It's time to reform land transport funding and management

I'm not usually a supporter of new bureaucracies, but I'll give the Infrastructure Commission its due, it's done quite a good job at summarising the main strategic problem in land transport funding.  That being that political ambitions, which match a lot of public ambitions, for spending on roads, railways and public transport, exceed the political willingness to tax the public to pay for them.

More precisely, it seems to exceed the willingness of the public to pay more fuel tax and road user charges, or rates, or for public transport, fares.  I say this because I think it is a fair bet that Luxon and Ministers Willis and Bishop don't think the public would swallow double digit increases in fuel tax or percentage increases in road user charges largely to pay for big highway projects, mostly in the North Island and mostly near Auckland, Hamilton and Wellington. 

The Infrastructure Commission notes that:

Since the late 2010s, spending on roads and rail has far exceeded user revenues, requiring large top-ups from general taxes. In the 2024–2027 funding period, Crown grants and loans totalled $12.8 billion, or nearly 40% of the $32.9 billion in planned expenditure. 

Source: Infrastructure Commission

The Commission continues:

New Zealand spends more on land transport than any other type of infrastructure. Mature road and rail networks connect most parts of the country, supporting the smooth movement of people and freight that underpins a well-functioning economy. While these networks perform reasonably well against peer countries, some important gaps remain. Land transport infrastructure providers face limited external oversight and no economic regulation to protect consumers – which is unusual compared with network sectors where consumers can’t choose between multiple providers. Transport faces several challenges, such as rising congestion on urban road networks, rising carbon emissions, and high health impacts from air pollution and road crashes

What's new

So this gives the impression that there are problems, today in 2026, with congestion, emissions and safety. You might think that this isn't exactly new, and you'd be right. Let's turn the clock back over 27 years...

Maurice Williamson, Minister of Transport, 18 November 1998

For years we have seen steady growth in traffic volumes. Currently, the traffic on our roads is increasing by about 4 percent each year. Also, the way we use our roads has changed. Expanding industries like forestry, dairying and tourism have increased road use in many rural areas beyond their capacity. Population growth in areas such as Auckland, the Bay of Plenty and parts of Waikato has meant that road use in these places is growing more quickly than in other parts of the country.

Some roads are less safe than they could be because they were not designed to carry either the volume of traffic or the amount of heavy vehicles they do. We can improve the safety of our roads, and reduce the human and financial costs that crashes create. The increasing use of our roads also puts greater emphasis on the environment - the environmental impacts of road use can be reduced.

Traffic growth is causing increasing congestion problems in many, particularly urban, areas. It is also increasing maintenance costs and the demand for new roads. We are struggling to meet these new financial demands.

Simply spending more money on the problems would add costs to our total economy, which we would all have to bear. What we need is a system that is smarter at informing road users of the costs they are creating, and smarter at deciding where new investments should go.

A system that results in our road resources being used very wisely. If we wait the problems will get worse and the costs of changing will be greater. If we act now, the changes can be managed in a gradual process with minimal upheaval.

That press release was in the context of announcing a major reform of the land transport funding system, that didn't proceed.  

What did happen was three things. One of them is the most obvious, politicians threw money at the problem, and as happens so often when government spending increases exponentially, it doesn't deliver the value for money that it used to.

Spending spree

If we compare 1998 in real terms (using CPI inflation to bring 1998 prices to 2025 dollars), spending on road infrastructure and public transport alone (there was little government spending on rail infrastructure in 1998), has increased by around 350%. That's 3.5x increase over and above inflation in spending on roads and public transport.

As you see above, 40% of current land transport spending isn't coming from motoring taxes (let alone charging rail users even a quarter of the costs of maintaining their infrastructure), it's coming from general taxes. 

Taxpayers are literally subsidising the movement of goods and people by rail and by road, or to be more precise, subsidising those engaging in the construction and maintenance of the network. In 2025, $4.211b was collected from motoring taxes (fuel tax, road user charges and motor vehicle registration/licensing fees). User fees are sufficient to cover road maintenance and a little more, but not to cover road maintenance and all spending on public transport, or road maintenance and all spending on road improvements.

This table below outlines that increase, using the budgeted spending in 1998 (it being harder to access reported spending online) compared to reported spending in 2025.

Comparison of 1998 and 2025 land transport spending: New Zealand

Where has the money gone?

Public Transport

Despite what you might think if you pay attention to the likes of Julie Anne Genter, or some environmental lobbyists, by far the biggest increase in spending over this period has been on public transport subsidies and infrastructure.  That's money to subsidise the operation of trains and buses, and money to subsidise renewing or improving infrastructure, such as railway stations, busways, the City Rail Link in Auckland and the National Ticketing Solution.

This has been over a twelve-fold increase in spending on public transport. 159 million trips were taken on public transport in the 2025 financial year. It was around 95 million trips in 1998.  With a 40% increase in population during that period, that's a 67% increase in patronage, but I'll leave it to others to judge whether that increase in land transport spending by central government has been good value for money.

Then roads

Also notable has been a big increase in maintenance for local roads and state highways. While some of that may be attributable to increased heavy vehicle traffic, it also shows a remarkable drop in productivity and inflation in costs.  The system has not incentivised or encouraged much in the way of efficiency in managing existing assets.

