Government transport expenditure failing to keep up

A well-functioning transport system improves productivity, increases accessibility, brings people and cultures closer together, and creates new opportunities.

New Zealand’s perceived underinvestment in transport infrastructure has been well documented, a Google News search for “underinvestment in transport NZ” returns approximately 2,520 results. The recently launched Te Huia train service between Auckland and Hamilton highlights how New Zealand’s failure to invest in an efficient multi modal transport system has led to suboptimal outcomes.

The Government’s annual investment in transport through the Budget encompasses the funding of land, air and water transport infrastructure investments, services, and regulatory activities. With Budget 2021 on the horizon and infrastructure expenditure a big part of the Government’s COVID-19 response, this article looks at whether Government’s historic transport expenditure, through Vote Transport, has kept up with a growing population, gross domestic product (GDP) and total government spending.

The spending proposals in the Budget are divided into areas known as ‘Votes’. Over the past 11 years the Government’s nominal investment in transport, through Vote Transport has increased 77 percent from $3.5 billion in 2010 to $6.1 billion in 2020. In Budget 2020, the Government budgeted $6.6 billion for Transport expenditure, for the 2021 financial year.

The largest element of Vote Transport is funding for the National Land Transport Programme (NLTP). The NLTP is a three-yearly transport investment package. The NLTP is funded by the National Land Transport Fund (NLTF). The NLTF is a ring-fenced transport fund predominantly made up of petrol excise duty (PED), road user charges (RUC), a portion of annual vehicle licensing fees.

When adjusted to remove the impact of inflation Vote Transport increased from $4 billion in 2010 to $6.1 billion in 2020. To ensure for consistency all future values will refer to inflation adjusted values, referred to as ‘real’, and are in 2020 dollar values.

As the Real Vote Transport expenditure graph below shows, Government investment in transport remained reasonably steady from 2010 until 2017, before a significant increase in transport investment in 2018. Major investments announced in Budget 2017, for the 2018 year, were the reinstatement of South Island State Highway 1 following the Kaikoura Earthquake and the Auckland City Rail Link. Significant loans were also made to KiwiRail for capital injection and the NLTF for short-term advances to Waka Kotahi (New Zealand Transport Agency) to manage cash outlays from, and revenue flows into, the NLTF.

Vote Transport investment has increased 51 percent since 2010, but accounting for population growth, the increase in real transport expenditure per person has grown by a more modest 30 percent.

As illustrated in the Vote Transport expenditure per capita graph below, transport investment per capita fell to $863 per person in 2011, before increasing the following year. 2012 expenditure ($1,078 per person) proved to be the highest per capita transport expenditure until 2020. From 2013 to 2017 real transport expenditure per capita remained below 2010 levels.

In 2016 transport expenditure per capita fell to its lowest level in the past 11 years ($794 per person). Significant investment in 2018 grew Vote Transport, increasing per capita spending by a third, just below to 2012.

After growth 2018, transport expenditure per person fell in 2019, before increasing again to a high over the 11 year period of $1,203 in 2020.

In 2010 Vote Transport was 1.7 percent of GDP. This grew to two percent in 2012, before falling back in 2013. Vote transport fell to 1.3 percent of GDP in 2017, the lowest proportion of GDP in the 11 year period.

As the Vote Transport expenditure as a proportion of GDP graph shows, increased government investment in 2018 reversed the declining trend in transport expenditure as a proportion of GDP experienced in the mid-2010s. The $5.2 billion spent in 2018 increased vote transport expenditure back to 1.7 percent of GDP. In 2020 Vote Transport grew to 1.9 percent of GDP. The second highest proportion in the last 11 years, after 2012.

Just once between 2010 and 2017 did transport account for greater than 4.7 percent of total government spending, in 2012 (5.6 percent). Increased investment in transport in 2018 saw transport’s proportion of total spending increase to 5.4 percent. Although transport expenditure was its highest in 2020, increased spending across other parts of Government saw transport’s proportion decrease to 4.7 percent.

Although spending has increased this is probably too low, given that New Zealand lacks a high-speed railway system, the country’s main road arteries face delays during most peak periods and for many communities alternatives to driving are limited.

If New Zealand wants to maintain, improve and upgrade its transport network to achieve greater wellbeing outcomes and develop a truly multi modal transport system it will require significant government investment. Government transport investment needs to remain at least at 2020 levels to deliver its transport outcomes of, inclusive access, healthy and safe people, environmental sustainability, resilience and security and economic prosperity.

BERL will have a team at Budget 2021 on Thursday 20 May 2021. For all our Budget coverage check out our website or follow BERL on LinkedIn.