New Zealand has rated well in two international business and economic competitive surveys, but the Government believes it can do better, Finance Minister Bill English says.

In the World Bank’s Doing Business Survey, which ranks countries on 10 measures relating to the ease of doing business, New Zealand retained its second place behind Singapore in the year to June 1, 2009.

And New Zealand moved up four places to 20th out of 133 countries in the World Global Forum’s annual Global Competitiveness Report. This measures institutions, policies and other factors determining productivity levels.

"It is pleasing to see these business and economic competitiveness ratings, but we believe there is room for improvement,” Mr English says. “That is why we have launched a series of reviews aimed at cutting red tape and creating an environment where business can thrive.

"As the World Bank report says, onerous or poor regulation deters investment and stifles growth. This Government is committed to increasing productivity by removing superfluous regulation that grew unchecked in recent years.

"Creating better regulatory conditions lifts business confidence, which in turn flows through to investment and jobs.

"Having a simple and transparent regulatory environment also helps attract international investment and we need to ensure New Zealand remains globally competitive," Mr English says.

The Government is currently reviewing 15 pieces of major regulatory legislation, including the Resource Management Act, the Overseas Investment Act, the Building Act and legislation covering the electricity and telecommunications sectors.

"We would expect changes from those reviews - as they are implemented - to flow into the results of future surveys."

The Government has passed legislation extending the Retail Deposit Guarantee Scheme and changing some of its terms and conditions.

The Retail Deposit Guarantee Bill passed its third reading unanimously in Parliament today.

The current Retail Deposit Guarantee Scheme ends on October 12, 2010. The new scheme will start on October 13, 2010 and end on December 31, 2011.

"The passing of the new scheme into law provides certainty for depositors, financial institutions and taxpayers," Finance Minister Bill English says.

"Depositors and institutions have more than a year of advance notice before the scheme changes and then a further 14 months under the extended scheme until the Crown guarantee ends on December 31, 2011.

"Crown retail guarantees have helped maintain confidence in New Zealand’s financial institutions, but they also distort the market and impose costs. 

"The current scheme was introduced as a response to the global financial crisis, but concerns about financial stability are now abating," Mr English says

The changes after October 12, 2010 are:

• Fees will be changed to reflect institutions' risk profile and to bring them closer to longer term normal market pricing. Thresholds in the current scheme will be discontinued and the fees will apply to all funds in the new scheme.

• Eligible bank deposits will be covered up to a maximum $500,000 per depositor per institution and eligible non-bank deposits to a maximum $250,000 per depositor per institution. The maximum in the current scheme is $1 million per depositor per institution.

• Deposit-taking institutions with a credit rating of BB or higher can apply to participate in the extended scheme. Institutions with a lower credit rating or no rating won’t be eligible despite being included in the current scheme.

• Collective Investment Schemes won't be eligible for the new scheme.

All depositors currently benefiting from a Crown guarantee will have their deposits covered until October 12, 2010. Whether or not they are covered beyond that date will depend upon whether their institution joins the new scheme, which is voluntary.

The changes are consistent with new Reserve Bank rules for non-bank deposit takers. Under those rules all institutions with deposits over $20 million will need to obtain a credit rating by March 1, 2010.

A list of institutions covered by the scheme beyond October 12, 2010, will be available on the Treasury website once applications have been processed. This will be regularly updated. A list of the new fees is also available on the website.

More information online: www.treasury.govt.nz/economy/guarantee/retailextension

Infrastructure Minister Bill English today welcomed the National Infrastructure Unit's release of a discussion paper on the state of New Zealand's infrastructure.

The paper, which includes a stock take of key infrastructure issues and challenges, will be used for targeted consultation. Feedback will be incorporated into the first National Infrastructure Plan, early next year.

"This Government is serious about getting New Zealand's infrastructure right – that means improving the quality of our roads, ensuring our electricity grid is up to scratch and upping our broadband speeds," Mr English says.

"To achieve this we are investing almost twice as much over the next few years than was planned by the previous Government. This amounts to $7.5 billion over the next five years, which will support thousands of jobs.

