4 headlines for infrastructure from New Zealand’s ‘no frills’ budget

New Zealand’s finance minister Grant Robertson announced his sixth budget on 18 May 2023.

It was New Zealand’s last national budget before the upcoming election in October.

The details are interesting, and the drivers are clear: the election, inflation, huge cyclone damage, and a country still struggling with the lingering impacts of strict Covid-19 lockdown policies.

There are four headlines for infrastructure:

1. The economy and construction activity are strong

New Zealand’s construction sector and economy are in an interesting place.

The budget included significant numbers for infrastructure, including resilience work and cyclone recovery, that will keep the construction industry busy.

Rider Levett Bucknall’s ‘crane index’ of construction activity shows a record count in New Zealand.

With the treasury’s ‘no recession’ announcement, the economy looks to be resilient – although a return to budget surplus is now projected for 2025-26, a year later than expected.

2. Addressing inflation and cyclone damage were the main influencers on infrastructure investment

The budget was very focused on easing cost-of-living pressures and short-term investment in key sectors, including education, health, and infrastructure.

But it quietly recognises the need to deal with the pressures of inflation to maintain specific build programmes.

Hidden in the details are budgetary hikes to cover inflation for housing, schools, and other long-term construction programmes.

These programmes have, to date, received little increase in funding for inflation, and are currently causing significant issues inside previously capped budgets.

Overall borrowing is higher than predicted. This suggests inflation reduction targets have been sacrificed for other goals.

Because inflation will remain an issue for longer, the Treasury’s ‘no recession’ announcement doesn't mean we're out of the woods.

Our cashflow-driven businesses – including construction – will continue to suffer.

3. There was limited focus on improving construction productivity...

The budget doesn't veer widely from New Zealand’s longer-term goals to address significant infrastructure challenges.

But nor was there a real focus on productivity, or specific initiatives announced. Capacity and efficiency issues remain.

There’s still a severe skills shortage in construction.

Although changes to immigration entry requirements were promised six months ago, construction employers are screaming for a change in criteria to ease the demand for talent.

Nor does this budget address the domestic skill shortage from an education perspective.

With the other big issues to address, this may not be at the top of the chancellor’s ‘to do’ list.

4. ...but there are early signs of an infrastructure pipeline

Membership association Infrastructure New Zealand has called for a strong, committed pipeline for resilient infrastructure and a focus for continued investment.

The 2023 budget hasn't adopted this. Although it’s set aside focused funds, specific details on major pipeline projects aren't clear.

Broad new funding models do recognise the need for longer-term planning, but only at the macro level.

Summary

We are in an election year, and New Zealand’s famously short three-year election cycle encourages an emphasis on short-term issues.

Medium- and long-term issues remain that the budget didn’t tackle.

Many voices, including member association Infrastructure New Zealand, have called for the government to “guarantee a pipeline of essential work outside of election cycles and budgets.”

With longer-term planning in place, New Zealand can begin truly tackling the capacity and efficiency issues that have undermined its infrastructure for years.

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