The country’s current Prime Minister, Christopher Luxon and his Finance Minister Nicola Willis face a rather different conundrum, albeit under the same constraint: How do you deliver modern infrastructure when Treasury’s 2025 long-term fiscal statement projects government debt reaching 200 per cent of GDP by 2065?
Incidentally, that is not some worst-case scenario. It is what will happen if current policy settings do not change.
For context, Greece’s debt was about 146 per cent of GDP when it needed its first international bailout in 2010. Argentina’s was only about 65 per cent when it defaulted in 2001. New Zealand is on course to surpass both.
Aware of these debt dynamics, Willis slashed the operating allowance to NZ$1.3 billion.
As far as it went, that was the right thing to do. The only problem is that New Zealand also faces a huge infrastructure deficit. The Infrastructure Commission estimates it to be around NZ$104 billion, with a further shortfall of NZ$106 billion over the next 30 years.
Willis cannot borrow more without exacerbating the fiscal position. She cannot raise taxes without killing what little growth remains. And she cannot want to preside over infrastructure that is in desperate need of an upgrade.
Australian politicians will be familiar with the problem. In fact, they solved it more than a decade ago through asset recycling – selling or leasing government-owned commercial assets and reinvesting the proceeds in new infrastructure. It delivered results, and it is precisely the scheme New Zealand should learn from.
New South Wales shows how effective this can be. By late 2020, the state had raised $32.7 billion through asset recycling. Proceeds were deposited into the Restart NSW Fund and directed to new infrastructure under statute. It was a wholesale reallocation of capital, from underperforming commercial assets to essential public infrastructure that would not otherwise have been built.
December 2015 brought the centrepiece: a 99-year lease of Transgrid for $10.3 billion. A consortium of Australian, Canadian and Middle Eastern investors took over operations. Prices and service remained under independent regulation by the Australian Energy Regulator, and a price guarantee applied to network charges. The structure worked.
That transaction helped fund the Sydney Metro City & Southwest project. NSW invested $11.3 billion of divestment proceeds, plus $1.7 billion in Commonwealth incentive payments, into the project. The programme says asset recycling accelerated delivery by five to seven years. New South Wales took capital locked in an electricity network, for which state ownership was not essential, to develop a metro system the public desperately needed.
The structure made this possible. Infrastructure NSW was established as an independent statutory agency under the 2011 Act, with a skills-based board. The Restart NSW Fund was governed by statute that confined spending to infrastructure alone. A clear pipeline of projects was identified before any assets were sold. The Commonwealth added a 15 per cent incentive payment on reinvested proceeds, which catalysed the entire programme.
This transparency transformed the politics. Citizens could see the direct link. The government was not selling assets to patch budget holes. It was leasing the electricity network to build the metro. That clarity built public trust in a way vague promises about debt reduction never could.
New Zealand faces the same problem with the same solution available.
The New Zealand government holds about NZ$571 billion in assets across social, financial and commercial portfolios. It owns electricity generators competing in commercial markets. It owns about 112 farms. It owns New Zealand Post, which has reported losses in both past two financial years. It owns telecommunications infrastructure, property valuation services and a host of other commercial enterprises that have nothing to do with the core functions of government.
Meanwhile, hospitals need to be rebuilt. Transport networks are congested. Schools require investment. Water infrastructure is ageing. The capital to fix this already exists. It just sits in the wrong assets.
Where to start? The government retains a 51 percent stake in three electricity generators: Meridian, Mercury and Genesis. These companies are already listed on the stock exchange and operate in competitive markets. The 51 per cent floor is mandated by law under the mixed-ownership model, so any sale below that threshold would require legislative change and a clear mandate from voters. Unfortunately, the Luxon government has recently ruled out any changes to this ownership model – a stance it should rethink.
Transpower owns and operates the national electricity grid. As a natural monopoly, it is already regulated under the Commerce Act by the Commerce Commission. A long-term lease, structured identically to the NSW Transgrid transaction, would unlock billions of dollars. Price-quality regulation would remain in place regardless of ownership, protecting consumers while releasing capital for infrastructure.
The Luxon government has not wanted to scare the horses with anything that looks like privatisation. Asset recycling can make asset sales more political palatable – but it requires a different approach. It needs political courage and excellent communication skills.
Willis has an opportunity here. A government with a plan to deliver better infrastructure without new debt or higher taxes has something worth campaigning for. Australia’s experience over more than a decade removes any uncertainty about whether this works.
To be clear, New Zealand does have the capital to fund modern infrastructure. It is just that this capital is locked in commercial assets the government has no compelling reason to own.