"We are also focused on better planning and executing of projects. The National Infrastructure Plan is part of that and this discussion paper is an important first step."

The paper covers the state of network infrastructure like roads, electricity and telecommunications, as well as social infrastructure like hospitals, schools and prisons.

"This document represents a starting point. It outlines what we know and describes the principles and likely direction of future investment.

"However, the National Infrastructure Plan will need input from more than just the government sector and we want groups with deep sector knowledge to contribute,” Mr English says.

"By early next year, we want a plan that identifies emerging bottlenecks and investment gaps and allows planners to set clearer priorities. That will help improve services to the public and give the industry greater certainty." 

To view the paper: http://www.infrastructure.govt.nz/plan

RETAIL DEPOSIT GUARANTEE - THE NEXT PHASE

This week I outlined the future of the Retail Deposit Guarantee Scheme. The current scheme ends on October 12, 2010. That scheme was put together in the midst of the credit crisis and an election campaign. Its wide coverage and moderate fees gave New Zealand's banking sector certainty in a time of turmoil.

The credit crisis has now largely abated. To reflect that we have made several changes to the scheme that will take effect from October 13, 2010 and run until December 31, 2011. You can read about the changes here .

The new scheme provides for an orderly transition back to relatively normal banking conditions and strikes a balance between the interests of depositors, institutions and taxpayers. For more information you can also click on the above video screenshot - or click here.

THE GOVERNMENT'S INFRASTRUCTURE PLAN

This month I gave a speech outlining our approach to infrastructure. Better roads, more secure electricity supply and faster broadband will help us increase productivity, grow exports and start narrowing the gap with our trading partners.

As well as almost doubling our investment in infrastructure to $7.5 billion over the next five years, we are looking at how to set clearer priorities and get the most out of our money. As part of this we want more innovation. To that end we are looking at how we can make greater use of private sector expertise (link to statement) when there are clear benefits for taxpayers and users.

The private sector is already contracted to build most of our infrastructure. Overseas experience shows that extending this through public-private partnerships can introduce new design, financing and maintenance techniques that provide better services and value to taxpayers.

SINGLE ECONOMIC MARKET WITH AUSTRALIA

Last week Prime Minister John Key and seven members of the Cabinet, including myself, headed across the Tasman to the Australia New Zealand Leadership Forum. The forum is an annual event that aims to foster closer links.

During the trip John Key and Australia's Prime Minister Kevin Rudd announced a lift in investment thresholds to make it easier for businesses in both countries to invest across the Tasman. The announcement followed discussions between Australian Treasurer Wayne Swan and myself on the issue last month. Trans-Tasman travellers will also welcome the leaders' announcement of plans to make border checks on trans-Tasman travel simpler and faster.

These are the latest of a series of initiatives aimed at eventually creating a single economic market with Australia. Closer links could result in big gains for our exporters and key industries like tourism. Watch out for future announcements.

CUTTING RED TAPE

As I said last month, this Government is committed to cutting the red tape that has been holding business back. Last week Regulatory Reform Minister Rodney Hide and I released the first Government Statement on Regulation (link to Beehive PR). It contains two key commitments:

• to introduce new regulation only when the government is satisfied that it is required, reasonable and robust and
• to review existing regulation to identify and remove requirements that are unnecessary, ineffective and excessively costly.

As I outlined in last month's newsletter , we are already well advanced on the second commitment with 15 reviews of major pieces of regulatory legislation underway.

GETTING AROUND THE REGIONS

When I get the chance I like to get out and about so I can hear from local businesses and their staff. This often gives me a better sense of how the country is faring than economic forecasts and advice from policy analysts.

During the recent recess I managed to get up to Northland for two days. As well as visiting local businesses I gave speeches and took questions at functions in Paihia, Kerikeri and Whangarei.

A few days earlier I was down in my own electorate for the opening of the new National Bank in Gore. The bank is one of the largest rural lenders in the South Island and the opening was a good chance to mix with members of the Southland farming community.

