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Transport – It’s the Economy, Stupid

I came across a well crafted piece about the Government’s transport policies on Scoop, by Dr Glen Koorey (presumably the same person who comments here occasionally as “Glen K”) a senior lecturer in transportation at the University of Canterbury’s College of Engineering. Here it is in full:

In New Zealand, transport is a very hot topic in local government yet barely features at the national level. A number of mayoralties have been won and lost in the past on the back of controversial transport projects (road through Hagley Park, anyone?) but I have yet to see it become one of the defining issues in a general election.

It is ironic therefore that the majority of transport funding in this country is so tightly controlled at the central government level. Local cities and districts can talk all they like about what they and their residents would like to see for transport in their area, but they are ultimately beholden to the whims of the government of the day.

And so it is that the latest National Land Transport Programme (NLTP) just released (The Press, 30 Aug) continues to propose a distribution of funding that appears to be at odds with the wishes of the general population, and also best-practice international evidence.

When the current Government came into power in 2008, they made fairly sweeping changes to the pattern of transport expenditure. The revised Government Policy Statement (GPS) on transport substituted “Roads of National Significance” (RoNS) funding for many other sustainable transport and road safety programmes. At the time, the Government claimed that these investments were needed to address the economic crisis facing the country.

Last year’s updated GPS for the coming 10 years repeated the RoNS mantra even more strongly. Given the fact that the economy still needs some spending prudence, and the evidence for future constraints on oil supply and price is stronger than ever, it was incredibly galling to see that the new plan is essentially more of the same.

New state highway construction (mostly RoNS) already consumes 40c of every transport dollar (excluding policing). This is over seven times as much as is spent on local road construction, four times as much as public transport expenditure, and over 50 times as much as walking/cycling. But this is not a short-term blip: over the next 10 years the GPS proposes that half of all transport investment will be spent on new road construction, with worryingly decreasing proportions of expenditure in road maintenance and safety, public transport, walking, cycling and travel demand management.

The stated goals for the NLTP are “economic growth and productivity, value for money, and road safety.” Every Government agency is struggling to trim “fat” from their budgets, but still $9 billion of RoNS projects remain on the table. These seven major roading projects are touted as being needed to “encourage future economic growth”, yet the evidence doesn’t support that hypothesis.

The best performing RoNS project has already been built: Auckland’s Victoria Park Tunnel, returning $3 of benefits to the country for every dollar invested. Of the remaining six projects, five have benefit-cost ratios of no more than 2:1 and three of those don’t even have a ratio of 1:1. When most road safety or walking/cycling projects routinely have benefit-cost ratios of well over 5:1 (if not 10:1), it is difficult to see why we are investing in so many expensive projects with such poor returns.

A recent study at Auckland University found that completion of the entire Auckland cycling network (a cost of about $600 million, or one small RoNS project) would generate benefits in the order of 20 times as great, in terms of health (by far the biggest benefits), safety, and reduced driving costs. It’s not hard to envisage that similar investments throughout the country would have equally impressive economic returns.

To make matters worse, the economic predictions for the RoNS project have been based on typical historical assumptions about future traffic growth creating more benefits from growing congestion. However, since 2005 state highway traffic volumes have been stagnant. Traffic congestion isn’t growing, so why do we need to build more motorways?

The national cost of congestion (less than $2 billion annually) is considerably less than the annual cost of road crashes to our country – over $4 billion. Yet the investment in road safety initiatives pales in comparison with the amount of money being spent to save a few seconds of travel time.

Perhaps a focus on roading projects can be justified in terms of jobs created? Research from the UK and US however shows that investment in sustainable transport projects generates more new jobs than road construction, up to twice as many. Road maintenance was also found to produce more jobs than new road construction. Even the much-maligned NZ Cycle Trail has produced more jobs per dollar than the RoNS programme to date.

So why hasn’t all this attracted major news coverage and discussion? Is it because transport is seen as only a minor portfolio? This is taking the wrong approach, because the underlying problem is actually about our economy and how we reboot it.

Our highest categories of imports by dollar value are motor vehicles and the fuel to power them (which is currently causing plenty of pain at the pump). A roads-focused programme does nothing to reduce this reliance and help balance our deficit. At the same time it puts a huge burden on our health system. Unless something dramatic happens soon, that will mean a continuing strain on our country’s transport system and finances.

