National’s flagship Roads of National Significance policy has come in for a load of criticism. Interestingly, given it is the brainchild of National’s political “genius” Steven Joyce, the policy’s main selling point – its claim as a boost to economic growth – is also it’s great weakness.  Gerry Brownlee and Steven Joyce before him have tried to sell these jumbo motorway projects as an investment in economic development but their economic value is dodgy to say the least.

While there should be no argument that we should be investing in transport infrastructure to make our export supply chain more efficient, we should surely be making sure the investments are wise before we spend billions of dollars of taxpayers money.

In a speech this week I summarised the various ways the RoNS fall short of the Government’s claims for them as some sort of economic development policy:

1. National have over-sold their likely economic impact, misleadingly suggesting that the Benefit Cost Ratios are an indicator of economic development impact. In fact, the BCR simply puts a dollar value on things like reduced journey times and deaths prevented by reducing accidents.

2. By hand picking these huge projects and giving them the green light even before the most basic economic assessment had been done on some of them; by elevating projects with such low Benefit Cost Ratios that a few years ago would never have been built; and by pouring so much money into what is patently a political project the Government has undermined the credibility of the system we use for assessing, prioritising and deciding on new state highway projects.

3. The Government’s obsession with these big roads projects means that other modes for moving freight around like rail and coastal shipping aren’t getting a look in, even though they can more efficiently carry certain types of freight. The Government cut Labour’s policy of support to coastal shipping, and under its unrealistic rail policy Kiwirail is forced to do ridiculous things like laying off 200 staff and deferring three years of network maintenance.

4. The Government is running down the existing road network to free up the funds to build new state highways. This is a common phenomenon overseas where politicians try to woo voters with big shiny new projects while allowing existing infrastructure to fall into disrepair. It’s bad asset management.

5. New public transport projects have been cut for the next three years, even though in Auckland particularly public transport is the only way to keep the state highway network from grinding to a halt. For example the Northern Busway which has taken the equivalent of two lanes of traffic off the Harbour Bridge every morning.

What would Labour do?

We will take a much more hard-headed look at the economic value of new transport projects.

We will reform the funding and assessment processes and criteria to ensure when new projects are being considered that alternative solutions are weighed up.

We are committed to an evidence based approach, investing where it will make a difference.

We will look to invest strategically in all modes of transport, and their connections, to deliver the greatest efficiency for the export supply chain.

We will restore prudent asset management so that we are not running down one part of the network (like local roads) in order to pour money into another (like new state highways).

A Labour-led Government will build a transport system that moves people and freight with maximum efficiency, supporting an economy that allows New Zealanders to do what they do best – come up with world leading ideas and put them into action.

Read on for the full speech.

Phil Twyford – Speech to Road Transport Forum 18 Sept 2012

The national significance of good freight transport policy

Thank you for having me along today. I appreciate the chance to be here and share some views on freight transport policy. Your industry makes a big contribution to the economy. Your organisation is an influential voice on transport policy.  Good policy relies on a contest of ideas so I thank you for that.

I would like to use this opportunity to share a few thoughts on the future of our transport system, on the current Government’s policy, and some policy directions for the next Labour-led Government.

First let me introduce myself. I’m a second term MP. I represent the electorate of Te Atatu in West Auckland. Before politics I worked for the international development organisation Oxfam, including four years as head of policy based in Washington DC where I lobbied the World Bank, IMF and World Trade Organisation on trade and economic development, on behalf of developing countries. It made me aware of how important good infrastructure is to economic development.

In recent months you may have heard me being sharply critical of the National Government’s Roads of National Significance policy. You might have heard me arguing with your chief executive on the radio.

But I want to make it clear to you that…

It’s not because we are against spending money on transport infrastructure. Because we are not.

It’s not because we don’t like building stuff. Because we do.

It’s not because we don’t like roads. Because we do.

And it’s not because we are the Opposition and we are just being bloody minded. Even though we are the Opposition and it does make you bloody minded.

The thing is, we have some pretty fundamental criticisms of the Government’s transport policy.

We think it is unbalanced.

We think it doesn’t take enough care to make sure the taxpayer is getting value for money.

We think that the Government is not thinking hard enough about what kind of transport system the country needs in 20, 30 or 50 years’ time.