WHAT TO WATCH FOR

· Next week I'll be visiting Tokyo, New York and Boston to give presentations on New Zealand's economic plan to international lenders.

· The Reserve Bank will deliver its next Monetary Policy Statement on September 10.

· On September 18 I'll be talking to local businesses in Napier.

· In the coming weeks I will also release a draft of the Government's first 20-year-infrastructure plan.

I WANT TO HEAR YOUR VIEWS

I'm keen to hear your views. To comment on anything in this newsletter please click here . Your comments will be read by either myself or my staff and will be publicly available on the www.billenglish.co.nz website. If there are issues of particular interest to readers then I may comment on them in future newsletters. If you are not comfortable commenting in a public manner, you are welcome to email me at b.english@ministers.govt.nz .

To subscribe and receive this newsletter by email, click here.

Bill English talks about the very recent extension of the deposit guarantee scheme and other developements in the government's work to stabilise the economy.

Finance Minister Bill English will outline the Government's plan for economic recovery to international lenders during visits to Tokyo, New York and Boston next week.

Mr English will visit the cities between August 31 and September 6 with officials from the New Zealand Debt Management Office.

"The Government has a large borrowing programme ahead of it over the next few years," Mr English says.

"The aim of this trip is to assure international lenders that the Government has a realistic plan to control debt, lift growth and rebalance our economy towards greater investment and exports. Taken together these measures will put New Zealand on the road to recovery."

Based on Treasury's Budget 2009 forecasts the Government will have to borrow about $40 billion over the next four years to fund budget deficits.

"Governments all over the world are going to the market to borrow large sums to support their economies. To secure the funds we need to make sure we are out there telling our story.

"I'll be reminding investors that New Zealand's economic fundamentals are sound, our Crown debt is relatively low and we are well positioned to come out of the recession ahead of comparable nations."

Mr English and NZDMO officials will meet representatives from major financial institutions in all three cities. They will also meet senior ratings agency representatives.

In addition, Mr English will meet the chairman of the Bank of Japan, directors of New York's Federal Reserve and leading business people and economists.

The Government will extend the Retail Deposit Guarantee Scheme and change some of its terms and conditions, Finance Minister Bill English says.

The current scheme ends on October 12, 2010. The new scheme will start on October 13, 2010 and end on December 31, 2011.

"The Retail Deposit Guarantee Scheme was introduced as a direct response to international financial market turbulence. Immediate concerns about the stability of the financial system are now abating,” Mr English says. 

"Crown retail guarantees have helped maintain confidence in New Zealand’s financial institutions. However, they also distort the market and impose costs.  

"The planned extension will help maintain confidence in New Zealand’s financial institutions while achieving an orderly exit from the scheme.
It will allow both depositors and institutions to adjust back to a more normal business environment. 

"Today’s announcement provides certainty for investors and financial institutions. It also strikes the right balance for taxpayers.

"Depositors and institutions have more than a year of advance notice before the scheme changes and then a further 14 months under the extended scheme until the Crown guarantee ends on December 31, 2011."

The changes that will take effect after October 12, 2010 are:

• Fees paid by participating institutions will be changed to reflect their risk profile. These fees have been set by the Minister of Finance. They are intended to approximately match longer term normal market pricing. Thresholds in the current scheme will be discontinued and the fees will apply to all funds in the new scheme.
• Eligible bank deposits will be covered up to a maximum $500,000 per depositor per institution and eligible non-bank deposits to a maximum $250,000 per depositor per institution. The maximum in the current scheme is $1 million per depositor per institution.
• Deposit-taking institutions with a credit rating of BB or higher can apply to participate in the extended scheme. Institutions with a lower credit rating or no rating won’t be eligible despite being included in the current scheme.
• Collective Investment Schemes won't be eligible for the new scheme.

All depositors currently benefiting from a Crown guarantee will have their deposits covered until October 12, 2010. Whether or not they are covered beyond that date will depend upon whether their institution joins the new scheme. Participation in the new scheme will be voluntary.

