State of the Nation speech: Prime Minister Christopher Luxon takes aim at Labour over transport cash shortfall

Shots fired!

Prime Minister Christopher Luxon used his state of the nation speech to accuse Labour of some fairly fundamental fiscal mismanagement: underfunding its transport promises to the tune of $200
billion.

That’s about half of our current GDP. If the Government were to add that money to our debt pile today, it would send our net core Crown debt sailing towards 90 per cent of GDP, well above crisis levels seen in the early 1990s, a period Luxon seemed keen to evoke without name in his speech. Back then net core Crown debt hit 55 per cent of GDP.

Shocking, but fortunately, that’s not going to happen – and wouldn’t have happened even if Labour had won the election.

Labour leader Chris Hipkins shot back, calling the slur “absolute nonsense”. He called another allegation in the speech “an out and out lie” – quite the attack.

So who is telling the truth?

The answer, I’m afraid, is a fairly predictable, tired political answer: both and neither. The truth involves a heavy lathering of hypocrisy on both sides and an answer that doesn’t offer a neat, binary verdict on either of the Chrisses’ truthfulness or otherwise. Instead, as it so often does in this game, the claim and counter-claim involves a walk through shades of truth and falsehood.

National’s claim rests on data published by the Minister of Transport Simeon Brown, which he said was sourced from the Ministry of Transport about the level of funding yet to be committed to key projects. The figures add up to $201.3b, although the minister hasn’t given a time period.

Let’s look at a couple of the famous funding lines: Auckland Light Rail ($14.4b underfunded) and the Waitematā crossing projects ($48m – the new Government took the largest cost estimate for this, other versions of the project were cheaper).

There are a couple of reasons why these projects weren’t funded, as you might expect them to be.

First, neither have a final reliable cost estimate. In its famous Economic and Fiscal Updates (better known as “EFUs”) neither project could be booked with its exact cost, because such a figure did not exist. The spending was also expected to be done outside the four-year forecast period, meaning Treasury didn’t actually need to put either project into the most detailed part of the forecasts.

In the most recent EFU (PREFU) Treasury did, however, include both projects in its list of risks, meaning it clocked that at some point, some Government would have to pay for these projects. To National’s point, Treasury sound the alarm about a lack of funding attached to them. In a Prefu note, Treasury warned that light rail, the new harbour crossing, Let’s Get Wellington Moving, and the Strategic Investment Programme, which account for more than $120b of National’s alleged “hole” had “limited, or no funding committed yet, and often no clear funding source identified”.

Scathing.

A couple of counterpoints, however. The former Government had been frank that it was looking at developing new tools like “value capture” (a sort-of targeted rate to get people who benefit from infrastructure to contribute to its cost), which they wanted to use to fund things like light rail. So, while the new Government is correct, that there was no funding attached to these projects, it’s also fair to say the way they would be paid for hadn’t been developed and announced yet.

National is probably less keen to focus on this, because it plans to use the very same tools to announce its own set of expensive, and as-yet unfunded transport projects.

Let’s look at another one.

The Auckland Transport Alignment Project (ATAP), which the Government says is unfunded to the tune of $26.5b. ATAP, is the name given to the package of Auckland transport investments funded jointly by the Government and Auckland Council.

After Questions from the Herald Brown told us he had been advised by the Ministry of Transport in November that “the commitments of ATAP had an estimated cost of around $30b to deliver”.

The Ministry “also advised that the previous Government had only appropriated funding of around $3.5b, leaving a deficit of more than $26b”.

This seems a bit unusual. The ATAP Cabinet Paper was under the impression that $16.3 billion of the $31b needed for the programme would be coming from the NLTF, the acronym used for the fund paid for by our fuel taxes and road user charges. It did not mention a large funding gap.

It is also bit unfair of Brown to draw attention to how much money has been appropriated and how much remains unappropriated. It’s not unusual for Governments to appropriate money as they go for large infrastructure projects.

If you take a look at the Government’s long-range forecasts in Prefu, the Government has $86.2b in capital spending, mostly unallocated, over the next decade. What would will happen, is the Government will, with each budget, dip into those funds and allocate them to the likes of ATAP, Auckland Light Rail, and everything else.

Now, it’s true, the funding hasn’t been allocated at the moment, but that’s hardly unusual. The money is there, it’s just sitting in a different budget line. No real scandal.

In fact, in the Prefu, Treasury hinted as much, saying funding for the Strategic Investment Programme, would probably be met “as a pre-commitment against Budget operating allowances and allocaction for the MYCA [multi-year Capital Allowance]”.

Before Labour cries foul at this horrendous below-the-belt attack on their fiscal honour, we shouldn’t forget that they made the exact same attack on the former Government’s allegedly unfunded Roads of National Significance programme back in 2018, slammed by then-Prime Minister Dame Jacinda Ardern as “unfunded”.

We’re running out of time.

I can only look at one more line, so let’s bite off the biggie: the Strategic Investment Programme: $59.3b of allegedly unfunded stuff.

What is it? Well, to be brief, every three years the Government writes a budget telling Waka Kotahi – pardon, NZTA – how to spend the money it collects from fuel taxes and road user charges. NZTA is meant to take this blueprint and independently decide where that investment should go.

But politicians have, over the years, decided that they know better than NZTA. They’ve got into the habit of adding to their transport budget (known as a GPS) a list of things that they would really, really, wink wink, nudge, nudge, like NZTA to fund and build. NZTA always gets this not-so-subtle message, and consents to build what the Government asks.

It helps that NZTA’s fuel tax revenue is so low that the Government tends to come along and fund these projects with its own money anyway.

The SIP is Labour’s attempt at this, a long list of projects like Warkworth to Whangārei, Cambridge to Piarere, Tauranga to Tauriko, that Labour really wanted built.

Now these projects appeared to come with a massive price tag, and to be fair to National, it appears Treasury and the Ministry of Transport had a mini-meltdown over the Government’s inability to pay for what it wanted to build.

Some of the money would have come from fuel taxes, but the rest would have needed to come from the Crown, PPPs, value capture or somewhere else. The drama over the SIP is part of a wider economic story about our appetite for expensive transport investment not diminishing in line with flagging fuel tax and road user charge revenue. NZTA has been frank with both Labour and National: the current system is unsustainable, and needs to be fixed.

Both parties, however, have continued to plough on with unfunded (which really means taxpayer funded) transport announcements.

As previously reported in the Herald, Treasury was scathing that the Government could invent the SIP when it already had a hectic, unfunded investment programme. Treasury warned the programme was unfunded and reckoned an “additional $43b” would be needed over the next decade to deliver on them all.

“We see substantial challenges delivering on all of the additional… transport projects that are now being considered,” officials warned, adding that they reckoned an “additional $43b” over the next decade would be needed to fund the Government’s commitments – a top up of $4b a year to the roughly $6b a year spent on the NLTF. And, as mentioned above, Treasury included a scathing note on the lack of funding for those SIP projects in the Prefu – a fairly significant step, and a signal that it wasn’t pleased with the way the Government had chosen to fund them.

But let’s not forget, a good deal of the SIP projects were also included in National’s equally lavish transport plan. Details for how this will be funded will be released shortly when National unveils its own transport budget in a few months time. Until we see what’s in that, many of the same allegations National is making of Labour can be made in reverse.

The State of the Nation speech set a high bar for demonstrating how this will be funded – the pressure is on to see if Brown and Luxon can meet it.

Thomas Coughlan is deputy political editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the Press Gallery since 2018.