By Richard Michael
CEO
New Zealand Contractors' Federation
Fuel taxes are in the news again with lots of political rhetoric from all sides of the argument about inaffordability of these taxes in times of high fuel prices, a slowing economy and an imminent election.
At present much of the argument is around price increases as part of an emissions trading scheme, but this has thrown into the spotlight the vulnerability of the proposed road funding mechanisms for infrastructure as well.
In this column I’ll talk about background to the existing situation, where the Government wants to take us, and some of the potential problems that lie ahead.
To begin, it needs to be said that both main political parties have made repeated commitments to funding the infrastructure we need to boost productivity and increase economic output. Labour has committed billions of dollars in its time in government and National says it will do the same. So this issue is not about the political will, it is about the mechanisms being put into place to provide secure funding and programme certainty.
At present the sector has a six-year funding programme, which has been committed to by the Government, and funding shortfalls can be met by selling Infrastructure Bonds. This way, any price increases do not disrupt the whole construction programme, which would result in an endless reshuffling of the programme. The current system works well and NZCF does not want it changed.
The proposals currently in front of Government introduce the concept of hypothecation. This means is dedicating all the Road User Charges and Fuel Excise currently collected to building roading infrastructure. This all sounds fine until you consider the fact that currently the Government spends significantly more than this amount at present, with large top-ups for specific projects coming out of the Consolidated Fund.
The real threat to the programme comes in the form of the possible reduction in the amount of money available from a fully hypothecated fund. There are three factors driving this.
First, the drive towards sustainability with the use of more hybrid cars, reducing the amount of air travel and encouraging and funding more public transport could lead to a reduction in the amount of fuel used and/or the kilometers travels for the RUC.
The second driver to reduced fuel taxes is the fact that our economy is slowing, which will lead to less economic activity and less money going into the fund.
The third point is that the cost of fuel is rising quickly, encouraging more conservation and the switch towards other forms of transport.
All of these things could (and I stress could) lead to a lowering of the amount that the Government makes available as a matter of course for roading.
The Government’s response to these arguments is that if this does happen, and they don’t think it is very likely, that the fuel excise tax rate will be increased to make up any shortfall.
We have just seen what has happened to the Emissions Trading Scheme that was to be funded from an increase in the excise tax on fuel. At this stage there is no talk about reducing the amount being spent on infrastructure but I think it does put us in a more uncertain position than before.
The whole argument is about certainty of funding, so the industry has the confidence to gear up, employ more staff and increase productivity. Anything that reduces this certainty is bad for the industry. We don’t want to be subjected to the variability of the economy, as has been the case in the past.
Certainty makes good sense, as it allows the client to get the best deal possible. Uncertainty increases risk, which in turn leads to higher prices. It makes it harder for companies to attract staff at a time when this is already difficult in this sector. It is also more difficult to justify extra expenditure on health and safety, staff training and other measures to increase productivity.
Both major parties have signaled clearly that infrastructure spending is central to their view of improving our productivity and economic performance. It therefore hard to understand why we would want to take a step back from the excellent funding certainty arrangements we have at present.
Contractor Vol.32 No.5 June 2008
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