“Some institutions may choose not to apply for the extended scheme and some won’t meet the application criteria. As credit conditions improve some institutions may decide participating is not worthwhile and elect to stay out of the scheme. In these cases depositors will not be covered after October 12, 2010,” Mr English says.

When the Government introduces legislation to enact the changes, it will be passed through all stages.

A list of institutions covered by the scheme beyond October 12, 2010, will be available on the Treasury website once applications have been processed. This will be regularly updated.

The level of fees will vary by both credit rating and type or organisation, and is set out in the table below.

 

More information online: www.treasury.govt.nz/economy/guarantee/retailextension

Better and less regulation is essential to boost New Zealand's productivity growth, international competitiveness and living standards, the Hon Rodney Hide, Minister for Regulatory Reform, and the Hon Bill English, Minister of Finance, said today.

The Ministers released the first Government Statement on Regulation, which contains two key commitments:  to introduce new regulation only when the government is satisfied that is required, reasonable and robust; and to review existing regulation to identify and remove requirements that are unnecessary, ineffective and excessively costly.

Mr English said the two commitments responded to the Job Summit's recommendation that the government delay introducing any new regulation that imposed extra substantive costs on business during the current difficult economic conditions.

"We have a clear plan to make New Zealand a more productive and higher income country and we believe that better and less regulation is essential to achieve that goal," Mr English said.  "In our current financial situation the quality of the regulatory environment is even more important."

Mr Hide said businesses were struggling to keep up with the new rules and requirements they were being forced to comply with and all New Zealanders paid a price for that. 

"We are committed to addressing the high compliance costs hampering the efforts of businesses to create jobs and support our economic growth," Mr Hide said. 

"We have begun to roll back a number of regulatory measures put in place by the previous government.  The taskforce set up to recommend changes to the Regulatory Responsibility Bill, which demands that regulators show restraint and respect for private rights and interests, will be reporting back to the Government by 30 September."

Measures supporting the delivery of the Government Statement on Regulation are:
- Departments required to provide annual regulatory plans of all known and anticipated proposals to introduce, repeal or review legislation or regulation
- Departments required to certify Regulatory Impact Statements and provide assurance that all policy options have been analysed and major risks and uncertainties identified
- Departments required to put in place systems for continually and systematically scanning existing regulation to identify possible areas for reform or further review
- Ministers required to certify that new regulation is consistent with the Government Statement on Regulation 

GOVERNMENT STATEMENT ON REGULATION - BETTER REGULATION, LESS REGULATION
Released by Hon Bill English and Hon Rodney Hide on 17 August 2009

Every day New Zealanders are affected by regulation in a myriad of ways.  We look to regulation to help ensure we live safer lives, get treated fairly, protect and manage our environment, have a competitive and efficient economy, and much more.

But regulation also has costs and can have unintended effects.  Outdated, poorly conceived and poorly implemented regulation can significantly hinder individual freedom, innovation, and productivity.  Reducing the burden imposed by such regulation will help unshackle our economy and give New Zealanders more ability to shape and improve their own lives. 

New Zealand needs to offer a better policy environment than can be found elsewhere if we are to overcome the economic disadvantages of our small size and geographical isolation, and attract and retain increasingly mobile talent, skills, capital, technology and entrepreneurship. 

This is why improving the quality of regulation is a priority for this government.  We believe that better regulation, and less regulation, is essential to assist New Zealand to become more internationally competitive and a more attractive place to live and do business. 

Our Commitments

- We will introduce new regulation only when we are satisfied that it is required, reasonable, and robust.

- We will review existing regulation in order to identify and remove requirements that are unnecessary, ineffective or excessively costly.

How we will deliver on these commitments

We have already:

- Begun a programme of reviews of the effectiveness of important regulatory regimes, particularly those that have a significant impact on productivity;

- Committed to introduce an annual Regulatory Reform Bill to make it quicker and easier to remove or simplify unnecessary, ineffective or excessively costly requirements in primary legislation;

- Established an independent expert Regulatory Taskforce to investigate the case for, and form of, a Regulatory Responsibility Bill.

