is no doubt that our roads are under huge pressure.  That is obviously true in Auckland, where every one of us has had the experience of missing a plane because some minor accident brings the whole system to a complete standstill or bad weather has slowed traffic to a crawl; or of taking two hours in the middle of the day to get from the centre of the city to East Tamaki; or of taking two hours to make the round trip from Penrose to the port.   Reputable estimates put the economic cost of road congestion in Auckland at more than $1 billion a year – and that doesn’t take account of the wear and tear on motorists arising from the stress of sitting on a motorway, hour after hour, going absolutely nowhere.  On top of that, there’s the considerable environmental degradation from emissions caused by vehicles idling inefficiently.

But other parts of our roading system are also inadequate.  In the Bay of Plenty, the combination of kiwifruit, logs, dairy products, and coal has put the roads between Katikati, Tauranga, Mount Maunganui, and Te Puke under huge pressure.  The main highway between Hamilton and Auckland is getting better, but still falls a long way short of what is required.   The roads into and out of Wellington are increasingly congested, and there are problems around Hawkes Bay, Nelson and Christchurch.  In some parts of rural New Zealand, the roading network is simply not adequate to carry the traffic which will be involved in getting our logs and other primary produce to market.

There can be little doubt that these problems are a serious impediment to faster growth.  The US National Bureau of Economic Research found that, during the eighties and nineties, “higher local government spending was associated with lower economic growth, unless that spending was on highways.”2  The fact of the matter is that highways generate growth.  Not railway lines, not railway stations, not carriages, but roads.  Modern transport runs on roads.   Auckland doesn’t have enough of them; those we have are inadequate and can’t be properly managed; and that is true for many other parts of the country as well.

This morning I want to talk mainly about the situation here in Auckland, partly because it is here that the problem of inadequate roads has become most acute and partly because, if New Zealand is to achieve the kind of growth to which we all aspire, it is imperative that Auckland is freed from the shackles which currently impede its growth.

Where are we now?  Alas, we are still sitting around wondering whether there is the political will to build the roading network which was originally envisaged several decades ago.  The Automobile Association estimates that the cost of completing that network over a period of about 10 years amounts to some $7 billion, not including the several billions needed for capital expenditure on public transport over the same period.  Of the total for roads and public transport, about half is currently in sight, when one combines current funding, money from Infrastructure Auckland, and the Labour Government’s promise of an additional $1.6 billion, spread over 10 years, made in December last year.

At present, trains provide about 3 million passenger trips annually – or about 0.3% of the total of 1,000 million passenger trips in the Auckland metropolitan area annually – with a subsidy from Auckland’s ratepayers of about $7 per trip.  It is hoped that by improving the network, the stations, and the rolling stock at an estimated cost of $1.5 billion, the system will be carrying 25 million passengers annually by 2015 (less than 2.5% of the total trips by that time), with an annual subsidy of about $100 million, or $4 per trip.

Whether this is sensible expenditure is fiercely debated.  Experienced traffic engineers regard rail systems as a very substantially more expensive way of carrying people than roads.   They note that attracting a single car user to Portland’s rail system costs some US$5,000 per annum, while in Atlanta it’s US$15,000 per annum.

In the National Party’s view, rail systems are almost certainly a more costly form of public transport than other forms of public transport, such as buses.  Buses are far more flexible than trains, can operate wherever cars can operate, and have dramatically lower capital and operational costs.  The next National Government would of course complete rail projects which are already committed, but would only spend additional money on the Auckland rail system where that is demonstrably more cost-effective than other options.

The real solution to Auckland’s traffic congestion lies in building more roads, and doing so without further delay.  Aucklanders simply can’t wait – and shouldn’t be expected to wait – another 15 or 20 years for respite.

And what has the present Government done about the issue?  They would have us believe that they have been working hand in glove with local governments in the Auckland area, and have been doing everything possible to speed up the process.  Nothing could be further from the truth.

In answer to Parliamentary questions, the real facts have emerged.  In the last full year of the last National Government, 1998/99, Transfund spent $135 million on new local roads and state highways in Auckland.  That total was not reached again for the next three years, under the Labour Government, and it fell as low as $82 million in 2000/01.  Only in 2002/03 did spending by Transfund on new local roads and state highways in Auckland exceed spending in 1998/99, and that by just $5 million, or less than 4% – not even enough to cover the (very modest!) inflation over that period.  And that’s despite an increase in the Government’s revenue from taxes on petrol of 32% over the same period (from $1,217 million in 1998/99 to $1,606 million in 2002/03).  So much for the much vaunted claims of the Government being serious about fixing Auckland’s roading problems!

There are three major hurdles to get over if Auckland is to get a decent roading network within a decade.

First, central government needs to remove the legislative obstacles which currently make getting consents to build any major project a hugely slow and expensive process.  In 2003, Transit New Zealand, the government’s own road-building agency, told a Parliamentary Select Committee that it now takes considerably longer to get the necessary consents to build a new road than it does to actually build the road itself.  Indeed, there have been cases where getting the consents to build just one road has taken seven or even eight years. 

