Fuel taxes not the best option for road upgrades - Infrastructure NZ

The AM Show 25/10/2018

Jacinda Ardern has pledged no more regional fuel taxes while she's Prime Minister, leaving the question of how roading upgrades will be paid for.

But Infrastructure NZ CEO Stephen Selwood says it's the right move as there are better ways to raise revenue than taxes.

He told The AM Show New Zealand needs to be more sophisticated in how we look at funding infrastructure investment.

"Most countries would be borrowing, either through the public sector or the private sector to enable investment and infrastructure and then using the revenue from taxes and tolls as a means to repay that debt over time."

He says our cultural reluctance to borrow money is costing us in the long term.

"It's part of the New Zealand psyche, we're quite conservative as a country. What we need to understand is that we need to invest for growth, because if we don't invest it's costing us dearly on a daily basis. Congestion in Auckland, $2 billion per annum. Social cost of accidents, $4 billion per annum.

"You have to make a decision, will I pay for a better outcome or will I put up with the rubbish that I'm having to put up with?"

Mr Selwood compares the way we pay for infrastructure at the moment to "buying a brick every week out of your pay packet and slowly building a house"

"Most people would borrow from the bank to enable them to build a house and they repay that over time," he explains. "Infrastructure is a very similar thing. We're building the infrastructure that will enable our nation to grow, and it makes sense to borrow for that."

He doesn't think the Government's Auckland fuel tax, which adds 11.5 cents to every litre, was a particularly smart idea.

"It's an easy decision to make but obviously it has ripple effects right across the whole economy and that would be true elsewhere as well. I think user charges are much more effective, like tolling. Direct beneficiaries of that investment will pay the price and it's a much smarter way to do it.

"Taxes hit everyone and it ripples right through the whole economy. I think it's a question of being more innovative."

He welcomes the Prime Minister ruling out future fuel taxes, which he sees as freeing rather than limiting

"What this decision forces us to do is look at all the options for finding the revenue. If you look at the electricity sector or the telecommunications sector, you and I pay prices to providers to provide a service. If the cost of that service goes up, the prices go up. You've got a very direct connection between those who pay and those who receive.

"Taxes are much more blunt, so our very strong recommendation is we need to look at more pricing mechanisms to pay for our transportation and water."

That being said, he says he does think the Auckland tax will make a difference in improving roads and transport.

"When you look at the motorway system this morning, even at 5am in the morning it's already starting to build congestion. If we had tolls on the motorway and we varied the price so we could manage demand more effectively, we'd get a much better outcome than paying petrol taxes.

New Zealanders need to get over our aversion to spending money and understand the long-term benefits, he says.

"The return will come from a better economy, better wage packets. We've got to look at this as investment for the future rather than a cost today."

Watch the full interview with Stephen Selwood above.

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