In this week’s Infrastructure Policy Watch, New Zealand reviews how people pay for transport and water services.
How people pay for infrastructure services shapes how they’re used.
Well-designed infrastructure pricing changes behaviours and reduces unnecessary demand.
This can make systems cheaper to run, fairer to access and decrease the need for new infrastructure.
The New Zealand Infrastructure Commission / Te Waihanga has been examining pricing in two key sectors:
- How road tolls and congestion pricing could close New Zealand’s transport investment gap.
- How water metering could increase the country’s water security.
1. Rethinking transport pricing
Land transport covers over 20% of total infrastructure investment in New Zealand.
It’s designed to work as a “cost-recovery, user-pays model”.
This means the money raised from transport users through taxes, fares and other charges should cover the costs of providing infrastructure and services.
Those costs include maintaining existing infrastructure, easing congestion and cutting carbon emissions.
The problem for the government is that transport investment now exceeds revenues.
How toll roads and congestion pricing could help
Te Waihanga says it’s necessary to either reduce investment, increase prices, or find a mix of the two.
Its report focuses on two short-term opportunities:
- road tolls to help pay for new investment, and
- congestion pricing to make urban roads more efficient.
It’s not just about raising more money.
Smarter transport pricing shows what infrastructure a country actually needs.
Unlike something that’s free, pricing encourages people to only use what they require.
For example, understanding which roads people are most willing to pay tolls to use indicates which ones have the highest value to users.
Congestion charging that reduces traffic can also reduce or delay the need to invest in maintenance or new infrastructure.
Effective pricing models can therefore help raise money, lower costs and prioritise new investment.
Longer-term reform is still required
The report suggests New Zealand’s infrastructure deficit could at least, in part, be a pricing problem.
But these proposals are just part of the solutions to its transport investment challenge.
Public scepticism about some measures, such as congestion charging, would need to be overcome.
Longer-term, Te Waihanga says there’s a need to:
- reform the transport funding system,
- improve long-term investment planning, and
- strengthen independent advice on prioritising infrastructure.
Those recommendations are set out in New Zealand’s Infrastructure Strategy.
2. Using water metering to improve water security
New Zealand’s water security faces a similar challenge.
Access to safe, sustainable and affordable water is at risk from ageing infrastructure, population growth and climate change.
Fixing it requires significant investment.
But this can be reduced by saving water, lowering costs and delaying works.
Like transport, a better pricing system will help.
The scale of the problem
New Zealanders are among the world’s highest users of water per capita.
This is partly because many households aren’t metered for their water use.
Instead, they pay a fixed charge – with no incentive to manage their consumption.
People whose bills are based on how much water they use (volumetric) tend to reduce their excess consumption.
Linking bills to consumption has other benefits – such as better leak detection.
The system could be more efficient, and cheaper, to run because less water needs to be supplied.
Public support for fairer pricing
Te Waihanga says that financial incentives to cut water use are more effective than restrictions or information about household use alone.
Lower-income households could benefit most.
Unlike fixed charges, volumetric charges give people more flexibility to save money by managing water use.
Modelling suggests low-income households tend to have fewer people than high-income households and use less water – so could benefit more.
And research commissioned by Te Waihanga suggests the public would support a new pricing approach.
It found that 72% of people saw volumetric charging as the fairest way to pay for water services.
The ICE’s view
The reports examine a key dilemma for strategic infrastructure planning.
All societies need high-quality infrastructure.
But this requires high levels of investment to build, maintain and replace.
Well-designed pricing models for infrastructure services are key to tackling that problem.
Financial incentives encourage people to change how they use infrastructure systems.
Enabling public behavioural change to achieve net zero is something the ICE has looked at in detail.
The benefits are much greater than cutting emissions.
It makes it much easier for governments to prioritise infrastructure spending – vital at a time of limited public investment.
It reduces or delays the need for expensive maintenance works and new infrastructure – making systems cheaper to run and more resilient.
And it makes the cost of using, operating and building those systems fairer – which is key to gaining public support for new charges and investments.
In case you missed it
- Find out how the new UK government is transforming planning and energy governance.
- Learn about progress and changes on the UK’s HS2 rail project.
You can also sign up to ICE Informs to get a monthly digest of the latest policy activities from the ICE, including calls for evidence to support our ongoing advice to policymakers.
