23 May 2018
This Government’s first full Budget made major infrastructure investments in transport, housing, education and health, as expected. But these public funds alone will not be enough.
As Finance Minister Grant Robertson said last week, “transformation takes time. It cannot happen all at once.” Economic transformation requires innovation and collaboration beyond Government.
The Government’s self-imposed fiscal responsibility rules constrain public investment. To get beyond this limit, the Government proposes to make greater use of private investment. Public entities like Housing New Zealand, NZ Transport Agency and Crown Infrastructure Partners are going to be able to raise debt for large capital projects. This extra finance will be needed for key priorities, including KiwiBuild and Auckland transport. Projects with future revenue streams can attract institutional investors like the New Zealand Super Fund. Future revenue may come from fares from light rail and tolls from new roads (or even congestion charges). This approach can help to smooth out the lumpiness of big infrastructure investments.
Budget 2018 gives a dollar boost to innovation, with $1 billion over four years to finance a tax incentive for more research and development by businesses. More investment into technology by and for business is welcome. The issue is how much this encouragement will lead to new investment and effective innovation. The links between businesses and from businesses to universities and science all need strengthening.
Budget 2018 formally establishes the $1 billion per year Provincial Growth Fund. This Fund is described by Mr Robertson as “the single biggest investment in the regions of New Zealand in our lifetimes.” It includes significant investment in the One Billion Trees programme and support for regional rail projects. There remains significant opportunity for new regional projects to be advanced, with this fund providing part of the mix for project scoping and development.
As well as the expected big money, there is a new $100 million Green Investment Fund “to kickstart investment in assets and technology to reduce carbon emissions”. The Fund will be established by the end of 2018 and operate independently from government. It will work with businesses, infrastructure owners and investors to bring forward emissions-reduction projects. Treasury has said, “once the Green Investment Fund demonstrates investment and commercial success then other private investment will follow”. The scaling up of clean energy projects could well be assisted by this Fund. But it is seed money, insufficient to make the difference on its own.
Put together, these investment options, incentives and funds may combine to accelerate and sustain innovation. This is a good budget for infrastructure investment with an eye on the future. Not a transformational budget, but a helpful one.
