Largest ever three year transport funding programme

  • Gerry Brownlee
Transport

Transport Minister Gerry Brownlee has welcomed the release of the New Zealand Transport Agency’s National Land Transport Programme (NLTP) for 2012 – 2015 – the largest programme of its kind in the country’s history.

“The NLTP sets out the funding activities that reflect the government’s priorities for transport and I am pleased to see the $12.3 billion programme of investment is focused on supporting economic growth, improving safety, and providing people with a range of transport choices to deliver the best possible value for money,” Mr Brownlee says.

The $12.3 billion programme represents a 13 per cent funding increase on the previous three year programme (2009 – 2012), which funded approximately $10.9 billion of transport activities.

In addition to the NLTP a range of funding measures to give the NZ Transport Agency (NZTA) more certainty to deliver State Highway improvements have been agreed to by the government.

“The Canterbury earthquakes, reduced growth forecasts and the tighter fiscal environment have put pressure on the National Land Transport Fund which delivers the government’s land transport investment programme.

“This has meant targeted expenditure signalled in the Government Policy Statement on land transport funding for the coming years is set to go above revenue by around $220 million over the 2012 – 15 period.

“It is important for the country’s economic growth that we continue to invest in infrastructure that will assist the economy and for that work to progress in a timely manner.

“This is why a package of initiatives has been developed to give the NZTA the funding certainty it needs to continue to deliver transport infrastructure and services, including State Highway improvements and the Roads of National Significance programme,” Mr Brownlee says.

Measures agreed to include:

  • Increases in petrol excise duty and road user charges from 2013/14 in order to lift revenue to match expenditure;
  • A short-term, one-off $100 million borrowing facility for the NZTA to manage cash-flow variations; and,
  • Setting the annual contribution to the Canterbury roading recovery from the National Land Transport Fund at $50 million a year with costs over this amount met from outside the Fund.

“Future increases in fuel excise duty and road user charges will help in matching revenue to expenditure and keep momentum on a range of projects,” Mr Brownlee says.

“The short-term borrowing facility for the NZTA is a one-off means for addressing an immediate funding gap and will help to spread costs out over a number of years.

“Limiting the contribution from the Fund for Canterbury to $50 million a year will also help to give the NZTA certainty in managing Canterbury roading recovery costs while a longer term approach to meeting costs above this amount is worked through.”

Final details and decisions of the funding package, including decisions on fuel excise and road user charges increases, will be announced before the end of the year.

Mr Brownlee says he has also directed officials to investigate potential long-term solutions for transport investment – including looking at long-term borrowing and the potential use of Public Private Partnerships as a supplement or alternative to increasing transport taxes.

“The challenge for the government is to undertake transport infrastructure investment that offers value for money, is delivered in a timely manner and that contributes to the nation’s economy, and I am confident this package of measures will allow us to do that.”

Questions and Answers

How is the National Land Transport Fund (NLTF) funded?

The Fund receives its revenue primarily from fuel excise duty, road user charges, and motor vehicle registrations. This revenue has been fully ring fenced for the NLTF since 1 July 2008. This gives some certainty to the amount of funding available each year, and effectively caps expenditure.

How are decisions made about transport investment?

The Government Policy Statement on Land Transport Funding (GPS) sets out what the Government expects to be achieved from its investment in land transport through the National Land Transport Fund. It states how large the investment will be, broadly how it will be spent and how the revenue for it will be raised.

The GPS sets expenditure ranges for particular areas also known as activity classes. Examples include State highways, road policing, maintenance, and public transport. The NZ Transport Agency must deliver the Programme within these funding ranges.

The GPS can be viewed here: http://www.transport.govt.nz/ourwork/KeyStrategiesandPlans/GPSonLandTransportFunding/

Why is this package of measures required?

The Canterbury earthquakes and reduced economic and revenue growth forecasts have put increased pressure on the NLTP.

In addition, despite the latest increases in petrol excise duty and road user charges, revenues in 2012/13 and future years are also expected to be lower than originally forecast leading to an anticipated overspend of approximately $220 million over 2012–15.