We will also be looking for significant changes in the approach both Ministers and government agencies take to regulation.  To this end we will:

Resist the temptation or pressure to take a regulatory decision until we have considered the evidence, advice and consultation feedback, and fully satisfied ourselves that:
-  the problem cannot be adequately addressed through private arrangements and a regulatory solution is required in the public interest;
- all practical options for addressing the problem have been considered;
- the benefits of the preferred option not only exceed the costs (taking account of all relevant considerations) but will deliver the highest level of net benefit of the practical regulatory options available;
- the proposed obligations or entitlements are clear, easily understood and conform as far as possible to established legislative principles and best practice formulations;  and
- implementation issues, costs and risks have been fully assessed and addressed

Require there to be a particularly strong case made for any regulatory proposals that are likely to:
- impose additional costs on business during the current economic recession;
- impair private property rights, market competition, or the incentives on businesses to innovate and invest;  or
- override fundamental common law principles (as referenced in Chapter 3 of the Legislation Advisory Committee guidelines)

Ensure that Cabinet's requirements for assuring regulatory quality are treated as an integral part of policy development, and built into the policy process from the beginning

Ensure that all government agencies are fully aware of the commitments set out in this statement and understand the importance that the government attaches to them

Expect a culture from government agencies that:
- recognises the importance of productivity in enhancing New Zealand's economic performance;
- respects the value of individual autonomy and responsibility;
- does not see regulation as the first resort for problem solving;
- provides fearless advice on whether a regulatory proposal is consistent with this policy statement and meets appropriate standards of impact analysis and consultation; and
- continually looks for opportunities to make existing regulation more effective, easier to access and understand, and easier and less costly to comply with;

Require greater accountability from government agencies for the quality of the regulatory analysis they undertake, and for the consequences of poor implementation

Encourage New Zealanders to hold us to account where they believe we have regulated in a way that is inconsistent with the commitments in this statement.

 

Good morning and thank you. It is a pleasure to be here.

This symposium is very timely – not just for you and the organisations working in the infrastructure sector, but indeed for the Government.

It’s no coincidence that you are hearing from two Cabinet ministers – my colleague Transport Minister Steven Joyce will join you tomorrow morning.

This reflects how important infrastructure is to the Government’s wider economic policy programme and New Zealand’s longer-term economic prospects. High calibre infrastructure matters because it supports productivity and economic competitiveness.

And, in the deepest and most coordinated global recession since the 1930s, effective investment in productive infrastructure will support many thousands of jobs across the country. We can already see that starting to happen.

This is particularly important in light of the unemployment figures issued last week and our expectation that unemployment will continue rising well into next year.

To turn that around, we must unclog our economic arteries and ensure that our vital infrastructure is modern and world class. That’s why our multi-billion dollar infrastructure investment programme is a priority.

Infrastructure is also important for social and environmental reasons.

So today I want to update you on our progress and thinking as we get that programme underway and move towards issuing our first National Infrastructure Plan.

But before I do that, I’d like to put this within the context of the Government’s substantial economic work programme for dealing with the significant challenges facing New Zealand.

The Government has a very clear plan to increase our productivity, grow our exports and start narrowing the income gap with our trading partners. We’re focused on what matters: jobs and growth.

Since the election, the economy has been the Government’s top priority.

We inherited a New Zealand economy that had already gone into recession in early 2008 and was under considerable stress from imbalances built up over the past decade.

Looking back at the data, it’s now clear that our economy started to get out of kilter around 2003/04 - and it has since got progressively worse.

• Bank credit and household debt started blowing out.

• Non-tradeables inflation took off and remained stubbornly high at over 4 per cent.

• Government spending ballooned, increasing by 50 per cent in the past five years – double the rate of economic growth and government revenue.

• Public sector wages increased well beyond what we’ve seen in the private sector.

• And, since 2003/04, our productivity has sunk to a 25-year low.

Our lopsided economy is laid bare by two worrying indicators – and I make no apologies for having talked about them regularly in the past couple of months:

First, the tradeables sector - that’s exporters or industries competing with imports – has actually been in recession for five years, contracting by about 10 per cent.