Maybe transport will finally become a big issue at the 2014 election?

13 comments to Transport – It’s the Economy, Stupid

  • Succinct. There’s the problem; there is no evidence even offered for the value of the RoNS programme, and there can’t be because there is none.

  • Richard

    I like the economic argument for reducing our spending on petrol and cars. Even if you don’t believe in climate change and sustainability, it’s hard to ignore the current account deficit.

    • Curious idea; ‘not believing’ in climate change or resource limits, it’s like ‘not believing’ in facts. Empirical evidence is not analogous to personal beliefs; science is not a smorgasbord that you can pick and choose from as it suits. I guess you can reject the whole idea of evidenced based enquiry and make up your own fairy story and I guess people do. But it is interesting that every AGW or peak oil denier I meet or read is also deeply in favour of the auto-highway complex so you have to wonder which came first. The contortions required to deny any evidence that we are altering the climate or reaching the limit of our ability to resource this high consumption lifestyle are clearly feed by an emotional urge to also deny any need to change any aspect of how we live now.

      But you are right, there is no need to make what are clearly considered radical changes in belief system to see that on the precautionary principle alone that this all-in gamble on an oil based highway only economy is reckless in the extreme. And anything but ‘fiscally responsible’. Just a faith-based gamble with no evidential support. Crazy.

  • obi

    “The national cost of congestion (less than $2 billion annually) is considerably less than the annual cost of road crashes to our country – over $4 billion.”

    $4 billion is about 2% of GDP. It’s almost half what we spend on education. It’s a seriously big number that fails a basic sanity test. It seems to be backed up by this page http://www.transport.govt.nz/ourwork/TMIF/Pages/SS009.aspx that values each life lost at almost $4 million. I’m sure an economist has some justification for the figure, but it would mean cancer costs NZ $30 billion a year and heart disease costs NZ $25 billion a year. Rather than pay for any transport projects of any type, we should be pumping billions of dollars in to the cancer and heart disease that apparently costs us over 25% of GDP.

    Either that, or economists need to get a grip.

    • Greg N

      Shock Horror, Obi, you’ve discovered the horrible secret we all know but won’t talk about – the countries huge “death toll”.
      Do you know that 100% of everyone born in NZ, will die?

      Think of the terrible cost to the economy of all that death and dying, sure there is some “benefit” from the Funeral Industry – but these WEBs don’t remove that fact that the death thing is a tremendous drain on our economy. We should concentrate on getting all death and dying removed completely from this country by 2050.

      Now to your argument that $4B for roac accidents etc is too high.

      The “Road Toll” is not just the (opportunity) cost of the prematurely dead (taxpayers) – which is where the $4m per life figure comes from, but of the entire cost for rehabilitation, treating injuries, ACC and the like that the living incur. I also don’t know why you say $4B figure fails the sanity test – the cost to ACC alone for road crashes is going to be close to that figure.
      Let alone considering the other costs not borne by ACC [like private/public property damage, insurance costs from road crashes etc].
      ACC is after all one of the largest “Ministries” (yes its not actually a ministry but it has a minister) in terms of annual budget.

      So $4B if anything is probably too a low figure, not too high a high one.

      And to be clear, yes the costs of Cancer and Heart Disease for premature death is probably over this $4B figure (but not the figure you quote)
      – which is why the Gov’t is so keen on kicking its and the countries smoking addiction as smoking is a major reason for those two premature deaths
      (admittedly, not the only one, but certainly a majority contributor).

      • obi

        “I also don’t know why you say $4B figure fails the sanity test – the cost to ACC alone for road crashes is going to be close to that figure.”

        ACC’s total expenditure on all accident claims of all types is only $3 billion.

        “And to be clear, yes the costs of Cancer and Heart Disease for premature death is probably over this $4B figure (but not the figure you quote)”

        You’re valuing vehicle deaths at a different rate to cancer and heart disease deaths. I don’t see why you’d do that. If you use the same value then you get the $55 billion figure for cancer and heart disease death cost. The fatal road accident figure in the linked page was only 40% of the total cost which accounts for things like hospital treatment. If you apply a similar multiplier to the cancer and heart disease death cost (which is probably not unreasonable since all cases need treatment and some treatments are successful) then you’d end up with a total cancer and heart disease cost of around $140 billion a year, or over two thirds of GDP.

