Cabinet has agreed to an ambitious new Funding and Financing Framework to help the Crown make smarter and more informed funding and financing decisions, Infrastructure Minister Chris Bishop says.
“Improving the way we fund and finance infrastructure will help drive better value for money from public investment, make public investment go further, and ensure
the greatest possible benefit to the greatest number of people,” Mr Bishop says.
“Crown and council infrastructure in New Zealand has historically been primarily funded by taxpayers or ratepayers, but our heavy reliance on this approach is no longer serving New Zealand well.
“Our funding settings for many assets do not manage investment demand or signal where investment is required, meaning we just build new infrastructure rather than more effectively utilising what we already have. We can and should make greater use of user pays and demand management – like congestion charging and water meters.
“Our funding models for many assets do not reflect the full economic cost of delivering the service, which means operational activities, including asset renewals and maintenance, often compete with wider priorities – and often miss out, as New Zealanders are now realising with water infrastructure around the country. Moreover, our current funding tools struggle to recover the full cost of growth from users and beneficiaries.
Mr Bishop says the new work signals a move away from the default use of Crown grant funding for infrastructure, and towards user and beneficiary pays.
“The Treasury’s new Framework has two objectives – to broaden the funding base for investments and utilise private capital (where efficient), and to apply commercial disciplines to the Crown’s approach to the provision of public capital.
“The new Framework provides guidance to agencies and departments that they should, in the first instance, seek user or beneficiary pays to fund new infrastructure projects. Rather than defaulting to the blunt approach of grants of taxpayer money, the government will expect proposals from sectors such as water, energy, housing, climate adaptation, and transport to be able to demonstrate how user or beneficiary pays can contribute towards funding requirements.
“This is about fairness and efficiency, and about preserving the Crown’s balance sheet capacity.
“Grant funding will of course remain part of the mix, but the new Framework makes clear that the government will consider using its balance sheet capacity once these alternatives have been exhausted and will apply commercial disciplines when deciding how to financially support a proposal. Different proposals will need different types of funding or financing – the government will look at the specific needs of each proposal and offer ‘just enough’ support to make the proposal feasible.
“Doing this will mean the Government can support more initiatives and give greater support to investments where alternative funding options are not available or where it is more appropriate for the Crown to be the primary funder – like in the health and education sectors.
“The Minister of Finance and I expect agencies to consider the Framework for proposals seeking new Crown funding. The Treasury will be providing advice to me and the Minister of Finance on options to integrate the Framework into the Investment Management System and Budget process, including through a new or updated Cabinet Office circular and Better Business Case guidance.
“Today’s Framework is an important step forward in laying the foundations for a highly performing infrastructure system, and sits alongside the wider work we are doing to broaden and enhance the funding and financing tools available to the Crown and councils, and modernising the Crown’s policies, frameworks, and contracting models.”
Other changes to improve Infrastructure Funding and Financing
“The Funding and Financing Framework sits under my priority to Improve Infrastructure Funding and Financing. This work includes new Market Led Proposals Guidance which has also been released today, and the refreshed PPP Framework released in November,” Mr Bishop says.
Note to Editors:
Attached:
- Funding & Financing Framework