And, even more staggering, there have been almost no net jobs created in the tradeables side of the economy for the past 10 years.

By contrast, the non-tradeables sector – domestic industries not competing with exports, including the Government – has grown by 15 per cent in the past five years.

The second symptom of our unbalanced growth is the red ink in the Government’s accounts – the result of falling revenue and fast-rising spending.

We expect Government cash deficits of between $10 billion and $12 billion over the next four years and, on current forecasts, we will not be back in surplus for 10 years.

These deficits are larger than we had foreseen – larger, in fact, than New Zealand faced in the early-1990s.

For all of that, a recession for ordinary New Zealanders is all about whether they have a job.

The Government is concerned about the loss of any job - it has a profound effect on workers and their families.

Unfortunately, unemployment is rising – the data last week confirmed unemployment had increased to 6 per cent in June from 5 per cent in March.

The quarterly increase was higher than most forecasters had predicted, but the trend is not surprising.
Unfortunately, unemployment will continue rising, probably well into next year - even when the economy starts to recover.

This reinforces the need for urgency in our economic programme.

Over the next four years, the Government will borrow an extra $40 billion to support the economy and particularly to support many thousands of jobs.

We have rejected calls from our political opponents for a reckless spend up that would have seen government debt skyrocket out of control and made the recession worse, costing thousands more jobs.

Having dealt with our immediate challenges in the Budget, the Government is now focused on a bigger task – a three to five-year programme that will set New Zealand along the road to recovery.

Our economic challenges

New Zealand’s economic challenges are threefold:

• Increasing our productivity growth.

• Maintaining high levels of employment.

• Reducing our vulnerability to adverse events.

Improving productivity is important because, over the past 20 years, New Zealand has failed to keep pace with the incomes of Australia and other countries.

Maintaining high levels of employment – creating sustainable new jobs – is critical because this has important social, as well as economic, benefits.

Finally, it’s essential that we reduce New Zealand’s vulnerability to future shocks because, as we’ve seen with the current recession, economic conditions can change extremely quickly.

New Zealand must move away from borrowing and spending and towards exporting and productive investment. That means reversing the trends of recent years.

There is no single policy that will achieve that. Instead, there are a large number of things – often unglamorous things – that the Government can do to give businesses the confidence to invest and create jobs.

New jobs and indeed New Zealand’s economic fortunes rest on improving that business confidence and investment – not on government spending.

To ensure that happens, the Government has identified six policy drivers that will form the core of our economic programme for the next three to five years. All of them will bring benefits to the economy and to the infrastructure sector in particular.

These policy areas, announced last month by the Prime Minister, are:

• Reviewing regulation and red tape
• Delivering better, smarter public services
• Education and skills

• Innovation and business assistance
• Reviewing the tax system
• And finally – but by no means least - investing in productive infrastructure. That’s what I would like to talk about today.

Investing in productive infrastructure

Before the 2008 election, we promised to unclog the economy’s arteries and address how New Zealand provides its infrastructure.

We have the opportunity to get the best from our limited resources by being smarter in planning, financing and executing our infrastructure projects. 

Almost every modern, successful economy is served by first class infrastructure.  The spill over benefits to other parts of the economy are large.

The New Zealand Institute of Economic Research recently noted that, with the exception of communications, investment in most sectors had been steadily falling since the 1960s and 1970s. 

The costs of inadequate infrastructure are not too hard to find.  Bottlenecks have become apparent and are now being addressed in roads, electricity transmission and telecommunications. 

The infrastructure sector is complex.  On the one hand, we have commercialised sectors, such as airports, ports, electricity and telecommunications, where the Government’s role is mainly about adequate regulation and promoting competition. 

On the other hand, in less commercialised areas, the Government has to select the right level of funding, ensure that user charges are set correctly, prioritise its capital spending and monitor how the agencies concerned are operating. 

In principle, infrastructure is no different from any other type of investment. It is about investing to provide users with excellent service and the country with worthwhile returns. 

The challenge is to ensure that the right level of investment is made in the right places by organisations with the knowledge and incentives to invest. 