These questions are important. Our freight transport system supplies the arteries of our economy. And right now the greatest challenge we have is to kick start some growth into a stagnant economy. To get the job growth we desperately need. Transport is critical to that.

However the link between transport and growth is now the subject of an intense debate because of claims made by the Government about the link between its flagship motorway building programme and economic growth.

These seven motorways, dubbed the Roads of National Significance and costing $12 billion over 10 years are the defining feature of the Government’s transport policy.

Hardly a week goes by without the Minister getting up in the House and claiming that these seven projects will generate economic growth.

The Government has yet to present even a shred of economic evidence that their motorway projects will cause economic development. In fact, the government announced the seven roads in March 2009, nine months before it received the economic analysis. It didn’t like the analysis, so it spent another seven months getting the answers it wanted.

In the House the other day when I asked the Minister what was the basis of his claim that the Roads of National Significance would generate an economic benefit of $1 billion a year, he held up papers that he said contained the Benefit Cost Ratios that supported the claim.

Unfortunately the Benefit Cost Ratio does not measure the likely economic development impact of a project. It puts a dollar value on the primary benefits of these schemes namely – reducing journey times, reducing vehicle operating savings and lives saved by reducing accidents.

None of those things, as much as they might be desirable, are a reliable guide to economic development.

If we take the Puhoi-Wellsford again, you have to ask yourself whether slicing 5-10 minutes off the journey between Auckland and Wellsford is going to grow the economy?

Will the saving of a few minutes on the Puhoi road improve the export supply chain if goods are going to then have to tackle central Auckland traffic jams, and then wait on the wharves before being loaded onto a ship?

Is a tourist who has flown from overseas more likely to travel to the Far North because a motorway makes part of the trip a few minutes faster?

And there lies one of the other problems with these projects, and that is that most of them are duplicate routes. They will sit alongside an existing route, and offer only a marginal benefit.

In the case of the Puhoi-Wellsford, $400 million spent right now fixing the accident black spots on the existing road would save lives immediately at a fraction of the cost.

None of this is to say that a new motorway in the right location might not have economic benefits, or might, by reducing congestion, remove an obstacle to economic activity.

But the Government has clearly over-sold the economic benefits of its motorway building programme.

Our second major criticism of the policy is that in pushing the Roads of National Significance through, the Government has done damage to the integrity of the funding and decision making system.

By hand picking these huge projects and giving them the green light even before the most basic economic assessment had been done on some of them; by elevating projects with such low Benefit Cost Ratios that a few years ago would never have been built; and by pouring so much money into what is patently a political project the Government has undermined the credibility of the system we use for assessing, prioritising and deciding on new state highway projects.

It is important when we are spending billions of dollars of taxpayers money that there is a rational and objective assessment of competing projects, and political influence is kept at arms length. With the Roads of National Significance this principle was chucked out the window.

Changes to the decision making criteria for assessing projects are further evidence of a desire to manipulate the policy in order to get the desired outcome.

Instead of assessing these big projects against a range of objective criteria like assisting economic development, safety and improving mobility for example, the Roads of National Significance have been measured against three factors that pretty much give them a free pass.

The first of the three is Strategic Fit. That is, do they reflect the Government’s strategy?

If the Government’s strategy is to build the Roads of National Significance, then that is the first tick.

The second of the three factors is Effectiveness. What does this mean? Well it means how effective is the project at delivering on the first criteria, the Strategic Fit.

So if the project is a Road of National Significance, then you’ve got two out of three ticks before you’ve even got started.

The third factor is efficiency.  Which is measured by the Benefit Cost Ratio.

But as the Minister made clear in the House the other day, he doesn’t regard Benefit Cost Ratios as being very important.

This is shown in the way that the three factors are weighed up. If a project, take for example the Puhoi-Wellsford motorway, ranks as High for both the first two criteria, it can still get the go-ahead even if its Benefit Cost Ratio ranks as Low because efficiency is not given the same priority as the other two criteria.

The whole decision making logic is circular. It is in a word, dodgy.

So, as well as over-stating the economic value of these projects, the Government has also politicised the process by hand picking the projects.

And it has misused the Benefit Cost Ratio which was designed to allow alternative projects to be compared, and is not a credible tool for predicting economic development impact.

All this might not matter so much if money wasn’t in short supply.