        That doesn’t sound too unreasonable given that 1 person dies on the road every day, but 22 die of cancer and 15 die of heart disease. That is, if you accept the $4 billion figure for road crashes. I don’t.

        The $4 billion figure sounds like it was derived by the same people who estimated that intellectual property theft costs the US economy about $1 trillion a year… Which is the figure that an Obama official quoted a few weeks ago.

        • Vehicle deaths kill people when they are much younger, on average. The most costly death is one of a young adult who has consumed a lot of resources being brought up, educated and trained, but has so far had little chance to be productive in a working life.

        • Greg N

          “You’re valuing vehicle deaths at a different rate to cancer and heart disease deaths. I don’t see why you’d do that.”

          Quite rightly so, As Nick R points out, the deaths from Cancer and Heart Disease, predominantly (but not exclusively) occur to older people near the end of their life span (no disrespect or puns intended).

          Therefore the (economic) value of the life lost is much smaller than someone killed in a vehicle accident, who are usually of working age and have many productive years of earning (and tax paying) left before they can retire and stop contributing to the economy via wages and salaries.

          The $4M per life is the “economic” cost of the life lost used to calculate cost benefit ratios for safety related projects, and includes not just loss of future earnings potential, but other “social” costs as well.
          therefore these two types of deaths are not equal in economic terms.

          For the purposes of the discussion here we are discussing the amount spent on Congestion compared to the cost of the “road toll”. Which if you assume 300 killed per year at $4M each, is a cost to the economy of $1.2B, so added to your $3B ACC total costs is $4.2B, albeit not all that ACC $3B cost is road accident related but quite a large chunk will be.
          The “motor vehicle” account at ACC is that largest one of the various accounts ACC have.

          So the $4B figure is not “out of the ballpark”.

  • Greg N

    “Maybe transport will finally become a big issue at the 2014 election?”

    Peter, I think the most likely hope is that “Maybe transport will finally become a BIGGER issue at the 2014 election?”.
    you can’t tell what will catch the MSM’s eye (who would have predicted a simple “Cup Of Tea” would dominate the last one?), when there are/were more serious issues to consider.

    It always seems odd to me that a government which prides itself on being “fiscally sensible” – as if thats the only thing that matters in the world full of import issues right now!
    Does everything to trim its spending plans for everything, except for the “Elephants in the room”.
    And no I’m not talking about Joyce and Brownlee specifically, but more particularly their portfolios.

    The RoNS is by and far the largest project of directed transport spending any recent government has undertaken since Muldoon and Think Big even if you inflation adjust Think Big to todays prices.
    At least with Think Big we got some degree of science and transparency behind the numbers used to justify them, and in some cases, those numbers actually came true/were right.

    So why oh why does English/Key et al think that spending big bucks on road building will magically kick start the economy without producing 1 shred of actual evidence to back it up.
    I won’t say concrete evidence as thats what they are propising to give us – lots of concrete which *is* evidence but not the evidence we seek.

    Meanwhile the existing roading stock is left to go to rack and ruin. A case of RoNS fiddling while the State Highways burn?

    Brownlee says without blinking an eye “we know we will need more roads in the future” – with the unstated assumption that since we’ll need them, lets do them now.

    Which is a major assumption right there which needs to be challenged and reconsidered.

    Do we actually need more roads right now? (or anytime soon) – maybe all we actually need is the current roads fixed up and made safer for all (for less cost) rather than brand new ones “fresh from the road making factory” we are told we need.

    We also have a government thats just committed $2B to fixing infrastructure in Christchurch post-quake over the next few years, which will be the largest civil infrastructure renewal project undertaken for decades. So why do we also need to spend big bucks to build even one new RoNS as well right now?

    You can take the same approach to Joyce and his Super Ministry – which to me that sounds like a (bad) NZ attempt to build MITI – the Japanese “super” Ministry that was credited with much of their Post-WWII economic turn around – but you don’t hear much talk of the “Japan economic miracle” much these days especially since the last 20 years of economic stagnation in Japan has really tarnished that idea.