New Zealand needs infrastructure that is properly selected, designed, built and maintained using modern, whole-of-life approaches. 

Progress to date

The Government’s approach so far is two-pronged. 

First, we have pushed ahead in areas where the need for investment was obvious, while simultaneously preparing for a longer term, more substantive programme.

By now you will be familiar with some of the early projects the Government has accelerated.  A few highlights include:

• $480 million to fast-track roading, schooling and housing projects in response to the recession.

• $1 billion in extra spending over three years on state highways and Steven Joyce will discuss this in more detail tomorrow. This will accelerate key projects, for example the Victoria Park viaduct in Auckland has been brought forward a year.

• Transpower is expanding its spending on grid upgrades. It will spend $3 billion over the next four years to improve security of supply.

• We've committed $290 million and outlined initial arrangements for our $1.5 billion fibre-to-home broadband plan.

The benefits are already showing through. Research group Pacifecon estimates that 60 per cent of New Zealand’s medium and large construction projects in the early stage of planning are currently central or local government funded.

This is a good start and all of these projects will support jobs.

However, the Government’s longer-term programme is much more ambitious. This is the important second part of our approach.

In the Budget, we outlined capital spending of $7.5 billion over the next five years.  Much of this will be used to build and upgrade schools, roads, housing, hospitals and telecommunications. 
Because much of the infrastructure sector is publicly funded, one of our first steps was to establish a framework to handle this.

Earlier this year, we set up the National Infrastructure Unit within the Treasury. This will be the centre of Government expertise, covering areas such as major project evaluation, infrastructure-related regulatory issues and contracting with outside finance. 

Almost all mature infrastructure markets we have looked at have a similar body.

One of the unit’s roles is to produce the first National Infrastructure Plan. This will be a stock take of current demands and planned investment. 

The plan will serve two purposes.

From the Government side, it will allow us to take stock of our spending and relevant infrastructure-related regulations, ensuring this is appropriate and contributing to productivity. 

From the industry’s viewpoint it will provide some direction and certainty about where the sector is headed. Private sector participants have long been calling for such a document. 

That said, I would caution against expectations of the initial plan being too high.

First, the plan will not be a shopping list of projects. Many large Government investment programmes, such as those of the New Zealand Transport Authority or Transpower, are already well known.  

The National Infrastructure Plan will not revisit or over-ride these programmes. It will bring together a lot of existing information - with a focus on identifying emerging bottlenecks and investment gaps.

Second, the plan will evolve through time. The first draft should be ready early next year.  Areas not identified in the plan will not necessarily be excluded from future public investment. It will be updated regularly - and no doubt we will get better at doing it. 

The National Infrastructure Unit is backed by an advisory board of private sector experts, who are assisting us with the plan as well as general policy. 

The board is new and we expect it will exert growing influence over time. But it’s important to recognise that it is the Government, rather than the board, generating the National Infrastructure Plan.

The Government wants to see as much private sector expertise and discipline used as possible. We welcome engagement. 

The New Zealand Council for Infrastructure Development has been particularly helpful, both with high-quality research and advice offered to the Government.

Private sector expertise

The potential for private sector involvement in financing and operating New Zealand’s infrastructure has attracted much interest – including from many of you here today.

The Government’s basic position is clear: We want to maximise economic efficiency, help the economy grow faster and get better value for money for taxpayers. In that sense, New Zealand is open to good, innovative ideas from business.

From overseas experience, it’s apparent that, with some projects, private sector innovation can provide a better asset for a cheaper whole of life cost.

We can get some idea about how the New Zealand market might evolve by looking across the Tasman. 

The Australian infrastructure industry is deep, well developed and vibrant. Most of your organisations will have Australian connections, and will no doubt expect New Zealand to become somewhat integrated, with similar players and practices. That is our expectation as well.

It is interesting to examine Australia’s record. The first private public partnership projects were completed more than 20 years ago. All states have participated, with Victoria being the acknowledged leader. 

Since 2000, around 50 major PPP projects worth about $30 billion have been completed in Australia. They range from the traditional road, rail, water and energy, through to areas such as defence facilities, hospitals, schools, prisons and radio networks.

