Part 2: About the New Zealand Upgrade Programme

Making infrastructure investment decisions quickly.

2.1
In this Part, we describe:

Setting up the New Zealand Upgrade Programme

2.2
In September 2019, the Treasury briefed the Minister of Finance on options for changing the fiscal strategy to address a weakening economic outlook. It recommended developing a fiscal stimulus package that could begin within the next three months. Among the options discussed were investment in large-scale capital projects and projects that could be completed rapidly.

2.3
In October 2019, the Treasury provided further advice to the Minister of Finance that a significant capital investment plan could support the economy through a period of anticipated weaker growth rates.

2.4
On 4 November 2019, Cabinet agreed to $12 billion of capital investment to be announced as part of the 2020 Budget Policy Statement published in December 2019. The capital investment package was intended to:

…build clarity around the government’s future capital pipeline, speed up the transition to a low emissions economy, support business confidence, and move towards a more productive, sustainable and inclusive economy.6

2.5
The Cabinet paper considered at the 4 November meeting also noted that:

  • the Treasury was already consulting with agencies about initiatives that could be announced in a capital package;
  • initiatives were to be finalised in consultation with the relevant agencies and Ministers;
  • an announcement would include the total amounts that would be allocated to different portfolios and some specific initiatives that were to be implemented; and
  • several announcements about specific initiatives would then be made after the release of the Budget Policy Statement but before Budget 2020.

2.6
The Budget Policy Statement published on 11 December 2019 confirmed the Government’s intention to invest $12 billion. It indicated that most of the capital package would consist of investment in transport, education, health, regional investment opportunities, carbon reduction, and justice.

Scope of the New Zealand Upgrade Programme

2.7
The $12 billion capital package comprised an $8.1 billion spending package and $3.9 billion to increase the multi-year capital allowance for capital spending.7

2.8
On 9 December 2019, Budget Ministers met to allocate amounts from the $8.1 billion spending package to specific categories. Those allocations included:

  • transport projects – for medium- to long-term capital projects with a broad distribution throughout New Zealand and that supported public transport and emissions reduction (up to $6.8 billion);
  • school property – to bring forward urgent school property improvements from existing planning processes (up to $400 million);
  • district health board asset renewal – for short- to medium-term capital projects that were near investment-ready based on early findings of the National Asset Management Plan and for district health board infrastructure plans with a broad distribution throughout major urban and provincial centres (up to $300 million);
  • regional investment opportunities – for short- to medium-term capital projects that were near investment-ready and that supported regional economic development and aspirations but that did not meet the funding criteria of the Provincial Growth Fund (up to $300 million);
  • public estate decarbonisation – for short- to medium-term capital projects that reduced the government’s carbon footprint, with a focus on “process heat” and energy efficiency measures (up to $200 million); and
  • replacing the Tauranga courthouse (up to $90 million).

2.9
Ministers told us that the allocations of funding were guided by general Government priorities, which they said were “transport, health, education, decarbonisation, providing jobs, and improving productivity”.

2.10
Apart from this, we have not seen any records that clearly explain the basis for the allocation of these amounts or why specific categories were chosen. We discuss the alignment with Government priorities in more detail in Part 4.

How projects were selected

2.11
The programme of investment was developed quickly. This appears to have been, at least in part, to enable public announcements to be made as soon as possible. We saw references to early announcements in briefings and Cabinet papers, and correspondence between Ministers’ offices and agencies.

2.12
In late 2019, the Treasury asked government agencies to identify potential projects that could be considered, prioritised, and approved for funding. We saw briefings from agencies to Ministers suggesting initiatives or packages of initiatives for them to consider.

2.13
We understand that many of the proposed transport projects were already included in the 2018-21 National Land Transport Programme or had been identified through earlier work. Even so, the business cases for these projects were at different stages of development.

2.14
In September 2019, the Ministry of Education provided the Minister of Education with some high-level information about infrastructure investment options that could stimulate the economy.

2.15
On 12 December 2019, the Treasury and MBIE provided joint advice to the Minister of Finance with options for how the $200 million decarbonisation allocation could be used. The briefing proposed a contestable fund of capital for state sector organisations to apply to. It also proposed that the scope of eligible investments include low-emissions heating, vehicles, and energy-efficient lighting.

2.16
On 21 January 2020, the Ministry of Health and the Treasury provided joint advice to Ministers about options for health projects that could be funded from the $300 million allocation for renewing district health board assets.

2.17
The briefing proposed 46 different investments in maternity and child health facilities, mental health facilities, improving service access in regions, and remediation of assets to address risk, condition, or compliance issues. These projects had been drawn from the National Asset Management Plan, district health board capital plans, and other sources.

2.18
The briefing indicated that some projects were well scoped and “amenable to immediate announcement”. However, it said that others would require further investigation to have full confidence in scope, cost, timing, and expected benefits.

2.19
The Ministry of Health advised that completing projects within the short- to medium-term (12-24 months) depended on district health boards having enough capacity to support the projects. This is because, at that time, district health boards were responsible for many of these types of projects.

2.20
On 22 January, the Minister of Health agreed to $265 million of funding for projects that the Ministry of Health considered “near investment ready”. The Minister agreed that district health boards be asked to prepare business cases for those projects.

What has been funded

2.21
On 29 January 2020, the Government issued a series of press releases announcing new initiatives funded from the $12 billion capital investment (which was now being called the New Zealand Upgrade Programme):

  • The Minister of Transport announced $6.8 billion for transport infrastructure in Auckland, Waikato, the Bay of Plenty, Wellington, Canterbury, and Queenstown, including $1.1 billion for rail projects and $2.2 billion for new roads in Auckland.
  • The Ministers for Infrastructure and State-Owned Enterprises issued two press releases detailing the $1.1 billion investment in four rail projects and some of the roading investments referred to in the Minister of Transport’s release.
  • The Minister of Health announced $300 million of capital investment in health. The press release set out an initial investment of $195 million and signalled that further announcements would be made in the coming months.
  • The Minister for Climate Change announced $200 million of investment for a “clean-powered public service”. This included replacing coal boilers at eight schools and upgrading facilities at Hillmorton Hospital’s mental health unit.8 The press release indicated that more announcements about what would be funded from the $200 million would follow.
  • The Minister of Education issued a press release about the schools’ investment package. This explicitly linked the schools’ investment package to the NZUP.9

2.22
The Minister for Regional Economic Development made a further series of announcements on 28 February 2020. These referred to $300 million of investment for “Regional Investment Opportunities” and included a range of other transport initiatives in the regions, all linked to the NZUP.

2.23
These announcements were summarised on a page on the Beehive website.10 Most of the projects ultimately funded through the NZUP appear to have been included in these initial announcements and on the website. However, it is difficult to determine from publicly available information all the initiatives that have received funding from the NZUP. We discuss this further in Part 6.

2.24
Some projects received relatively small amounts of funding (less than $1 million), while others received funding of more than $100 million.

6: The Treasury (4 November 2019), Cabinet paper: Fiscal strategy for the Budget Policy Statement 2020, at treasury.govt.nz.

7: Cabinet authorised Budget Ministers to make decisions on the final details of the capital package, along with any associated operating funding, including the needed increases to the multi-year capital allowance.

8 This would be referred to in later related announcements as the “clean-powered public service fund”. The fund ultimately became the State Sector Decarbonisation Fund, which the Energy Efficiency and Conservation Authority now administers.

9 This package was first announced on 1 December 2019 but was not linked to the NZUP at that time.

10: New Zealand Government (2020), The New Zealand Upgrade Programme, at beehive.govt.nz.