    Nor does one hear of MITI much anymore, its “fingers in every pie” approach seems to have fallen out of favour even in Japan. And probably rightfully so as MITI has been widely discredited as a hotbed of cronyism, public/private corruption and nepotism on such a scale that it makes even the Japanese bank scandals collectively look tame.

    So why does National think these ‘Super” projects – RoNS and/or the Super Ministry will work here when they don’t appear to have worked anywhere else?

    And all on the back of some ministers “Say-so” (because one assumes, someone who has his ear told him it was a good idea to do it).

    I’d happily accept the RoNS spend and the Super-ministry project, if the science behind it was transparent and the assumptions could be considered, debated and challenged.
    But we can’t – as all we are told is “Trust me, I know what I’m doing”. And while that may be ok as a line a TV actor says, is it enough of a justification here?

    I think not,

    Dr Glen Koorey talks about is the opportunity cost of doing the RoNS, to the detriment of almost everything else e.g. Road Safety improvements.
    Thats has been discussed here before as well. And its a big reason NOT to do the RoNS.

    Just think if we spent way less than the RoNS expected cost over 10 years on a 10 year road safety and PT improvement program to cover every city in NZ, we could reduce the road toll, the health toll of all that driving, reduce our CO2 emissions and reduce our oil dependency – and the collective BCR for these (without or without the “WEBs”) must be 10 times that any RoNS would have.

    Secondly, if we could reduce our long term imports of oil and fast depreciating cars (both of which are only going to go up in price) then our Current account deficit would be reduced.
    That will have a big impact on the Current Account deficit – far more in fact that any promised “increase in exports” that a 100 RoNS would supposedly deliver.

    All in all, not building the RoNS is becoming more and more obvious as the fiscally sensible option.
    2 years from now, we will be in the next election cycle I expect (unless Banks or Dunn die in office or some other political earthquake occurs).

    So you have expect that John Key can sense the change of public direction coming up to the surface now.
    And maybe Key will conclude that maybe the RoNS is not the right way to go.

    He may sense that too late, when he and Joyce, Brownlee etc all start clearing their ministerial offices post-election – personally I hope they make the change of direction well before the next election.
    But there is no guarantee they will.

    Meantime, the existing road stock is falling apart at the seams from lack of maintenance.

  • tuktuk

    Good post. Yes, it is the economy stupid. Here is an interesting link to an article in The Press today – http://www.stuff.co.nz/the-press/news/christchurch-earthquake-2011/7637382/The-business-of-NZ-Inc

    It should be noted that the article principally talks about Canterbury and the developments and debates going on there.

    The article investigates the current National Government’s brand of economics in context to libertarian-ism and intervention-ism and finds that John Key’s government is similar to Muldoon’s government in its level of intervention-ism often using the same arguments of – “trust us we know what we’re doing” as opposed to any sort of analysis. Further to this, there is discussion on the role of “disaster capitalism” and shock doctrine, as tools to force through fundamental community change – ie social engineering.

    The loss of a Greater Canterbury Regional Council till 2016 is mentioned, along with the various water irrigation schemes to get the go-ahead in the meantime. The article talks about how John Key’s new brand of economics has disrupted the left/right brand of politics.

    And finally, the article raises the possibility of a new polarity – corporat-ism versus community-ism in place of the old fashioned left/right divide (trade off democracy for wealth) :

    ‘So even if the NZ Inc approach does not fit neatly into the familiar polarities of Left v Right, or liberal v conservative – making it sound like centralism – it must still create its own new enduring polarity. Namely, that between the forces of top-down control and community-led planning.

    At least being aware of this dynamic will make the Government’s remarkably hands- on involvement with the recovery seem rather less surprising as time goes on, says (Green Party MP Eugenie) Sage. ‘

    The debate between RoNS versus cycleways and PT in general does fit neatly into this new polarity doesn’t it?
    So does climate change, and the general economic and resource sustainability debate.

  • Glen K

    Guilty as charged, m’lud; thanks for the generous feedback. Some of my thoughts in the article were probably inspired by the many insightful discussions from this blog over the years too.

    Mind you, this esteemed group here isn’t really the audience I was aiming at. With the recent release of the NLTP we were hoping to attract the interest of a few major dailies…

  • filde

    Great article! We need more of this work.

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