The main factor behind these delays is the Resource Management Act.  Indeed, it is no exaggeration to say that there can be no timely solution to Auckland’s transport problems unless there is substantial reform of that legislation.

The tragedy is that the Labour Government rejected the chance to reform the RMA four years ago.   In 1999, the National Government introduced a Bill which would have substantially speeded up the process of getting consents for new roads by allowing for measures such as direct referral to the Environment Court.  The Labour Government rejected that Bill.

A National Government will introduce a substantive RMA Amendment Bill within three months of being elected to office.  We will limit legal aid for objectors to those who are immediately, genuinely and personally affected by an application; provide new mechanisms to prevent vexatious and frivolous objections; allow for direct referral to the Environment Court; and rewrite those parts of the Act which are inconsistent with our commitment to having one law for all New Zealanders, regardless of race.  Overall, the objective will be to substantially speed up the process and deliver a final and certain outcome within a defined timeframe.  These changes will be in law within nine months of our being elected to office. 

The Land Transport Management Act passed last year is also a major impediment to speedy road construction – the sort of law you pass when you want to stop building new roads.  The strict limits on private sector participation, the very prescriptive nature of the legislation, and the obligation imposed on Transit to consult with iwi not only about individual road projects but also about the overall prioritisation of the road-building programme mean that the road-building programme has been further slowed down, and the likelihood of any private sector involvement in it virtually eliminated.

The Act was a sop to the Greens – who hate roads, hate the things that drive on roads, and hate the people who drive in the things that drive on roads!  Next time you sit stuck in a motionless stream of cars on the Southern Motorway, remember Jeanette Fitzsimons!  Government Ministers privately admit to interested parties that they should not have let the Greens have such an influence on the legislation.  To expedite the construction of the roads which Auckland and the country need, this law too must be radically changed, and the National Party commits to achieving that within one year of being elected.

It should be feasible to reduce the time between making the decision to build a major road and starting the bulldozers to one year, but that won’t happen without fundamental reform of the RMA and the Land Transport Management Act.

Secondly, there needs to be a much more realistic approach to the local decision-making structures.  Responsibility for transport solutions in Auckland currently lies with a veritable multitude of separate organisations: seven local body councils, the Auckland Regional Council, Auckland Regional Transport Network Limited (ARTNL), Infrastructure Auckland, TrackCo, Transit New Zealand and Transfund, to name just a few.  Progress can not be made while there are so many diverse organisations, all with competing and sometimes contradictory agendas.

There is no single agency responsible for the regional transport system as a whole.  The decision-making process is overly complex; there are divided responsibilities and sometimes overlapping structures.  There is clearly an urgent need for a new structure.

When the Government released its roading package for Auckland last December, it stressed that having a single body responsible for dealing with Auckland’s traffic problems was a condition of the package.  Despite that assertion, it has again miscued badly and has added yet another organisation to the mix, the Auckland Regional Transport Authority (ARTA), responsible to the Auckland Regional Council.  Putting most of the power over ARTA into the hands of the ARC is a big mistake: it sidelines many key players and leaves the two biggest players, Transit New Zealand and TrackCo, out of the structure entirely.

What is needed is a single agency, perhaps called Transport Auckland, operating as a single stand-alone entity, with management and control over all parts of the public transport system in metropolitan Auckland.  The Board of Transport Auckland should be elected using the current electoral college process (which is widely accepted by Auckland local bodies), augmented to allow for representatives of central government because of the crucial roles of Transfund and Transit in the Auckland roading system.  Transfund would bulk-fund Transport Auckland with Auckland’s share of central government transport funding (estimated to be 32% of the total), and the assets of both Infrastructure Auckland and ARTNL would be vested in Transport Auckland.  Money raised through rates levied by the Auckland Regional Council for supporting public transport would also be channelled into Transport Auckland.

Transport Auckland’s responsibilities would be defined by statute.  It would develop a Statement of Corporate Intent, a plan to meet Auckland’s transport needs.  The new structure would have clear lines of responsibility and accountability, would be able to reconcile conflicting roles and priorities, would be able to integrate state highways and major regional roads, and above all would be more responsive to the needs of users.  It would also negotiate terms and conditions with the private sector for the building of new roads, tunnels, bridges and so on.  Local councils would still be responsible for local and suburban roads, and would receive subsidies from Transport Auckland for that purpose.

The National Party commits to putting such a structure in place promptly after its election to government.

Thirdly, there is an urgent need to put the funding of the roading network on a sound basis.  But to make rational decisions about the funding of roads requires there to be a rational system of pricing road usage, and currently there is not. 

If we charged nothing for hotel accommodation, and financed the construction of hotels through general taxation, we would always have more demand for hotel beds than we could accommodate, with particularly severe problems of congestion at popular beaches at summer time.

