Kiwiblog has drawn attention to some suggestions made yesterday by The Hive on how to grow productivity. This has drawn some comment, including from one reader who questioned how it is possible to cut taxes and increase infrastructure investment?
We don't see any conflict between these goals. For a start, we don't see infrastructure investment as the sole preserve of Government. And it is not the sole preserve of Government. Have a look at Infratil's portfolio for example.
Unfortunately the current law makes it difficult to fully harness the potential infrastructure investment from the private sector. Changes need to be made. The rules on tolling an existing road for example make it non-economic to allow the private sector to build a second Mount Victoria tunnel. The law needs to be changed.
Second, we see huge potential for local government (particularly a rationalised local government) to accelerate infrastructure investment. We haven't looked at this figure lately but last time we did we noted that in the Wellington region alone local government was sitting on around $10 billion in assets but only around $500 million in debt. There is a similar situation in Auckland. Won't this increase the rates burden? Not necessarily. We reckon that the amalgamation of the 9 Wellington Councils into one would create a saving of well over $10 million (just on the abolition of the 8 Councils alone). At a 10% interest rate that's another $100 million available for infrastructure. The savings would actually be much greater when duplication at Council staff is eliminated.
Third, we wonder why local government needs to own some of these assets. Why should Greater Wellington own most of the port? Why should Wellington City own a minority shareholding in the airport? We think that they should sell these assets and invest in better infrastructure.
Has anyone noticed how the Wellington Port has become a property developer? What is happening to the extra money being earned from this activity? What would we do with this? We would suggest to Greater Wellington that they either sell this asset, or invest this new income in new infrastructure. A new port at Clifford Bay would be a great place to invest it.
Fourth we see huge waste in central government expenditure at present. The $47 million being spent on spin doctors would be enough to pay for an almost $1 billion in new infrastructure at the rate that central government is able to borrow. Do readers know that the government operational expenditure on IT last year was over $1 billion? We would be amazed if a 10% saving couldn't be achieved in this area without anyone outside the IT industry knowing. That's another $2 billion freed up for infrastructure (at the rate Government can borrow at).
So the above is about $4 billion extra for infrastructure investment. Add Auckland's assets in, and those from other parts of the country, and other areas of Government waste, and the figure will get much larger. And this will have no impact on tax cuts what so ever. Short term anyway, the tax cuts will come from the structural surplus.
