Money · Credit · New Zealand · Part 7
How should New Zealand finance major infrastructure?
Before choosing bonds, private capital, levies or PPPs, there is a more basic question to answer: who is ultimately going to pay?
Infrastructure debates often jump straight to the financing mechanism.
Should the Government borrow?
Should private investors finance it?
Should we use a public-private partnership?
Should a special-purpose vehicle raise the money?
Those are useful questions.
But they come second.
Funding answers who ultimately pays. Financing answers how the upfront capital is raised.
Funding and financing are not the same thing
Treasury makes this distinction explicitly.
Funding is the ultimate source of payment for infrastructure. It can come directly from users and beneficiaries, or indirectly through taxes, rates and levies.
Financing is the capital raised to meet upfront costs. It can take the form of public or private debt or equity.
Financing has to be repaid.
So private finance does not make infrastructure free, and government borrowing does not remove the need for a funding source.
Treasury — Funding and Financing Framework ↗
Te Waihanga puts the same point simply: infrastructure is ultimately funded by users, taxpayers or ratepayers, while financing changes when those costs are paid.
Te Waihanga — Using the right tools to pay for infrastructure ↗
New Zealand is already investing at scale
The 2026 National Infrastructure Plan says New Zealand currently invests just over $20 billion a year in new and existing infrastructure assets.
Te Waihanga estimates that central government accounts for about 44% of infrastructure investment, the commercial and private sector about 31%, and local government about 25%.
Te Waihanga — National Infrastructure Plan 2026 ↗
So the question is not whether New Zealand has public and private infrastructure finance.
We already do.
The question is whether we are matching the right funding and financing tool to the right asset.
Option 1: fund it from current taxes or rates
The simplest model is pay-as-you-go.
Government collects revenue and uses part of that revenue to build or renew infrastructure.
This can make sense where:
the project is relatively small,
the Crown or council already has sufficient cash capacity,
borrowing costs would add little value,
or the asset delivers broad public benefits that are difficult to charge directly to users.
Schools, courts, parks and parts of the health system often fit more naturally into broad public funding than a direct user-pays model.
The disadvantage is intergenerational.
If today's taxpayers fund the whole cost of an asset that will serve people for fifty years, today's population carries the upfront burden while future users receive part of the benefit for free.
Option 2: Crown borrowing
For large, long-lived national assets, ordinary Crown borrowing can spread costs across time.
Treasury issues New Zealand Government Securities, including government bonds, to fund the Crown's borrowing requirement.
The advantage is that the Crown generally has strong access to capital markets and can borrow at sovereign rates.
The disadvantages are equally real.
Debt adds to the Crown balance sheet, creates interest obligations and uses fiscal headroom that may be needed elsewhere.
That means Crown borrowing is most defensible where the asset is genuinely long-lived, strategically important and supported by a strong investment case.
Cheap finance does not turn a bad project into a good project.
Option 3: user charges
Some infrastructure has identifiable users.
Electricity.
Water.
Telecommunications.
Ports.
Airports.
Some roads and public transport services.
Where the beneficiary can be identified and charged, user pricing can create a direct link between the cost of the infrastructure and the people who use it.
Te Waihanga's current National Infrastructure Plan says network infrastructure should largely fund itself through users and direct beneficiaries over its lifecycle, while allowing targeted subsidies where wider public benefits or equity concerns justify them.
Te Waihanga — Infrastructure funding and pricing ↗
User charges can also influence demand.
A congestion charge, for example, is not only a revenue mechanism. It can change when and how people use a network.
But user-pays is not automatically fair or efficient.
Charging a patient the full capital cost of a hospital bed would create very different access consequences from charging a freight operator for use of a commercial port.
Funding needs to match the purpose of the infrastructure.
Option 4: targeted rates and levies
Some infrastructure creates benefits concentrated in a particular location.
A new transport connection may increase access and land value around a development.
New water infrastructure may enable thousands of additional homes.
In those cases, a targeted rate or levy can place more of the cost on the landowners or beneficiaries receiving the direct advantage.
This can be more transparent than spreading the entire cost across taxpayers who receive little direct benefit.
But affordability and equity still matter, especially where existing households face new charges for infrastructure primarily intended to enable future development.
Option 5: an Infrastructure Funding and Financing Act SPV
New Zealand already has a statutory mechanism designed to separate some infrastructure financing from ordinary council balance sheets.
The Infrastructure Funding and Financing Act 2020 allows eligible infrastructure to be financed through a special-purpose vehicle, or SPV, supported by a levy on benefiting land.
The legislation sets out how levy proposals are approved, how levies are collected and how levy revenue must be applied to eligible infrastructure costs.
Infrastructure Funding and Financing Act 2020 ↗
The attraction is clear.
Upfront infrastructure can be built before the full beneficiary base exists, while the cost is repaid over time by the land that benefits.
This can be particularly relevant for growth infrastructure.