The same is true of roads.   Roughly half the money spent on local roads is funded by rates on property, rates which are calculated without any regard to whether those occupying the property are heavy road users or use roads only when they go to church on Sunday.  Yes, we pay excise tax on petrol – indeed, we currently pay some 55 cents per litre in excise tax, GST, ACC levy and other charges, in excess of $30 each time we fill up the tank of most six cylinder cars – and diesel vehicles pay road user charges.  But these taxes are charged no matter which roads we use, and no matter at what time of day we use the roads.    No wonder that Pakuranga Highway was almost empty when I drove along it at 11 a.m. on Monday last week, but was jammed with almost stationary cars at 8 a.m.

It is not surprising then that in 1997 the Road Advisory Group – chaired by Jim McLay and including Simon Arnold, then chief executive of the Manufacturers Federation; Robin Dunlop, then general manager of Transit New Zealand and now Secretary of Transport; Michael Gross, then chairman of Transfund; Tom Lambie, then vice president and now president of Federated Farmers; Brent Layton, then chairman of the Port of Lyttleton and now chief executive of the Institute of Economic Research; Stewart Macaskill, then chairman of the Wellington Regional Council; Stewart Milne, then secretary of the Ministry of Transport; and Jim Hagan, directory of Regulatory Economics at the Treasury –  advised that what was needed was a system of efficient road pricing so that decisions on roading investment can be put on a sensible basis.  That need is as great now as it was in 1997.

This is true whether roads continue to be funded as at present – through a mix of rates on property, excise taxes, and road user charges – or whether, as seems likely, we gradually move to a greater reliance on tolls and “congestion pricing”.

There is little doubt that the use of tolls and congestion pricing can have an enormously beneficial impact on road congestion.  Many New Zealanders have enjoyed the new highways which now serve Sydney, Melbourne and Brisbane.   Some have seen the extraordinary ease with which traffic moves in Singapore, even at rush hours.  Or have seen the benefits of the system now used in London, where traffic congestion has been sharply reduced and where the toll scheme is so popular that the left-wing mayor of London, who promoted the new system, proposes to substantially extend its scope if he is re-elected for a further term of office.

Over time, we should move away from heavy dependence on property taxes, excise taxes on petrol, and road user charges towards greater use of tolls, which would vary depending on the road and the time of day.  Indeed, there should eventually be scope to reduce both rates and excise taxes on petrol as tolls are introduced, so that the net fiscal effect of introducing tolls is neutral.   

Modern toll roads are not like the toll roads of the past.  There will be no fossicking for coins or lengthy queues at toll booths.  Most new toll roads around the world are already fully electronic, and the user, by way of an identification tag, is billed for using the road.  In most cases, the tolls are of the order of $2 or $3, and represent a small fraction of what the motorist currently pays by way of long delays and heavy fuel use.

Using tolls has, in fact, three advantages.  First, if well designed, tolls can encourage road users to use roads at times when there is less congestion, or take alternative forms of transport, such as buses and ferries.  Secondly, tolls can support borrowing to provide additional funds for road construction.  And thirdly, tolls make possible the participation of private capital in road construction, as happens increasingly overseas. 

Indeed, New Zealand is one of the few developed nations which still does not have any private sector participation in roading.  We need legislation which actively encourages the private sector to invest in roading, either through joint Public Private Partnerships, where the government and the private sector get involved together in a commercial partnership; or through so-called BOOT schemes, where the private sector builds, owns, operates, and finally transfers the road back to the government after an agreed period of years; or through some combination of these.   What is clear from overseas experience is that the nature of the contracts which can be used to involve the private sector is almost infinitely varied.

It may well be that, in addition to an appropriate level of tolls, there is a need for additional funding from central government to get the roading network up to a first-world standard within a 10 year period.  At the moment, government gathers about $650 million a year from taxes on petrol over and above what goes into roads. 

And it would no doubt be wildly popular to suggest that all of that money should be diverted, at least for a period of years, to make good the present deficiencies in our road network.

And perhaps some of that revenue should be diverted for a time.  But right now the constraints are not financial: indeed, Transfund ended the last financial year with some $250 million in kitty – which is surely a disgrace given our urgent need to get roads built.  Rather, the constraints are in getting the consents needed to start building, and in getting the decision-making structures right, so that sensible decisions are made in the long-term interests of the citizens of Auckland.

It is also worth remembering that $650 million is equivalent to about 4 cents in the dollar on the corporate tax rate, or 40,000 hip operations and 65,000 cataract operations.  There is no “free lunch”.

In 1998, a National Government moved 2.1 cents per litre of petrol tax revenue from the consolidated fund into the road fund.  We said at the time that, as circumstances allowed, more such transfers would be made.  So if finance does become an issue, we would look to divert more of the money which now goes into the government’s coffers into roads.

What I am willing to do, moreover, and do now, is to give an absolute commitment that the next National Government will ensure that the Auckland Corridor Network is built within no more than 10 years of our election.  That should have been done years ago.  We will get the job done.


1 Submission by Business NZ to Transport and Industrial Relations Committee on the Land Transport Management Bill, 28 February 2003.

2 NBER Working Paper No. w8357, July 2001.

3  As depicted on page 75 of the Auckland Regional Land Transport Strategy.

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