While much is rightly made of the increase in spending on state highway construction (and much more is planned), but what hasn't happened is that local road construction has not grown anywhere near as much.  The demands for local road improvements are, on average, likely to be lower than the state highway network, as most local roads are either suburban streets or lightly used rural access roads, but there is little real indicator as to whether this split in spending is appropriate or not.

What does seem clear is that highway construction and maintenance costs have grown exponentially, especially in maintenance which, in real terms, should not have increased that much above inflation. 

Warnings about risking poor quality spending.

However, this was exactly what was forecast in the late 1990s if there had been no substantial reform.  When spending on land transport infrastructure was increased then, there was concern about the capacity of the contracting sector to efficiently accommodate growth without inflating the cost of capital works.  After 1996, the Government increased spending gradually. Lowering the threshold for funding from a BCR of 5:1 to 4.5:1 in one year, then down to 4:1 in the following year, and at that point there were ample projects to advance. It was, at the time, thought that spending might be increased further, alongside increases in motoring taxes and reducing the diversion of part of fuel tax to the Consolidated Fund (this diversion ended completely in 2008). However, the view from Treasury at the time was that the threshold of spending should be a BCR threshold of 2.5:1.  

(Footnote: Be cautious about comparing BCRs of projects in the 1990s and 2000s to today, because today's BCRs include a lot of additional benefits, the evaluation period is longer and the discount rate is much lower than it used to be, but that's another story).

The main conclusion in the late 1990s was that just pouring more money into the system was far from optimal.  Big reasons why the system was not ideal were identified:

• The PAYGO method of funding capital from cashflow could not support large scale capital spending that has transformative impacts
• The artificial distinction between new capital and renewing capital/maintenance, with short term funding cycles for the latter generates poor incentives to optimise spending on maintenance across the asset life of roads
• Without better pricing of road use, some roads would be overused at certain times, with some road users not paying enough, and some paying too much to the use the roads.  Far better to enable pricing to reflect demand, capacity and the costs of supply on a more refined scale than the national average across all roads across the country.
• Little relationship between road users and road providers, with very limited feedback from road users to road managers and poor incentives on road managers to respond to the needs of the former.

Quite simply the incentives for innovation, especially for efficiencies was not good enough. This is particularly an issue for territorial authorities, which are more reluctant to engage in long-term contracting for road maintenance, or to consolidate contracting across multiple councils.  While it is possible to have political direction around some of these matters, none of this matches having financial and institutional incentives to optimise maintenance and performance,

On new projects there are five big factors that have influenced inflation in project costs:

1. Contractors do not think there is sufficient risk that large projects, once committed, will be cancelled or scaled down, so price accordingly. This is because the projects are explicitly politically identified, and contractors know that the risk of a politician cancelling a project because of cost, especially after a project has started, are low. Look at City Rail Link and Transmission Gully. Nobody was going to pull the plug on projects already underway because costs went up, and the New Zealand contracting market is too small to fear someone else being brought in to finish it. That's what happens when it is a politically-driven, not commercially-driven model of managing assets. By contrast, look at the M6 project in Sydney, which may be abandoned because the contractor is unwilling to complete the project under the current budget, following an unexpected collapse of part of the tunnel.
2. Gold-plating of projects to meet either institutional or political aspirations. The Northern Gateway toll road north of Auckland had its design speed increased and a tunnel included in its scope specifically because the agency involved wanted to "show off" what a great toll road the first new generation toll road would look like in New Zealand (the original design had a gully instead of a tunnel, and 80 km/h design speeds). Whether that was justified or not, the reasoning for doing it was nothing to do with economics, it was driven by a belief that the money would be spent anyway and for a Crown Agency to "show off" to the public. Likewise, insisting that the Northland Expressway is four lanes throughout with grade-separated interchanges its full length, amplifies costs with insufficient economic benefit to justify the cost.  There are very sound reasons to rescope (and indeed this used to happen in New Zealand from time to time).
3. The start-stop-start cycle of project development. The infrastructure sector advances this as the main reason, which is false, but it is an important factor. Long term strategies for corridors would help plan both the resourcing, sequencing and encourage competition in project delivery, so that equipment and skilled professionals could be guaranteed being occupied for a decade or longer. Starting and stopping projects is wasteful, unless of course, the projects were poor value in the first place (like Auckland Light Rail).  The presence of a long-term pipeline of economically viable project would be a good thing to help build a competitive industry and build capability.  A sector which sees commitments to projects appear and disappear depending on who is in power will charge more to manage that business risk.
4. Incremental growth in the costs of doing business. Part of it can be blamed on local government through the RMA, but it can be seen in the significantly higher amounts of planning, consultation and investigation work needed today compared to the 1990s. The process has become more complex, time consuming and seen a vast increase in the numbers of people involved in these projects. Some of this reflects increases in the cost of doing business, contracting and employment in the sector, due to incremental measures implemented by successive governments. However, the effects of this have been insufficiently appreciated (though this is also seen in construction more generally)
5. Rent-seeking behaviour by professional organisations in the sector. Competition has simply been insufficient. While there have been increased in construction costs, part of this has been opportunism for extracting greater profits from a sector that has been flush with money for some years. It has also been outrageous that the professionals involved in investigation and design work have increased their scope and fees at the same level, even though they don't face the increased input costs for construction.  On average it was always assumed that the pre-construction phases for major road projects were around 15% of the construction costs. Quite why these costs should increase at the same rate is unclear.
6. Higher labour costs for a shortage in professionals. There aren't enough technical experts to go around, and they are working in a global market for their experience. This is expensive for a country with a relatively low exchange rate, low GDP per capita, that is far away and has relatively high housing costs compared with say the United States.  However, having a steady stream of work for projects should help that over time.