Australian politicians have demonstrated a solution that works. Whether New Zealand’s politicians can muster the courage remains to be seen.
Dr Oliver Hartwich is the Executive Director of The New Zealand Initiative think tank. This article was first published HERE.
For context, Greece’s debt was about 146 per cent of GDP when it needed its first international bailout in 2010. Argentina’s was only about 65 per cent when it defaulted in 2001. New Zealand is on course to surpass both.
Aware of these debt dynamics, Willis slashed the operating allowance to NZ$1.3 billion.
As far as it went, that was the right thing to do. The only problem is that New Zealand also faces a huge infrastructure deficit. The Infrastructure Commission estimates it to be around NZ$104 billion, with a further shortfall of NZ$106 billion over the next 30 years.
Willis cannot borrow more without exacerbating the fiscal position. She cannot raise taxes without killing what little growth remains. And she cannot want to preside over infrastructure that is in desperate need of an upgrade.
Australian politicians will be familiar with the problem. In fact, they solved it more than a decade ago through asset recycling – selling or leasing government-owned commercial assets and reinvesting the proceeds in new infrastructure. It delivered results, and it is precisely the scheme New Zealand should learn from.
New South Wales shows how effective this can be. By late 2020, the state had raised $32.7 billion through asset recycling. Proceeds were deposited into the Restart NSW Fund and directed to new infrastructure under statute. It was a wholesale reallocation of capital, from underperforming commercial assets to essential public infrastructure that would not otherwise have been built.
December 2015 brought the centrepiece: a 99-year lease of Transgrid for $10.3 billion. A consortium of Australian, Canadian and Middle Eastern investors took over operations. Prices and service remained under independent regulation by the Australian Energy Regulator, and a price guarantee applied to network charges. The structure worked.
That transaction helped fund the Sydney Metro City & Southwest project. NSW invested $11.3 billion of divestment proceeds, plus $1.7 billion in Commonwealth incentive payments, into the project. The programme says asset recycling accelerated delivery by five to seven years. New South Wales took capital locked in an electricity network, for which state ownership was not essential, to develop a metro system the public desperately needed.
The structure made this possible. Infrastructure NSW was established as an independent statutory agency under the 2011 Act, with a skills-based board. The Restart NSW Fund was governed by statute that confined spending to infrastructure alone. A clear pipeline of projects was identified before any assets were sold. The Commonwealth added a 15 per cent incentive payment on reinvested proceeds, which catalysed the entire programme.
This transparency transformed the politics. Citizens could see the direct link. The government was not selling assets to patch budget holes. It was leasing the electricity network to build the metro. That clarity built public trust in a way vague promises about debt reduction never could.
New Zealand faces the same problem with the same solution available.
The New Zealand government holds about NZ$571 billion in assets across social, financial and commercial portfolios. It owns electricity generators competing in commercial markets. It owns about 112 farms. It owns New Zealand Post, which has reported losses in both past two financial years. It owns telecommunications infrastructure, property valuation services and a host of other commercial enterprises that have nothing to do with the core functions of government.
Meanwhile, hospitals need to be rebuilt. Transport networks are congested. Schools require investment. Water infrastructure is ageing. The capital to fix this already exists. It just sits in the wrong assets.
Where to start? The government retains a 51 percent stake in three electricity generators: Meridian, Mercury and Genesis. These companies are already listed on the stock exchange and operate in competitive markets. The 51 per cent floor is mandated by law under the mixed-ownership model, so any sale below that threshold would require legislative change and a clear mandate from voters. Unfortunately, the Luxon government has recently ruled out any changes to this ownership model – a stance it should rethink.
Transpower owns and operates the national electricity grid. As a natural monopoly, it is already regulated under the Commerce Act by the Commerce Commission. A long-term lease, structured identically to the NSW Transgrid transaction, would unlock billions of dollars. Price-quality regulation would remain in place regardless of ownership, protecting consumers while releasing capital for infrastructure.
The Luxon government has not wanted to scare the horses with anything that looks like privatisation. Asset recycling can make asset sales more political palatable – but it requires a different approach. It needs political courage and excellent communication skills.
Willis has an opportunity here. A government with a plan to deliver better infrastructure without new debt or higher taxes has something worth campaigning for. Australia’s experience over more than a decade removes any uncertainty about whether this works.
To be clear, New Zealand does have the capital to fund modern infrastructure. It is just that this capital is locked in commercial assets the government has no compelling reason to own.
Australian politicians have demonstrated a solution that works. Whether New Zealand’s politicians can muster the courage remains to be seen.
Dr Oliver Hartwich is the Executive Director of The New Zealand Initiative think tank. This article was first published HERE.
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