In the recently released Cabinet paper Improving Infrastructure Funding and Financing, Infrastructure Minister the Hon Chris Bishop has set out the Government’s next steps in its ambitious programme of work reshaping New Zealand’s infrastructure funding and financing framework.

The programme aims to clarify how and when the Crown expects infrastructure projects to be funded, broaden and enhance the funding and financing tools available for infrastructure, and update the Crown’s approach to private investment in infrastructure projects.

In this article, we discuss each of these pillars and consider the funding and financing tools which are under the spotlight. We also set out a timeline of the steps to be taken in this pipeline of work.

The role of Crown funding

The Minister announced the work programme in a speech to Local Government New Zealand that emphasised his expectation that when Crown support was sought for a significant infrastructure project, this would need to be considered alongside avenues for user-pays funding and private financing, with Government grants to be preserved for projects where alternative methods of funding were unavailable or inappropriate.

While Crown grants have provided support to councils in the past for growth infrastructure such as housing, it is clear that grant availability will be significantly pared back for these types of projects under the current Government. Grant models do not provide controls on investment demand or a reliable indicator as to where future investment is required.

By comparison, user-pays tools like congestion charging and water meters generally lead to a reduction in pressure on infrastructure assets, provide an indication as to when and how assets may need to be upgraded, and provide a revenue source to pay for their maintenance and renewals.

Building the funding and financing toolkit

As previously signalled in a Cabinet Paper earlier this year (which we discussed in this article Infrastructure Funding & Financing: a time for change), the funding and financing tools currently available for infrastructure need to be reviewed. The Minister expressed openness to modernising existing tools like levies, targeted rates and development contributions, as well as considering new value-capture funding mechanisms. The Minister of Transport has also been directed to review the use of tolling and road user charges and consider whether time-of-use charging and congestion charging can be utilised as part of transport revenue reform.

Reforms to the Infrastructure Funding and Financing Act 2020 (IFF Act) can be expected. Two pathfinder projects have now been successfully authorised under the IFF Act, and it’s now timely to review the IFF Act to ensure it is fit for purpose - particular as the Government wants to prioritise IFF Act funding for greenfields housing developments.

Additionally, advice has been sought from DIA and the Treasury as to whether reforms to the New Zealand Local Government Funding Agency (LGFA) could enable greater lending flexibility for water infrastructure. While little detail is provided in the Cabinet paper, we expect this will include consideration as to whether LGFA will be able to lend to the new water service entities to be established under the Local Water Done Well policy without requiring any council support that might prejudice their financial separation.

For local authorities, place-based City and Regional Deals have also been signalled as an area of interest for the Government in addressing the current infrastructure deficit since prior to the election. These are long-term, bespoke packages of funding and decision-making powers negotiated between central and local government and other local bodies. Financial incentives for councils to deliver growth infrastructure like housing are also on the table, such as GST-sharing arrangements for residential builds.

Finally, the Treasury and the Infrastructure Commission have been tapped to refresh the Crown’s policies and frameworks for infrastructure projects and contracting, including to public private partnership (PPP) models. The Government has expressed a clear intention to move forward with private sector infrastructure investment and the current focus is on seeking guidance for the Government on best practice for PPP procurement, contracting models and documentation in a New Zealand setting.

Our comments

It has long been clear that a shake-up of infrastructure funding and financing by the Government was in store, and the Minister’s latest announcement is a significant step in outlining the extent of the proposed reform. While unlikely to come as a surprise, moves towards user-pays models (and away from central government grant funding) will undoubtedly increase public awareness of the actual costs of infrastructure development.

Timeline of next steps

• Funding and financing principles: Minister of Infrastructure and Minister of Finance to work with the Treasury to develop principles that guide the Crown’s rationale and approach to the provision of funding and/or financing. Principles to be finalised by 30 September 2024.
• Value-capture framework: Minister of Housing and Minister of Transport to deliver initial advice on existing value-capture tools by 30 June 2024, with advice on required changes and/or new tools and frameworks to be delivered by 30 November 2024.
• IFF Act reform: Minister of Housing to provide initial policy on legislative reform to improve the IFF Act levy model by 31 July 2024, with Cabinet decisions to be finalised by 31 December 2024.
• Infrastructure funding settings: Minister of Housing and Minister of Local Government to provide advice on how policy could improve the use of current funding tools such as development contributions and targeted rates. Policy advice to be provided by 31 July 2024, with Cabinet decisions to be finalised by 30 November 2024.
• Transport: Minister of Transport to deliver a range of advice relating to time of use charging (due June 2024), tolling reform (end of 2024) and road user charges (final advice mid-2025).
• LGFA reform: Minister of Local Government to deliver advice on enabling greater lending flexibility for water infrastructure through the LGFA by 30 September 2024.
• Public private partnerships: Minister for Infrastructure to deliver advice on modernising the Crown’s approach to PPPs by 30 September 2024.
• City and Regional Deals: Minister of Local Government and Minister for Infrastructure to deliver a Cabinet paper seeking endorsement of a framework for Crown involvement in City and Regional Deals in late July 2024. Cabinet approval to initiate negotiations to be sought by end of 2024.
• Council incentives: Minster of Housing and Minister for Local Government to deliver policy advice on options to improve council incentives for growth such as GST sharing by 30 November 2024.

If you would like to talk to one of our experts about anything discussed in this article, please get in touch.

Special thanks to Katie Daly for her assistance in writing this article.