What should really happen
There are few things happening that have come together to present the perfect opportunity for Auckland and its infrastructure investment.
It was commented on Twitter about the continued crashing of the OPEC oil prices and the Chinese Stock Market being enough to trigger another couple of rounds of Official Cash Rate cuts from the Reserve Bank especially as inflation is sitting at zero. Most people know the OCR being the influence on mortgage interest rates and while a drop in the OCR is nice for us repaying the mortgage there is another benefit as well. It means for the Government (Central and Council) going to the Bond Market to raise debt for CAPEX (Capital Expenditure) projects like oh the City Rail Link is cheap as it has ever been.
At the same time we have this from the Economist:
Growth slowing down due to slower public investment.
Now a zero inflation economy is nice but it also suppresses wage growth for workers (which in turns means more spending). This will cause a feed back loop into itself that can run the risk of sending New Zealand into a recession even Auckland can not stop (as it is now).
So what to do?
Standard macro-economic logic dictates Council and Government raise the debt on a cheap Bond Market to start large CAPEX projects that are most often infrastructure related (you don’t do this when the Bond Market is expensive in the middle of a boom). The release of money into the economy through CAPEX expenditure kick starts the economy again and gets things going until an economic boom happens again. As positive consequence the new infrastructure built now will allow better support of the subsequent boom further down the track.
This is why I believe the Prime Minister is making his January 27 announcement to the Auckland Chamber of Commerce on funding the City Rail Link from 2018 (when the main tunnelling starts). The debt raises to fund this is cheap at the moment while the money expended on the CRL construction fuels the economy along keeping us out of a recession. Furthermore businesses are using this time to also raise cheap debt for their CAPEX to invest in new inventory (buildings and expansions) in the Auckland City Centre and elsewhere. Perfect coupling of business and Government investment (via the CRL) to support Auckland and New Zealand in the next boom.
Ideally if I was John Key given the situation above I would be more ambitious and go the full hog!
That is on the 27th to the Chamber of Commerce I would announce that the Government in partnership with Auckland Council, Auckland Transport and Panuku Development Auckland were going to fund the following in one go:
- City Rail Link
- Airport Heavy Rail via Otahuhu
- Urban Renewal in Mangere area triggered by the Airport Line via Otahuhu
You can read the Letter I sent to the Ministers below outlining the Airport Rail and urban renewal prospects: Letter to the Ministers on Airport Rail. Also Herald and Commenters Wanting Heavy Rail Option too. #AKLPols