Joyce flags infrastructure spend, sets net debt target of 10-15% of GDP by 2025

Finance Minister Steven Joyce kept mum on potential tax cuts in announcing a boost to spending on transport infrastructure over the four years, in part to cover the rebuild of State Highway 1 in the South Island, while also setting a lower debt target. 

In a pre-budget speech to the Wellington Chamber of Commerce, Joyce lifted the Crown's planned capital spend by $2 billion over the next four years to $11 billion on top of existing projects. The hike includes $812 million earmarked for the reinstating the state highway north and south of earthquake-stricken Kaikoura. Rebuilding the road and rail corridors to the South Island town is forecast to cost between $1.1 billion and $1.3 billion, down from a previous estimate of between $1.4 billion and $2 billion, he said. 

While Joyce acknowledged his commitment to tax cuts, he didn't unveil any specific plans. Instead, he set out a new target for government debt, from a current goal of reaching net debt of 20 percent of gross domestic product by 2020 to between 10-and-15 percent of GDP by 2025. Net debt stood at $61.33 billion, or 23.5 percent of GDP, as at Feb 28.

“At 10-to-15 percent, New Zealand will have the capacity to absorb not just one but a couple of big shocks at once if we need to, as we had to last time,” he said. “We owe it to our future to take that decision, and we’ll be able to do it while making the level of capital investment I talked about earlier.”

Joyce affirmed plans to make greater use of public-private partnerships, joint ventures between local and central government, and private investors to meet New Zealand's transport infrastructure needs. The first round of spending will be revealed in the Budget next month.

"If you add the government's budgeted new capital investment together with the investment made through baselines and through the National Land Transport Fund - the total is around $23 billion over the next four years or an average of nearly $6 billion," Joyce said. "Details of how the first tranche of money will be invested will be laid out in the Budget on May 25th, but in anyone's language this is a very big capital spend over the next four years." 

State-owned rail operator Kiwirail will face a bill of as much as $400 million to rebuild the rail corridor outside Kaikoura, much of which will be covered by insurance, Joyce said, with a capital contingency set aside for the balance.

The cost of the Kaikoura rebuild and Edgecumbe flooding is expected to drain the Earthquake Commission’s funds, and Joyce said a long-running review into the funding and operation of the EQC will lead to decisions being announced in the next two-to-three months.

The government has been facing calls to boost its spending on infrastructure to meet an expanding population and record number of tourists and the accompanying demand for housing, utilities, and basic services. Joyce signalled infrastructure was one of four key areas under his watch as finance minister, a role he's had since Bill English assumed the prime ministership in November. 

The other areas included improving public services and reducing the tax burden for low and middle-income families. 

Joyce said the recent pay equity settlement for 55,000 aged come workers will cost about $2 billion over the next four years, 90 percent of which was set aside in the fiscal track in the Crown’s half-year update. That increase won’t be included in the Crown’s operating allowing for the 2017 budget “given the unique size”, and talked down the chance of it spilling over into other sectors.

“The barrier is rightly set high because a flow-on to other sectors would mean going back to the old relativities that these workers have just won the right to get away from,” he said. 

(BusinessDesk)