$3 billion for a new hospital? Unaffordable. $3 billion for a new motorway? Now we’re talking.
The government wants to build a new hospital in Dunedin, but at $3 billion, it says the current plans are unaffordable. As it turns out, affordability is in the eye of the beholder.
Chris Bishop and Shane Reti looked sombre as they told reporters gathered on Castle St that the government had been forced to scale back plans for a new hospital in Dunedin. The city needs the facility, they admitted, but cost blowouts had made it impossible for them to construct it as currently planned. Its budget, once $1.88 billion, had risen to as much as $3 billion. “This cost simply cannot be justified when hospitals around New Zealand are crying out for maintenance, upgrades and new facilities,” said Bishop. “Dr Reti and I are concerned that badly needed infrastructure upgrades to Whangārei, Nelson, Hawke’s Bay, Palmerston North and Tauranga hospitals may be put at risk if New Dunedin continues to go so far over budget.”
This announcement would appear to be at odds with Reti’s statements last July, when he guaranteed National would build the hospital with all the operating theatres and radiology services planned before the troubled project was last scaled back due to cost overruns.
But that promise was made before he knew providing lifesaving medical facilities for the South Island’s second-largest city would be so expensive. $3 billion for a hospital is unaffordable.
When it comes to government spending though, it’s different strokes for different roads. Some expenses that seem impossible in one portfolio are little more than chump change in another.
For instance, though $3 billion is a lot in health, it is an affordable price tag for the East-West Link, which was dubbed the world’s most expensive road after it was billed at $1.8 billion, or $327 million per kilometre, back in 2017, before large recent escalations in construction costs.
The Petone to Grenada highway, a motorway next to another motorway, will cost $2 billion. It is affordable because it is enabling housing that is already being built next to the old motorway.
The comprehensive nationwide cycleway programme set out in the last National Land Transport Programme would cost $910 million. That is patently unaffordable and has been halved.
Four-laning State Highway 1 from Warkworth to Whangārei could take up 10% of all government infrastructure spending for the next 25 years. That is a rock-solid government commitment, as laid out in the National-New Zealand First coalition agreement.
This all may seem a little bit steep to some people, particularly those seeking medical treatment in Dunedin. But you have to consider these things in context. A hospital will only provide care to the sick. The Northland Expressway will deliver a smoother journey for 15,000 to 18,000 cars a day, which is up to a tenth of the number that currently cross the Harbour Bridge.
The iRex ferries and wharf upgrades would have cost $3 billion. That was unaffordable.
Cancelling the iRex ferry upgrades will incur $300 million in break fees and $424 million in sunk costs. That is affordable.
The new ferries we get after paying those fees could cost $3 billion. That will be affordable.
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Removing $5 copayment fees on prescriptions, making public transport free for children and half-price for under 25s, and indexing benefits to wages rather than inflation would cost roughly $1.6 billion combined over the next three to four years and as such is obviously unaffordable.
Restoring interest deductibility for landlords will cost $2.9 billion. That is affordable, and necessary to remove a distortion in the tax system. Removing depreciation on commercial buildings is also a tax distortion, but reinstating it would cost $2.3 billion and is unaffordable.
A recent Treasury report estimates it would cost $3 billion per year to meet the country’s child poverty reduction target. That’s exactly what it would cost to build a brand new hospital in Dunedin, or almost a third of the bill for a tunnel that will get MPs from the airport to parliament for one of their 84 sitting days per year. You can probably guess what the response has been.
Keep going!
Winston Peters, Christopher Luxon and David Seymour. (Image Tina Tiller)
Winston Peters, Christopher Luxon and David Seymour. (Image Tina Tiller)
A handful of wobbles on the coalition seismograph.
The 54th New Zealand parliament has given us something new: a fully fledged three-party coalition. National, Act and New Zealand First are all in cabinet – three legs to one government stool.
And to be absolutely clear, they’re keeping it together admirably, defying all predictions of dissonance and disorder. Whether it’s down to the big-rock proficiency of New Zealand’s No 1 management consultant, Christopher Luxon, or a determination on the part of Winston Peters and David Seymour not to let fissures appear – or most likely a bit of both – the coalition is strong.
A few months ago, we had a one-two play of “agree to disagree” cards by the smaller coalition partners. New Zealand First invoked the provision in late June over the shape of the Covid-19 inquiry; Act did the same a few days later over the Fair Digital News Bargaining Bill. Far from showing “cracks in the coalition”, as some detected, it revealed a solidity and confidence – a way to send a signal to supporters and assert clear ground without compromising the project as a whole.
In recent days, however, more serious tremors have rippled through the substrata. None of it looks catastrophic, but nor is it trivial.
Foreign policy
A little over a week ago New Zealand voted in support (with a few caveats) of a UN resolution hailed as “a historic text demanding that Israel brings to an end its unlawful presence in the Occupied Palestinian Territory [within] 12 months”. The vote was “fundamentally a signal of our strong support for international law and the need for a two-state solution”, said the foreign minister, Winston Peters, who happens also to be the leader of NZ First.
