I attended Steven Joyce's first major speech as Finance Minister in Auckland yesterday, and his focus was very much on Auckland (as so much of the political economy is these days.)
His speech yet again pitted Wellington against Auckland - with Auckland commuters stuck in the middle while the two argue over who should pay to get traffic and people moving. Joyce downplayed the chances of the central Government using its balance sheet to build the infrastructure, and ruled out another tool proposed by Auckland Council, leaving more uncertainty ahead about how the infrastructure will be funded and built to cope with a population growth rate of almost 3% per year. The debate raised the spectre of a 16% rates increase in Auckland next year without a solution.
Joyce spoke at length about Auckland's infrastructure funding landscape, pushing hard for Auckland Council to find other ways to fund its share Auckland's insatiable appetite for infrastructure as its population grows at a rate of 45,000 per year.
Joyce slammed shut any (slight) remaining chance of new Mayor Phil Goff using a regional fuel tax to fill the Auckland Council's transport funding hole when its NZ$186 million interim transport levy on ratepayers runs out next year.
The three-year levy was designed by Len Brown as a stop-gap measure until some other funding tool could be found, given Auckland Council is up against its borrowing limits and needs to contribute to various roading, rail and bus projects to cope with Auckland's growth. Goff had campaigned on using a regional fuel tax on Auckland drivers to fill the gap between the expiry of the levy and the arrival of congestion charging, which the Government is now open to and Joyce recommitted to in his speech.
The trouble for Goff is that Joyce is talking about congestion charging as a medium to long term option (he later specified a 5 to 10 year time frame), creating a hole between the end of the interim levy and the beginning of congestion charging.
Goff has described the gap as being NZ$400 million a year or NZ$4 billion over 10 years, and would require a rates increase of 16% next year without another solution.
Joyce told the annual Massey University-Auckland Chamber of Commerce luncheon at the Langham that he had told Goff at a meeting yesterday morning that Cabinet had decided to rule out a regional fuel tax, and he repeated Simon Bridges' commitment to moving ahead with demand management tools on roads.
He said any road pricing moves in Auckland would not be a revenue raising exercise and would predominantly be a replacement for petrol taxes and road user charges. He later would not specify whether that meant fuel taxes and road user charges would be lower in Auckland.
"I met with Mayor Goff this morning and said we don't see regional fuel taxes as part of the solution in Auckland. They are administratively difficult, prone to leakage (people fuelling up elsewhere, particularly trucks) and cost spreading. The rest of the country ends up paying for it, and they blur the accountabilities between central and local Government," he said.
"I said 'we've get to get this one off the table so we can get on with the other opportunities we have'."
'Private finance better than public finance'
Joyce said he wanted to explore further options for longer term funding for new infrastructure and referred to the use of private finance for specific projects. He pointed to the stalled Penlink motorway linking State Highway 1 to Whangaparaoa Rd.
He later said both the Council and the Government needed to keep investing in Auckland Transport.
He talked in more depth about financing options in the Questions and Answers section after the speech.
"There's plenty of people who want a relatively low risk investment in long dated infrastructure and there are a number of ways in which we could do that," Joyce said, referring to 1 or 2 legislative blockages that Goff had mentioned. He did not detail them in the later stand-up news conference.
He was challenged by a member of the audience on whether Public Private Partnerships (PPPs) were cheaper in the long run, given private sector borrowing costs were higher than public borrowing costs.
Joyce said private financiers and builders of infrastructure often found ways to reduce costs that publicly funded projects did not. He also pointed to constraints on public borrowing and the potentially higher costs if ratings agencies downgraded public debt.
"You put those two points together...it's much more supportive of more private funding of some of this core infrastructure," he said.
Goff expressed disappointment about the ruling out of a regional fuel tax in a statement, saying it was now up to the Government to come back to the Council with alternative solutions.
"We must find new revenue streams to fund our much-needed housing and transport infrastructure rather than continuing to load the cost of growth on ratepayers," he said.
"If they remain adamantly opposed to a regional fuel tax, they need to urgently come up with another workable and sustainable solution."
What those alternative solutions might look like remain unclear, apart from the discussions about PPPs.
Joyce said he was keen to talk with Goff about alternative financing tools and had told the Mayor he would "get bored with Treasury people and Ministry Transport people over the next few weeks coming and having those discussions."
"I wanted to be very clear to him that it wasn't the case that 'you can't do this and good luck with anything else'. We want to be very actively involved with that," he said.
One option not specified by Joyce yesterday, but which could be an option is the model used by Crown Fibre Holdings, where the Government finances and owns the infrastructure up front and then progressively sells it back to others as it is built out. Another could be for the Government to buy major roads off Auckland Council to further invest in them.
Back in July while Finance Minister, Bill English commented in Parliament that a Crown Fibre Holdings model could be used to finance some of Auckland's infrastructure. He was talking about it in the context of the Housing Infrastructure Fund.
Early disappointment with housing fund applications
Elsewhere, Joyce expressed disappointment with the NZ$1.79 billion worth of high growth Council applications put in so far for the Government's NZ$1 billion Housing Infrastructure Fund, saying only a small number of the 17 proposals from Councils would actually bring forward projects earlier than originally forecast.
"They have these projects in their long term plans and they've turned up and said we could do these projects, even though we've planned to do them, we would just like your Government money for doing that. We've actually said we'd like you to be more ambitious. We want to see more ambitious projects that would have a more positive impact on housing supply over the next five years," he said.
In business news....
Mondelez announced the closure of its Cadbury factory in Dunedin with the loss of 380 jobs.
In another sign that dairy incomes will be more robust than expected this year, Fonterra announced in its global dairy update for February that, because of better weather, it had revised its forecast for production for the current 2016/17 season to be down 5% from 2015/16, rather than down 7%. A very wet spring hit production in the Waikato in particular.
In people news...
NZ Herald columnist and New Zealand's best known fund manager, Brian Gaynor, announced he would hand over his portfolio manager duties at Milford Asset Management to others while focusing on his full time executive role as Head of Investments.
Tainui Group Holdings announced that the appointment of Robert Batters as General Manager Operations from February 20. Batters was the National Delivery Manager for Substations at Transpower in Auckland and was previously Senior Project Manager for Meridian’s Te Uku Wind Farm in Raglan. CEO Chris Joblin said Batters would shepherd Tainui's Ruakura inland port operation through its first stage over the next year.
The Serious Fraud Office announced property developer Leonard John Ross (50), company director Michael James Wehipeihana (45) and self-employed consultant Vaughn Stephen Foster (54) had been charged with obtaining with deception and using forged documents over a NZ$40 million loan from ANZ to develop the Waldorf Celestion Apartment Hotel in Auckland.
In political news...
The Maori Party announced President Tukoroirangi Morgan and co-leaders Te Ururoa Flavell and Marama Fox would meet on Friday with Mana Party leader Hone Harawira in Wanganui to sign an agreement between their parties ahead of the September 23 election.
While you were sleeping...
In another defeat in Washington for Donald Trump, his nominee for Labor Secretary, fast food chain CEO Andy Puzder, withdrew from the nomination process after it became clear Republican Senators would block him for various reasons, including hiring an undocumented immigrant and because his ex-wife accused him of beating her. (NY Times) Democrats accused Puzder of mistreating workers at his Carl's Jr and Hardees chains and opposed his scepticism about the minimum wage.
Tweets of the day:
Sign of the times: had dinner with friend from Moscow, who asked about the difference in pronunciation between "treason" and "threesome."
Have a great weekend and look out for a few longer reads below.