Twyford's way around budget rules

Transport Minister Phil Twyford hopes to fund infrastructure with Special Purpose Vehicles that will neatly skirt the Government's debt targets. Photo: Lynn Grieveson

The Government wants to make big infrastructure investments without breaking its budget rules, Thomas Coughlan reports

Transport Minister Phil Twyford and his two Associate Ministers Julie Anne Genter and Shane Jones spoke at a transport summit in Wellington on Monday. They were selling the Government Policy Statement on Transport, released in draft form two weeks ago to mixed reviews. 

Critics have focused on the increases in fuel taxes and accused the Government of funnelling money out of the regions to pay for expensive urban projects like light rail and rapid transit. 

Twyford took the opportunity on Monday to refocus the political narrative on the Government’s agenda, which is road safety and investment in regional and local roads, rather than National’s Roads of National Significance. 

He described National's funding of its much-vaunted RoNS as a “tarmac cargo cult” rather than evidence-based investment in the network as a whole. 

Twyford also tried to play down concerns about higher fuel taxes and the cost of the transport policy. 

“Despite the scaremongering, there is only an average difference of $90 million per year or just two percent less on roads between our GPS and the past government’s GPS from 2015, we’ve just changed the priorities,” he said. 

“The main differences will be fewer new urban motorways in the coming years and more money spent on regional and local roads across all the road activity classes.”

The issue of funding was never far away. When Shane Jones took his turn at the microphone, he was keen to talk up the efforts the Government was taking to finance investment projects.

“Phil has talked of the need to draw on private and public capital to meet our infrastructure deficit,” Jones said.  

“There is a significant wedge that will not be funded from public sources, therefore the Government as reflected by Phil, Grant Robertson and myself is open for business,” he said. 

Twyford spoke about the possibilities for public-private partnerships, value capture uplift rates in areas benefiting from rezoning and transport infrastructure investment, special purpose vehicles and even the possibility of attracting investment as part of China’s Belt and Road Initiative. 

Labour’s interest in public-private partnerships has already been well signalled and Finance Minister Grant Robertson spoke in March about using value capture to make finance infrastructure investment. Special purpose vehicles were investigated by the previous government but had not been implemented by the time National lost office. 

A special purpose vehicle, which in this case would be called a Crown Infrastructure Partnership, would hypothetically issue debt for a project allowing it to be financed without sitting on the public balance sheet. 

This has the benefit for the Government of allowing projects to be financed by debt without it affecting its Budget Responsibility target to reduce net crown debt to 20 percent of GDP. Local government also benefits as the project will not sit on their balance sheets and count towards their stringent debt to revenue ratios.

“The question about the debt limit for local government is really about whose balance sheet the debt would sit on and we intend to build on some of the work that was done by the previous government in establishing Crown Infrastructure Partnerships as a Special Purpose Vehicle,” Twyford said.

“It’s a balance sheet that’s not council, it’s not Government, it’s kind of a public purpose hybrid if you like and that’s one of the keys to unlocking this whole area,” he said. 

He did not think that this went against the spirit of the Budget Responsibility Rules.

“The commitment that we made about the debt limit was about the core crown debt. That’s not to say we shouldn’t use our capital more efficiently and be more ambitious about mobilising additional sources of capital,” he said. 

The drawback is that the SPV might not benefit from the generous borrowing conditions enjoyed by the Government. This means that while the SPV might make Government accounts look debt-free they could cost end up costing more.