David Seymour, who happens for his part to be the leader of Act, didn’t love it. He told reporters that while he was, naturally, a team player, “This has been a pretty controversial decision for a lot of people, it’s not something I’ve participated in. I’ve talked to Winston Peters, we had a friendly chat, I said, ‘You know, look, it would be good if we could chat about this more in future.’”
He said he’d have liked the opportunity for Act to consider an agree-to-disagree stance. “It’s all hypothetical now but we’ve long been sympathetic to Israel. As the MP for Epsom I represent probably the largest Jewish community in New Zealand and I always have an ear to the ground for them too because they’re good people who have actually suffered a lot in different ways – particularly in the last year with the upset in the community and some of it targeted at them, so I always try to see both sides of this issue.”
Camp Peters’ response to Seymour’s quibbles had a lick of the calm-down-dear about it: the vote was “entirely consistent with this country’s long-standing stance on our strong support for international law and the need for a two-state solution” and, “The minister of foreign affairs does not consult with coalition partners on the literally hundreds of UN General Assembly resolutions that are considered each year that are within established foreign policy settings. The minister does consult on significant changes to foreign policy settings.”
New Zealand was among around two-thirds of nations that backed the resolution. The US voted against, while other Five Eyes partners Australia, Canada and the UK, as well as India, Germany and others, abstained, mostly pointing to the absence of an affirmation of Israel’s right to defend itself.
Peters will speak to the general assembly at noon today (NZ time) as New Zealand’s representative for leaders’ week. Reporting ahead of that address suggests he is likely to be harsh in his criticism of the UN and its response to the crisis in the Middle East.
Foreign minister Winston Peters at the UN this week
Ferries
As Morning Report noted this week, the other point of difference that has broken the surface is about boats. At the end of last year, Nicola Willis sank an agreement reached under the last government on KiwiRail’s purchase of new inter-island ferries from South Korea after costs had blown out by billions. More than nine months on, “there have still not been any discussions in cabinet about the ferry replacement options and no proposal has been taken to cabinet yet,” RNZ political editor Jo Moir revealed.
An important sticking point seems to centre on dramatically different views from the government’s two first mates. David Seymour and Act are keen on a minimum-cost public-private partnership, on as far as possible getting the state out of the mix. Winston Peters and NZ First are all about the trains – they want to see any replacement ferries railway-enabled.
Following indications from Willis earlier in the year that a rail component was not mission-critical, Peters was told that the government appeared to be leaning towards non-rail-enabled ferries last month. He harrumphed, according to the Herald, “who said that’s going to happen? Let’s see what happens in the end.” Would he want the ferries to be rail-ready? “Well, of course I would. Because for 100 years that’s what we’ve been planning to do.”
Seymour said this week there hadn’t been any substantive discussion on the issue between the coalition partners. In question time, however, Willis said, “I think that if you were to ask David Seymour whether he has engaged in discussion with me about the ferries, he would happily confirm that, yes, he has.”
The Interislander’s Kaitaki ferry (Photo: Getty Images)
Industry
As regional development minister, Shane Jones has been vociferous over the closure of Winstone Pulp mills in the central North Island following surges in spot energy prices. His fury was directed principally at the power companies and costs that were “imperilling the viability of industry and manufacturing in regional New Zealand”. In March, the Ruapehu skifield operators Alpine Lifts did get a bailout, but despite calls from the local mayor, the government did not step in over Winstone Pulp.
There is nothing to suggest that NZ First pushed for a bailout in the Winstone case, but Jones is fired up, and warning of further closures and the “hollowing out” of regional industry. This is a core constituency for NZ First, and any efforts for subsidy are likely to collide hard with the firmly held Act position. “No matter how much your heart tells you you should [intervene],” Seymour told the Herald, “your head reminds you that actually you can’t do it – you’re just delaying the change.”
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Treaty
Both Act and NZ First had in their coalition deals pledges to address the place of the Treaty principles in New Zealand law. While NZ First secured an agreement to review and replace (except for in settlements) references to the principles in legislation, Act went further, or sort of. They got a bill to put a redefinition of the Treaty principles to a referendum, albeit a functionally doomed one, with all parties other than Act indicating they’ll vote it down at second reading.
First, however, comes a select committee inquiry, and Act has won a fully fledged six-month process. For Act, the ambition seems clear enough: keep the issue in the headlines as late as possible, and ride it into the next election. What does that mean for NZ First? After all, Peters has for decades now been the unwavering voice in the “one law for all” territory. What happens if NZ First slips below 5% in polls? What does that mean for coalition camaraderie?
Changing of the guard
In 246 days, David Seymour and Winston Peters will undergo an unusual transplant, with the deputy prime ministerial warrant transferred from the latter to the former. Ostensibly that makes Peters less powerful, but at the same time it makes him more potent; he may consider himself, for the back end of the term, liberated to speak more candidly as party leader versus government 2ic.
If there is to be any serious fraying in the coalition fabric, expect to see it from then. For while – to repeat – the coalition has been on the whole stable, cordial and coherent, in the sweep of recent history, Peter and Seymour getting on is the exception rather than the rule. It may not take too much prodding, in the face of the ineluctable gravity of an approaching election, to reanimate that white-hot animosity.
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