These totals are impressive. Total Australian infrastructure spending is running at around A$50 billion a year, or almost 5 per cent of gross domestic product. 

Less than 20 per cent of total Australian spending is financed privately. Most infrastructure remains traditionally funded.  I’m sure this will also be the case in New Zealand.

I believe the Australian experience can usefully help a more sophisticated discussion in New Zealand. 

Let me turn to Public Private Partnerships. The term PPP is misleading, as it tends to be used for a wide range of procurement arrangements. 

The accepted wisdom is that all investments contain a bundle of activities. They include forecasting demand, designing facilities, obtaining regulatory approval, construction, financing, operating and maintenance. 

Public-private arrangements are about unbundling these activities, so that each side undertakes the parts it does best. 

For some projects, this is complicated. Even so, the gains can be worth it. 

The important lesson is that every investment carries risk, regardless of how it is financed.   

Our intended $7.5 billion of capital spending over the next few years contains a great deal of design, patronage and construction risk – it’s just that they are seldom separately identified. 

From a taxpayer perspective, the fact that these risks exist is an argument for, not against, some private sector involvement. The private sector generally remains better at assessing and managing risks than the public sector.

In a sense, New Zealand already uses the private sector more than it might first appear. The Government does not build infrastructure, it mostly designs and finances it. The private sector undertakes construction. 

Likewise, few Government operations own their premises. Most rent or lease them, and are happy to contract out property maintenance. 

For example, AMP is the landlord for many Wellington ministries and departments, Ngai Tahu owns a number of police stations around the country, and groups such as Southern Cross are well integrated into supplying facilities and services to District Health Boards. 

The Government will enter in to PPPs only if they work and deliver value for taxpayers. Our interest is in increasing the performance of public assets across the board.

I have been impressed by the level of interest from the market in working with the Government.

But let me be clear – this is not about ideology: Private sector involvement will happen only where it makes sense, period.

Done properly, the benefits should be better whole-of-life management of infrastructure, and a better deal for both users and taxpayers. 

There is further work to be done to develop this market in New Zealand. A strong message from other countries is the need for a clear policy framework, with stable rules and relative certainty. 

Because we are late starters, we want to pick up the best practices from overseas. Even so, it will take some time for the New Zealand public sector to catch up after a decade of lost time.

Next steps

Looking ahead, I can see the potential for wider application for these types of disciplines. 

For example, in response to prison population forecasts, the Corrections Department is investigating building more prisons.

There is a range of opportunities for more private sector participation in this process — from the current approach where private sector input is limited - through to designing, financing, building, operating and maintaining prison facilities.

We’ve asked Corrections to look at alternatives to conventional procurement for delivering extra capacity – including a new prison. We’re happy to proceed with that if the case stacks up. We expect to be in a position to make decisions about that early next year.

We want to see options genuinely considered and appraised — not simply ruled out on the basis of some ideological knee-jerk response or for political expediency.

But no one approach should be presumed to be more efficient than another. The key is determining which form of delivery provides the best value for money in meeting Government and public objectives. 

We want to allow Government operations to get on with what they are good at, educating for example, rather than activities such as property maintenance that they would prefer to avoid.

In summary, these are exciting times. 

We have the opportunity to get the best from our limited resources by being smarter. The challenge is to get to the forefront of world practice. 

In the age of the internet, that is something we should be able to do relatively quickly. The legacy will be a better, more productive and more competitive New Zealand.

That is a goal worth pursuing.

Conclusion

Can I finish by reiterating that the Government is clear about what needs to be done to turn this economy around. We have a balanced, targeted and effective plan to achieve that.

I particularly look forward to working with the Council for Infrastructure Development and others in the sector to implement the important infrastructure component of that plan.

Despite our considerable economic challenges, I’m confident about New Zealand’s prospects because of the resilience demonstrated by many New Zealanders.

By backing ourselves as a country, we have a real opportunity to emerge from the recession stronger and more competitive than other countries.

Thank you.