But again, the financing structure does not erase the cost.
The levy is the funding source that ultimately repays the capital.
Option 6: public-private partnerships
A PPP is often described as though private capital somehow replaces public funding.
It does not.
A PPP is primarily a procurement and financing structure.
Private parties may design, build, finance, maintain or operate an asset under a long-term contract. The public sector or users then make payments over time under the agreed structure.
Treasury's current PPP policy says PPPs should be considered where their contractual and commercial structure can improve value for money compared with conventional procurement.
Potential advantages include:
risk transfer
whole-of-life asset management
delivery discipline
innovation
and access to specialist private-sector capability.
Treasury — New Zealand PPP Model and Policy ↗
But private capital generally requires a higher return than sovereign borrowing.
So the question is not whether private finance is cheaper than Crown debt.
Usually the more relevant question is whether the benefits from risk allocation, delivery performance and whole-of-life management are large enough to justify the financing and transaction costs.
A PPP should be chosen because it is the best way to deliver the asset — not because it makes the debt look different.
Option 7: commercial and regulated infrastructure
Some infrastructure can support its own balance sheet because it produces reliable revenue.
Electricity networks, telecommunications infrastructure, ports and airports can often raise debt or equity against future cash flows.
That can reduce the need for direct Crown funding.
But commercial finance works only where the revenue model is credible.
If a project cannot generate enough revenue to cover operating costs, maintenance and financing, shifting it into a company does not solve the underlying funding problem.
Option 8: joint ventures and co-investment
Infrastructure does not have to be financed by one institution.
The Crown, councils, private investors, iwi and Māori entities, institutional investors and development partners can invest alongside one another where interests are aligned.
Te Waihanga's 2026 National Infrastructure Plan explicitly notes the role of iwi and Māori entities as infrastructure investors, owners and suppliers.
Te Waihanga — Roles in the infrastructure system ↗
Co-investment can bring capital and capability together.
But governance becomes critical.
Who owns the asset?
Who controls decisions?
Who receives the return?
Who carries construction risk?
Who bears losses if the project underperforms?
Those questions need to be settled before the money arrives.
Private finance cannot solve a funding gap
This is perhaps the most important principle in the entire discussion.
Treasury's Funding and Financing Framework says financing does not solve a funding gap. It can reshape that gap by spreading costs over time or matching repayments to future revenue.
If the infrastructure has no credible source of future funding, adding a more complicated financing structure can actually make the problem worse because financing costs are added on top.
Treasury — Funding and Financing Framework ↗
So before asking:
“Who will lend us the money?”
we should ask:
“Who ultimately pays this back, and why is that fair?”
How should we choose?
I think every major infrastructure project should be forced through the same questions.
Who benefits? The whole country, a region, a group of landowners, or identifiable users?
Can the beneficiary be charged? And should they be?
How long will the asset last? Does financing match that life?
Does the project generate revenue? Or does it require ongoing public subsidy?
Who can borrow most efficiently?
Which party can actually control each risk?
Does private finance improve delivery enough to justify its cost?
What happens to the Crown or council balance sheet?
What happens if demand, construction costs or interest rates are wrong?
Who owns the asset at the end?
And can the economy actually supply the workers, materials and energy needed to build it?
The current Crown framework is already moving in this direction
Treasury's current Funding and Financing Framework is designed to broaden the funding base, use private capital where efficient and apply stronger commercial discipline to public capital.
Cabinet has required proposals seeking Crown funding to demonstrate that these options have been considered.
Treasury — Improving Infrastructure Funding and Financing ↗
That is useful discipline.
But the objective should not simply be to get infrastructure off the Crown balance sheet.
It should be to choose the structure that delivers the best long-term outcome for New Zealand.
The cheapest-looking financing structure is not necessarily the cheapest infrastructure.
My conclusion
There is no single correct way to finance infrastructure.
Broad public goods may appropriately be funded from taxation.
Long-lived national assets may justify Crown borrowing.
Network infrastructure may be suited to user charges.
Growth infrastructure may support targeted levies or SPV finance.
Commercial infrastructure may attract private debt and equity.
PPPs may be useful where risk transfer and whole-of-life delivery genuinely improve value.
And some projects will need combinations of several mechanisms.
The discipline is matching the mechanism to the asset rather than starting with a preferred ideology about public or private finance.
First decide what should be built. Then decide who should pay. Only then decide how to finance it.
Next
That takes us to a harder question.
Who should benefit from credit creation?
Commercial banks already allocate hundreds of billions of dollars of credit across housing, business, agriculture and other parts of the economy.
Part 8 will ask what those choices do to asset prices, productivity and investment — and whether New Zealand should care not only about how much credit is created, but where it goes.
Primary sources
Treasury — Funding and Financing Framework ↗
Te Waihanga — Using the right tools to pay for infrastructure ↗
Infrastructure Funding and Financing Act 2020 ↗