National used figures from as far back as 2015 without adjusting for increased costs since then, leaving a gap of at least $2.5 billion in its roading budget
Transport Minister David Parker says the National Party has made a "rookie error" in not accounting for inflation in its big road announcement last week, after a Newsroom analysis suggested the party's financial estimates are at least $2.5 billion short.
National costed its $17.4b roading plan by using the latest available public figures. It also included a $1.4b contingency in case of cost overruns.
But the figures were almost all from before the past year of rapid inflation, meaning they're out of date. Some run back to 2015, with $6.35b of the total predating the pandemic.
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Applying just the base inflation rate since each of the costings was done suggests the full roading package would now cost $2.5b more than National estimated in its policy document.
Consider the Warkworth to Wellsford expressway, costed in October 2019 at $2.1b in 2017 dollars. That would now be $470 million more expensive because of inflation alone.
"We used the most conservative publicly available costings for each of these projects as opposed to producing a figure that really would just be an estimate of what inflation might or might not be over the next 10 years," National's transport spokesperson Simeon Brown told Newsroom.
"This is a 10-year plan so we expect the costs will be revised over that time. But we are confident that we can build these projects within the funding envelope we have identified. We have also set aside a $1.4 billion contingency to cover any additional costs, which is a lot higher than the $48 million Labour set aside as contingency for the [New Zealand Upgrade] Programme."
Parker disagreed. "Not applying CPI adjustments and a realistic allowance for actual road construction costs was a rookie error. It seems negligent given that we had provided National with a breakdown of cost increases for the likes of steel and bitumen, via a written Parliamentary question," he said.
Craig Renney – the policy director at the Council of Trade Unions and a former senior economic advisor to Finance Minister Grant Robertson and who has been outspoken on opposition party policy costings this year – said even the $2.5b figure produced by Newsroom's analysis was likely an underestimate.
"We know building materials and construction generally has been one of the leading drivers of overall inflation in New Zealand generally over the past couple of years," he said.
"It's likely to remain that way with the cyclone rebuild, and the Crown already has an extensive building programme."
This means inflation in road-building costs has been higher than general inflation. Applying an inflation metric specific to transport projects, rather than the general consumer price index, raises the size of National's underestimate by another billion dollars.
Last week, Parker released updated figures for some of National's roads, which had been assembled for the Government's upcoming 10-year transport plan. They showed the costs had grown beyond even what inflation would suggest. The Warkworth to Wellsford expressway, which would cost $2.7b by the roading-specific inflation measure, now has a price tag of $4b.
Brown didn't directly answer whether National would take these new figures into account for its costed fiscal plan.
"It would be odd for the Government to have costings for our policy in the draft GPS of land transport given they haven’t indicated any intention to build these projects themselves and in fact cancelled a number of these projects in 2017 when they came to office," he said.
Even in times of low inflation roading projects frequently run over-budget.
"When we look at the experience of previous big spending programmes in this area, like the New Zealand Upgrade Programme, the initial estimates proved to be very under where [real costs] ended up being," Renney said. "We've had to see rounds of changes to the New Zealand Upgrade Programme ever since its inception."
The initial price tag for the upgrade programme's roads was $5.3b, less than a third of what National is proposing to spend on its roads. But those costs ballooned to more than $10b just a year later. National ridiculed the Government for putting aside a contingency of just $47m for those projects.
Though no one expects opposition parties to produce costings as robust as the Treasury's, Renney said National could have presented its policy differently to avoid misleading people about the ultimate cost of the projects. That's particularly true because National knew the dates of almost all of the costings – it sought them in the same written Parliamentary questions where it obtained the dollar figures themselves.
"The most honest thing to do is to say, 'These are really old numbers and they've probably moved on but this is the best thing that we have.' Better than that is applying an inflation upgrade. Better than all of those things is doing those things and then increasing enormously the contingency because you know you're buying, right at the beginning, a problem," Renney said.
"If I was doing this for an opposition now, one of the first things I would be saying to the transport spokesperson is, 'We can increase this with CPI, with the capital price index, with the experience of roading projects over the past few years. What do you want to do?'"
