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Tougher government scrutiny for infrastructure

The new Government needs to ensure it doesn’t repeat the costly infrastructure decisions of the previous one, warns Peter Dunne.

It is a time-honoured ploy for a new government to paint its predecessor as fiscally incompetent and irresponsible.

This is often done to allow a new government some leeway in implementing its promises, on the grounds that first cleaning up the mess it has inherited was a more important priority. There have been times when it has been used as a reason for abandoning new, and not particularly well-thought-out, policies altogether. And, occasionally, there is even a measure of truth in a new government’s claims.

Over the last week, the new Minister of Finance has repeatedly attacked her predecessor for various unfunded fiscal liabilities the new Government has discovered on taking office. Other Ministers have been hinting at similar issues within their own portfolios.

However, the previous government has denied all the allegations, saying that all the so-called unfunded risks were accounted for in this year’s Budget. The previous Minister of Finance has gone so far as to say the real problem is that the new Minister does not know how to read the Budget documents properly.

This political argument will likely continue for some while yet, potentially even after the release of next week’s Half Year Economic and Fiscal Update (HYEFU), and the Government’s mini-Budget to follow.

In the meantime, there have been two important pieces of broader economic information this week [December 11-15, 2023] that have added fuel to the already smouldering fire.

The first was an extremely negative report from the Auditor-General on the former government’s huge post-pandemic $15 billion national infrastructure programme to kick start the economy.

He found that the government had been warned frequently of the risks to value for money associated with many of the specific infrastructure projects. These warnings included advice from the National Infrastructure Commission that, “large scale infrastructure projects are not effective mechanisms for economic stimulus due to the time needed for planning, design and procurement.”

Treasury had advised it had “low confidence” the projects could be implemented quickly. The Auditor-General said that a lack of both due process for the authorisation of spending, and providing information to Parliament and the public, meant it was difficult to see whether the Government was getting value for money from the projects.

But, Ministers in the former Government had chosen to ignore the advice and the warnings, and to proceed regardless, leaving the Auditor-General to express his concern, “that significant spending of public money continues to occur without appropriate processes for ensuring value for money and transparent decision-making.”

A similar picture of fiscal laxity emerges regarding Kiwirail’s proposals to upgrade Cook Strait ferry services. In 2018, the previous Government had approved a $1 billion programme for new ferries to replace the current ageing fleet, as well as associated port terminal upgrades.

It had subsequently been advised that the cost of the project was likely to be nearer to $3 billion and had agreed in principle to meet at least part of this cost blow-out. Kiwirail sought additional funding of nearly $1.5 billion from the new Government to meet the increased costs. Almost 80 percent of them were to do with building new terminals in Wellington and Picton, rather than the new ships themselves.

Unsurprisingly, the new Government has declined to meet the additional funding request. For its part, Kiwirail has said it will now wind down the ferry replacement project and review its Cook Strait operations.

While both the national infrastructure programme projects and the upgrading of the Cook Strait ferries are complex matters, relying on commercial and engineering judgements beyond the capability of any government, their management requires a level of overall government financial supervision and accountability that was apparently lacking in both instances.

As it tries to rectify the problems it has inherited in these cases, the new Government will obviously take every opportunity it can heap blame and pour scorn on the credibility of its predecessor. That is the nature of politics.

But, at the same time, it will also need to take steps to avoid repetitions in the future. The Auditor-General’s report recommended that there should be “regular public reporting on the progress of all significant investments that have had or that require Cabinet-level consideration”.

Such a move would be a useful step forward, but to be truly effective, it will need to be supported by an early-warning system that alerts Parliament, not just the Cabinet, to emerging risks, so they can be scrutinised and potentially mitigated.

Otherwise, there is no guarantee similar situations will not occur in the future.

 

 

 

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