New section 22A would require KiwiRail to prepare a RNIP every 3 years that would apply for the following 3 financial years.

We believe it is important that the RNIP aligns with the Government’s transport priorities. We recommend amending new section 22A to require each RNIP to take into account both the purpose of the Land Transport Management Act and the Government Policy Statement on land transport. This would help to improve coordinated planning and decision-making within the land transport system.

We heard from some submitters who thought the 3-year period for the RNIP was too short when planning long-life infrastructure. Some submitters also suggested that the RNIP align with the 10-year planning cycle for regional land transport plans.

We recommend retaining the current period of the RNIP, as this would align with the 3-year funding approval period of the national land transport programme. However, we recognise the need for more certainty in planning for rail activities. We therefore recommend amending new section 22A to require the RNIP to include an indication of any significant rail activities or combinations of rail activities likely to be included in the next RNIP. We believe that our amendment to new section 22A would strike a good balance. It would align the RNIP process with the national land transport programme, while still taking account of the significant investment and long-term focus of rail infrastructure.

The bill as introduced would require KiwiRail to prepare the first RNIP by 1 July 2021. We recognise that preparation of a RNIP would take time and need to be in advance of the day the RNIP takes effect. We believe the provision as introduced creates uncertainty as to when the first RNIP would take effect. We therefore recommend amending clause 11, new section 22A(4), to clarify that KiwiRail must prepare the first RNIP to take effect from 1 July 2021.

Section 19C of the Land Transport Management Act sets out what must be included in the national land transport programme. Clause 10 of the bill as introduced would amend section 19C to include rail activities or combinations of rail activities approved under new section 22E. We recommend amending clause 10 to also include rail activities or combinations of rail activities included in the current RNIP approved by the Minister under new section 22B.

New section 22B(3) would require the Minister to consult with KiwiRail’s shareholding Ministers and consider NZTA’s advice before approving a RNIP. We believe this provision is unclear about whether the Minister must take these two steps if they want to decline a RNIP. We recommend amending this section to refer to the Minister making a decision on a programme, which would mean the requirements in new section 22B would apply whether or not the Minister approves or rejects a RNIP.

The bill would give NZTA the role of advising the Minister on the RNIP. New section 22C lists the matters that must be contained in this advice. We recommend amending the list in new section 22C to include advice on whether the RNIP takes into account any relevant regional land transport plan.

This would ensure that the Minister is informed of any interdependencies between regional priorities, the decisions NZTA must take on regional land transport programme activities proposed for inclusion in the national land transport programme, and the RNIP.

Clause 11 would insert new sections 22C and 22F into the Land Transport Management Act. New section 22C would require NZTA to advise the Minister on the RNIP. New section 22F would require NZTA to advise the Minister on rail activities to be funded.

KiwiRail expressed the view that both of these sections should be amended to require NZTA to consult with it on this advice. KiwiRail believes this would help ensure that the advice includes full consideration of rail operational issues and other KiwiRail-specific information.

We do not agree with KiwiRail that the bill should be amended in this way. NZTA needs to be able to provide independent advice to the Minister. However, we recognise the importance of this advice to KiwiRail’s operations, and its importance to the Ministry of Transport as the Government’s principal transport adviser. We therefore recommend amending new sections 22C and 22F to require NZTA to inform both KiwiRail and the Ministry of Transport of its advice to the Minister.

NZTA is required to work with and advise approved organisations that receive funding from the national land transport fund. As the bill would enable KiwiRail to receive funding from the fund, we believe NZTA should be required to assist, advise, and co-operate with KiwiRail. We recommend inserting clause 11A to add this requirement to the list of NZTA’s functions in section 95 of the Land Transport Management Act.

Section 5(1) of the Land Transport Management Act provides the definition of “procurement procedure”. We recommend inserting new clause 4(1A) to expand the definition to include a procurement procedure approved by KiwiRail under new section 22G.

Associated with this change, we recommend a minor amendment to new section 22G(2)(b). We recommend removing the qualification that KiwiRail’s procurement procedures must be consistent with all-of-government procurement practices “to the extent that they are applicable to the matter”. It is important that any procurement procedures undertaken by KiwiRail to implement projects funded through the national land transport fund be consistent with all-of-government practice.

The bill as introduced is silent on the GST treatment of fees and charges paid pursuant to regulations made under section 167(1)(j) of the Land Transport Act. We recommend inserting clause 14A into the bill. This would amend section 5 of the Goods and Services Tax Act 1985 to clarify that fees or charges paid under the regulations are consideration for the supply of services.

This would create consistency in the treatment of GST for all land transport fees and charges made under the regulation-making power in section 167(1)(j).