Doesn’t the NZTA already have a borrowing facility in place?

Yes, the NZ Transport Agency has had access to a short-term cash flow management loan facility of up to $250 million to manage regular seasonal cash flow cycles and unexpected and unavoidable cash flow variation since 2010.

However the Canterbury earthquakes and reduced economic and revenue growth forecasts have put the NLTP near the $250 million limit of the NZTA’s short–term borrowing facility.

Why is a short term borrowing facility of another $100 million needed by the NZ Transport Agency?

There is some risk that final claims for payments will exceed the NZTA’s ability to pay these within the limits of its funding. Therefore to manage its cash flows effectively, an additional one-off buffer of around $100 million to cover the NZTA during its lowest point of the annual cash flow cycle is being provided by the government. This will serve to spread and limit cost pressures.

The short-term borrowing facility would be available in 2012/13, to be repaid within the period of the Programme, and not able to be redrawn.
This is a one-off loan and is not considered a viable way to maintain the NLTP long term.

What is the cost of rebuilding the Christchurch roading network?

The estimated cost of roading recovery works in Christchurch has increased to between $0.87 billion and $1.1 billion.

To date, the NZ Transport Agency has funded $116 million of these costs.

Why does the NLTF’s commitment to the Canterbury recovery need to be limited to $50 million a year?

While the Canterbury recovery is a vital part of the country’s economic future, the pressure it puts on the NLTF is affecting the availability of funding to deliver on the expectations for transport investment set out in the GPS 2012.

To enable the NLTF to support the expenditure set out in the GPS 2012, the NLTF’s contribution to Christchurch roading recovery needs to be limited to $50 million per annum.

The Crown will bear the risk of costs above the $50 million committed by the NZ Transport Agency. Officials are currently working on options to manage this risk, including potential for a long-term loan facility.

How will Christchurch roading recovery works be funded longer term?

Officials are considering a range of options, including developing a long-term borrowing arrangement to spread the Christchurch roading costs to the NLTF over a number of years, in order not to affect the pace of Christchurch roading recovery work or the delivery of the overall NLTP.

What is being done about addressing longer term funding issues for the NLTF?

Borrowing will not always be the most appropriate response where revenue falls short of intended expenditure.

To ensure we are well placed to judge the suitability of using borrowing to respond to any future occurrence of this issue, officials from the Ministry of Transport, NZ Transport Agency and Treasury are looking at potential long-term options for transport investment, that support transport’s contribution to economic growth.
This work covers:

  • The value for money and desirable level of transport investment and what this might mean for how this investment is best funded
  • Long-term borrowing, including the potential for Public Private Partnerships on one or more transport projects, as a supplement or alternative to increasing transport taxes
  • The increases in petrol excise duty and road user charges needed to support the Programme and the expenditure amounts signalled in GPS 2012.

Officials will be reporting back to the Minister of Transport and Minister of Finance later in the year on this work.

What kind of petrol excise duty and road user charges increases can be expected?

Decisions on petrol excise duty and road user charges increases necessary to support the NLTP and the GPS 2012 will not be made until later in the year.

What are the alturnatives to this package of initiatives?

If the government were to do nothing the NZTA’s abilility to start major State Highway projects, including the Roads of National Significance, within the timeframes indicated in the GPS 2012, would be adversely affected.

The situation may also result in delays to other smaller (regional and safety) projects.

Why not just slow down the delivery of some projects?

Transport investment is an important part of enabling New Zealand’s economic future. Moving people and goods from A to B as quickly and efficiently as possible and providing a truly multi-modal transport system are all factors influencing our ability to increase economic productivity and growth.

Has revenue forcasting been inaccruate?

Rigorous independent testing of the revenue forecasting model has been undertaken over the past few years to ensure it is as accurate as possible and reflects observed trends, prices and demand for fuel. However, revenue forecasts are prone to fluctuation in line with major economic assumptions, especially inflation and GDP growth.