John Key’s infrastructure announcement

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So earlier today, we saw Prime Minister John Key unveil phase two of his government’s ‘rolling maul’ of solutions to the financial crisis. Phase one had been somewhat of a popgun affair – $120 million a year for four years – to help small business out with its cash flow problems and compliance costs.

Phase two it seems, will entail $483.7 million of spending on education, transport and housing. Even more spending projects will be announced in the Budget, and in the wake of the jobs summit due later this month. We’re still waiting for a coherent overall plan for these various ingredients, commensurate with the scale of the crisis coming over the horizon.

So far, Labour has managed to tie itself in knots. All week in the House, it has been asserting that the projects in the stimulus package were mainly its ideas AND that they were inadequate. It was like watching a cranky old mammal fiercely claiming its eggs, and then trying to eat them too. Presumably, Labour’s solution was to have the same set of ideas, only bigger. Supersize me that spending on roads, with a side order of bridge-building fries as well, please !

As I’ll try and point out below, it is possible that the government response is both too small, AND too wasteful. Initially though, we need to appreciate why the government is adopting a ‘rolling maul’ approach to crisis planning. In my limited experience, rolling mauls are chaotic affairs of limited duration that screw sideways into touch more often than they head off productively downfield. I’ll leave it to the NZ Herald to embarrassingly proclaim John Key as a ‘strong captain’ of the nation’s rolling maul.

The real reason why New Zealand is not following overseas models and having one coherent ‘big bang’ stimulus package is because the government plainly sees danger in being overly transparent. The credit rating agencies are watching our huge current account deficit, and our debt management mojo.

So, better a rolling maul/drip feed than putting all your cards on the table at once – and lets just hope and pray that Standard and Poors can’t do long addition. Because if we add up the bits and pieces, and estimate the borrowing required to finance the full meta-package, we should discover the debt boundaries within which the Key government is working.

Today’s moves, we were told by Finance Minister Bill English, will not require any extra borrowing, but the full response package certainly will. What is the government now estimating that our debt levels ( as a ratio of GDP) are likely to be at the end of the next financial year ? What extra debt servicing costs is it expecting that the sum total of our various stimulus measures will incur ?

If, as English keeps hinting, our current account problem and debt levels pose a constraint on our stimulus package, we need to know exactly what the government currently thinks the market – and the credit rating agencies – can possibly bear. Because the already pledged rounds of tax cuts have left us precious little room in which to move.

Essentially, we need to know what the guesstimates English is making for the trade-off between job creation stimulus on one hand, and acceptable debt levels on the other. Such figures would tell us a lot about what size the Budget stimulus package component can possibly be, and how much headroom exists for extra spending on the proposals bound to emanate from the jobs summit at the end of this month.

Back to today’s spending package, though. There will be $216.7 million spent on education and ICT in schools, $142.5 million on roading and $124.5 million on housing. Thankfully, given that rapid stimulation of the economy is imperative, about $100 million of these projects will be fast tracked to start by June 30 this year. Only some 2,000 jobs will be created by today’s package, in an economy that is due to shed some 35,000 jobs this year.

How good was today’s ’s recipe? Well, I can’t see very many jobs for women in this package. Women are taxpayers too, and the number of households headed by single women earners is on the rise. Yet this package seems geared almost entirely towards construction – and to creating jobs for plumbers, electricians and tradesmen. Burly men with shovels should do fine out of it. Even in education, the emphasis is still mainly on construction – not on increasing the numbers of teachers in our schools, or on pouring in the human capital resources (beyond ICT) to staff our classrooms more productively.

Secondly, lets take a prime example of fast tracking. Namely, the $47 million Kopu Bridge Replacement that will enable Aucklanders to get there and back from the Coromandel more quickly. On the upside, this bridge replacement will help to eliminate existing bottlenecks.

Sound good? Look at the cost. Fully $21.7 million of the cost of this bridge project will be caused by fast tracking it. Or to put that another way, the cost of the Kopu Bridge could nearly be halved if it wasn’t being fast tracked. Presumably, the extra cost is due to using lots more labour, and (maybe) in taking out a loan with associated debt servicing costs to get the job done quickly, rather than financing it through normal land transport processes. Again, it would be useful to know just how the components of the fast track process are broken down. Is the cost difference because it entails hiring two times as many people as normal efficiency would require, or three times as many?

Put it that way, and you could well start to ask – is getting Aucklanders to and from the Coromandel more rapidly for weekend holidays of such national importance as to justify the extra millions being wasted on it ? Even if treated purely as a job creation scheme, it seems a very expensive way to go.

As the Greens have been arguing for years, putting the spend into better urban transport could unclog existing roads, and save Aucklanders more time and money every day, than what they might save perhaps, on their occasional holiday excursions in Coromandel.

The jobs/efficiency equation doesn’t really stack up, as Greens Co- Leader Jeanette Fitzsimons pointed out today :

“Money spent on new roads generates less employment than money spent on fixing old roads or, even better still, money spent on increasing public transport services… Investing in more roads, rather than better public transport services, will increase our oil dependence, increase our carbon emissions, and ultimately employ fewer people over the [course of the] recession.”

Arguably, we are all Keynesians now. Only well allocated government spending it now seems, can lead us back out of the swamp into which the Friedmanites have led us. Fast tracking though, can easily make that spending prone to capture by politicians and by lobby groups, who may like to bypass the systems of independent scrutiny built up – for good reason – over decades. Spending wins votes.

Meaning : in the name of fast tracking a solution to the financial crisis, taxpayer funds can easily be tapped to serve the cause of pork barrel politics. Where some, for instance, will see virtue in the way the transport projects have been spread around the regions, others will see vote-buying. That’s the risk we run.

To minimize that risk, the government has to pledge to be transparent in the way it awards and monitors these projects. Commercial sensitivity will not suffice as an excuse for blocking taxpayers from learning how their money is being prioritized, and spent. In today’s government press release, we got this tidbit:

Cabinet will shortly consider the establishment of a small infrastructure unit to manage and plan New Zealand’s long term infrastructure needs, and the Budget will include significant infrastructure initiatives.

So in future, a ‘small infrastructure unit’ will plan and manage our infrastructure needs. Cozy. Starting from now, Key should be giving us assurances that the workings of this unit will be carried out with full transparency, and not behind the curtain of commercial sensitivity. If we are to continue to operate an open economy during this financial crisis, we have also got to ensure open government will be the operating norm.


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