But times are tough. We are all told daily we need to tighten our belts.

More than ever before we need to be investing in infrastructure that will deliver the best possible value for money.

We need an approach that allows alternative solutions to be weighed up against each other.

Everyone agrees that a multi-modal transport system theoretically offers the optimum efficiency.

Just as there are types of freight and particular journeys that trucks can deliver more efficiently than other modes of transport, equally there is freight that can most economically be carried by other modes: coastal shipping or rail for example.

Only if all modes are operating at a certain level, can customers choose between them to get the mode that can most efficiently deliver their freight.

And we need roads, rail, and our ports well connected so freight can move quickly and efficiently between them.

The overwhelming priority given to the Roads of National Significance has also had the effect of crowding out funding for the maintenance of both local roads and state highways.

In other words, the Government is running down the existing road network to free up the funds to build new state highways.

This is a common phenomenon overseas where politicians try to woo voters with big shiny new projects while allowing existing infrastructure to fall into disrepair.

But in New Zealand we’ve had a tradition that you don’t neglect your existing roads, and you only build new projects with whatever money is left after the maintenance is done.

It’s a conservative way of thinking and through the 1980s and 1990s it meant there was very little invested in new transport infrastructure.

The 5th Labour Government recognised as a country we weren’t investing enough in new transport infrastructure and increased the flow of funds.

Labour stopped the practice of successive governments using Road User Charges and petrol excise as a cash cow. Annette King brought in hypothecation – so that road user charges and petrol excise went straight into the National Land Transport Fund.

We also introduced 10-year state highway plans to give the contractors certainty, allowing them to invest in the plant and machinery to improve productivity.

The result: spending on state highways more than doubled (inflation adjusted) during Labour’s time in government.

We all like new infrastructure but unfortunately the current Government is running down the existing network to pay for it.

For the second three year period local road maintenance has been flat-lined: a 2.3% increase for a three year period means a substantial real cut when you factor in inflation and rising costs of inputs like bitumen.

This is why provincial mayors have been on the war path. Their choice is let local roads fall into disrepair, or get their ratepayers to shell out more, which would be effectively subsidising the Roads of National Significance.

That is not a very popular choice in a place like Southland which has the biggest network of local roads, and one of the smallest populations of ratepayers.

An increasing number of bridges in provincial New Zealand are weight-restricted causing trucks to drive to take lengthy detours.

State highway maintenance has suffered a similar fate. NZTA confirmed recently they faced a $160 million shortfall.

While maintenance of local roads and state highways has been flat-lined, it has become almost impossible to get funding for new state highway projects unless they are a Road of National Significance.

Councils are now resorting to the obvious strategy: arguing their priority local project should become a Road of National Significance.

In Timaru they are arguing that the road serving Fonterra’s plant at Clandeboye, which carries 5% of the country’s economic wealth should be a RoNS, instead of a local road funded by the rates.

New Plymouth District Council has just released research arguing that the energy wealth of Taranaki justifies making the northern highway a RoNS. Because they know that under this Government that is the only way to get it funded.

In order to maintain the funding for the RoNS, new public transport projects have been slashed in the new three year Land Transport programme.

This might not be a concern in much of provincial New Zealand but in Auckland and Wellington public transport offers the best chance of keeping the state highway network moving.

The Northern Busway, built for $300 m nearly a decade ago, now carries the equivalent of two lanes of traffic across the Auckland Harbour Bridge every morning. Without it, State Highway One would grind to a standstill.

So what would Labour do?

We will take a much more hard-headed look at the economic value of new transport projects.

We will reform the funding and assessment processes and criteria to ensure when new projects are being considered that alternative solutions are weighed up.

We are committed to an evidence based approach, investing where it will make a difference.

We will look to invest strategically in all modes of transport, and their connections, to deliver the greatest efficiency for the export supply chain.

We will restore prudent asset management so that we are not running down one part of the network (like local roads) in order to pour money into another (like new state highways).

A Labour-led Government will build a transport system that moves people and freight with maximum efficiency, supporting an economy that allows New Zealanders to do what they do best – come up with world leading ideas and put them into action.

These challenges are important. For a small trading nation improving the efficiency of the export supply chain is vital.

When you add to that, the predicted doubling of freight volumes in the next 25 years, the task is urgent.

end

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