The Infrastructure Commission notes:

The RoNS projects are expected to cost significantly more per kilometre than earlier New Zealand motorway and expressway projects, and significantly more than the OECD average. Indicative target cost ranges published by NZTA suggest costs should ideally be much lower. The Northwestern Busway is expected to cost much more than previous New Zealand busways, potentially exceeding the per-kilometre cost of many underground rail projects overseas. These cost increases constrain what can be delivered without displacing other needs.

The thing is, NZTA seems unable to fully understand why this is the case, let alone be able to contain these costs. 

Politicians have made the system worse

The entire system is not particularly well set up to challenge these, and since 1998 two major reforms have made it much worse:

• Creation of the New Zealand Transport Agency
• Almost complete politicisation of the National Land Transport Programme

In 1998, funding was decided by an arms-length independent funding agency called Transfund. It was small, nimble and focused on essentially buying the best value for money for maintenance and improvements to roads and public transport for motorists, who fully funded it through road user charges, fuel tax and motor vehicle registration and licensing fees. There was no Crown money from general taxation. The 1998 National Roading Programme was fully funded by road users, and money was allocated first to road maintenance, public transport subsidies and then whatever was left was available for capital improvements.  

The Clark Government merged it with the Land Transport Safety Authority in 2004 (then responsible for regulating drivers, vehicles and commercial vehicle operators, and managing the motor vehicle register and collecting road user charges).  Making the new agency - Land Transport New Zealand - a regulatory and funding agency. However it was in 2008 that it was merged with Transit New Zealand - the state highway manager - to make a land transport agency monolith - the NZTA. The National Land Transport Fund was now being allocated by the same agency which also is the largest spender of those funds.  No longer would the state highway manager have to be worried about convincing Transfund about what funding it needed, or on its performance, to justify funding it wanted.  NZTA funds itself.

That mistake would not have been quite so bad had the Clark Government not also all but destroyed the independence of NZTA through the Government Policy Statement (GPS) process of directing land transport funding. The GPS essentially politicised land transport funding, with the Minister of Transport able to simply direct how much money would go into whatever funding categories the Minister wanted.

That meant that three-yearly National Land Transport Programmes were politically directed.  From a system that rationed maintenance and focused on optimising maintenance so that capital spending could be maximised without degrading the road network, to a system whereby the whims of Ministers could redirect money where they saw fit.  Roads of National Significance,  public transport subsidies, rail projects, cycleways, whatever was wanted, could be funded. Furthermore, when Ministers or Governments changed, the whole programme was up for grabs. Projects might be cancelled and new ones started, with Ministers demanding to know "how soon" a project could be "shovel ready" to show progress, because once it started, it was hard to stop.

Imagine the incentives that puts on the contracting sector, both to please NZTA by getting work started, and to not be concerned about cost inflation once a project has commenced. It also sent a signal about investment in capital and professional staff through a political cycle.

The Infrastructure Commission puts it politely:

NZTA acts as both funder and deliverer of projects – combining functions previously kept separate. Between 1997 and 2008, one Crown entity (Transfund, renamed Land Transport NZ in 2004) was charged with administering transport funding and making investment decisions. Transit New Zealand was responsible for state highways and had to bid for funding alongside local road controlling authorities. Maintenance took precedence over new capital works, and only the highest-value projects were funded.

The Government Policy Statement on Land Transport (GPS-LT) directs spending in the sector. Unlike other network providers that invest to meet demand, land transport investment is heavily influenced by the Government of the day’s objectives. The Minister of Transport determines funding ranges for expenditure categories through the GPS-LT, based on advice from the Ministry of Transport but without independent oversight. In recent years, Governments have also directed specific projects for delivery, leading providers to spend more than user revenues allow.

That was destroyed by the Clark Government, and the Key/English and Ardern/Hipkins Government did nothing to change this, but rather all doubled-down on growing the NZTA's role and functions, and demanding ever more money be spent on their "objectives".

So what next?

The 1998 warning was part of an announcement to radically reform how roads would be funded and managed. They would become businesses, like state owned enterprises. They would be paid by users, directly. They could borrow against that money for new projects. They would be subject to regulatory oversight, and it would have removed ratepayer funding for roads. There would have been maybe eight local road companies, and they would have been expected to make a profit and pay company tax. 

Obviously that didn't happen, and there is little sign of it being revived, but there does need to be a change... more on that to come...