Clause 16 would insert new section 168(4)(h) into the Land Transport Act. It would provide that regulations made under section 167(1)(j) may identify fees and charges that are land transport revenue for the purposes of the Land Transport Management Act. This provides a mechanism for fees and charges collected from track users to flow into the national land transport fund as land transport revenue.

We recommend inserting new clause 17. This would clarify that all fees and charges made under those regulations and identified as land transport revenue are to be paid into a Crown Bank Account and treated as land transport revenue. This was potentially unclear in the bill as introduced.

National supports rail in New Zealand as an important part of a multi-modal, integrated transport system. The previous National-led Government invested billions in KiwiRail after the nationalisation of KiwiRail by the Clark Labour Government. Contrary to repeated assertions, including by officials, that the network was in “managed decline”, KiwiRail was heavily capitalised and restructured so that the company, owned by the Crown on behalf of taxpayers, could make a profit.

National believes we should be realistic about the role of rail in New Zealand. Rail is particularly effective for transporting bulky, heavy goods such as coal, dairy, and forestry products. KiwiRail transports about 18 million tonnes of freight each year and shifts about a quarter of New Zealand’s exports. The Wellington and Auckland commuter rail networks are key parts of the transport systems in both cities. Since the investment in electrification, both have enjoyed strong passenger growth, particularly in Auckland. Of the alleged $1.47 – 1.54 billion contribution that rail makes to the economy each year, $1.3 billion comes from reduced congestion.¹

However, the economics of rail in New Zealand are challenging. We are a long, thin country with difficult geography. Rail has almost never covered its cost of capital in New Zealand, apart from on a few freight-dominated routes. The Regulatory Impact Assessment refers to this when it says “the network does not generate sufficient revenue from its users to cover its full network costs”. ²

KiwiRail almost certainly has the dubious distinction of being the most reviewed and restructured organisation in New Zealand history, with various operating structures tried over the decades in order to try and ensure the efficient allocation of scarce capital.

We are concerned by Government moves to reposition KiwiRail away from commercial imperatives and this bill makes the situation worse. Currently KiwiRail is planned and funded under the State Owned Enterprises Act 1986 (SOE Act) as KiwiRail is a state-owned enterprise (SOE). This bill proposes to move planning and funding into the Land Transport Management Act, but for KiwiRail to remain as a SOE. That makes little sense in principle and we are wholly unpersuaded by officials’ arguments to the contrary.

The critical question is whether KiwiRail should be expected to operate commercially and turn a profit for its ultimate owners, the taxpayer. Budget 2019 changed the valuation approach of the rail freight network from a commercial basis to a public benefit basis. Treasury has said:

• Following a review to consider the context of KiwiRail’s purpose within a multi modal transport system, the underlying assumption of the benefits of rail were reframed as: ‘Rail enables access and mobility, transporting people and goods to where they need to go, supporting productivity and business growth, reducing emissions, congestion and road deaths, and strengthening social and cultural connections between communities’. As a consequence, a valuation for the rail freight network that only reflected its cash generating potential was no longer appropriate.

The Regulatory Impact Assessment asserts that under the SOE model the Crown faces the “same decisions each year on the level of financial commitment required for rail”. The fact that the Crown does not face this dilemma for other SOEs is an indicator of the longstanding challenges for rail in New Zealand.

National believes there are improvements that can definitely be made to funding and planning within the current SOE framework, but that KiwiRail should remain as a commercially-focused SOE.

National tentatively supports the development of a New Zealand Rail Plan to provide a long-term strategic vision and set out investment priorities for rail—but not necessarily the one issued by the Government.

We also support greater coordination in planning our roading and rail networks. This bill is not required for that—there are a variety of non-legislative mechanisms that could and should be used. In any event, the bill will not provide for any particular greater coordination. As the New Zealand Automobile Association pointed out: “As it currently stands the Minister is tasked to sign off the KiwiRail plan, and forward that to NZTA who are to include it, as signed off, in the NLTP. This approach does not allow for consideration of trade-offs between the modes, as NZTA’s board while retaining decision making authority over which road projects proceed, has no influence over the rail projects.”

Our core objection is that we do not support further allowing KiwiRail to access the national land transport fund (NLTF), which is the basic aim of the bill. The bulk of the NLTF is made up of contributions by road users, who contribute into the fund through fuel taxes and road user charges.

National believes that rail users, as much as possible, should pay for the use of the rail network, just as road users pay for the use of the roads. If rail users are not prepared to pay for the rail network, then they should not be cross-subsidised by road users who gain little-to-no benefit from funding rail. Indeed, this bill will create a situation where road users actually pay to make a competing transport mode more competitive!

This bill will be wealth destructive to the New Zealand economy. It will encourage uneconomic rail lines to re-open. If demand exists for new lines to open then KiwiRail should make the commercial decision to do so, funded by the users of those lines.

Finally, the bill will place further stress on the NLTF which is already under considerable funding pressure.