Recently, during a select committee hearing on an infrastructure funding amendment bill, an MP asked for examples of infrastructure financed without government borrowing. 

“Sure,” our chief economist Eric Crampton replied. “The Ngaio Town Hall, a lovely community effort.” Polite smiles.  

I added: “The Auckland Harbour Bridge, one of our biggest projects.” Some nodding.  

Then, for good measure: “The electrification of New Zealand.” Now eyebrows went up. 

Before 1989, New Zealand had 453 localised governance bodies that built things. If a community needed a harbour or a power line, it could borrow the money, charge beneficiaries and get on with it. If a project failed, neither Councils nor Crown rode to the rescue. Lenders had, by statute, “no claim upon the Government.” 

These bodies were a finance channel distinct from the state. They delivered over half of all public infrastructure. Locals voted on whether to take on the debt.  

Nobody asked Cabinet. It worked well for decades. Officials acknowledged these funding vehicles were “critical to the historical supply of New Zealand's infrastructure.” So obviously they had to go.  

In 1989, the 453 were absorbed into fewer than 100 regional, city and district councils. In 1996, reforms delivered the double tap, killing off project-specific borrowing entirely.  

The consequences were spectacular. Local government and Crown balance sheets became the only channels for infrastructure finance. Councils hit borrowing limits and found every reason to slow down.  

Housing affordability collapsed. Today we are among the OECD’s least efficient infrastructure spenders, bleeding money through the only channel left. Mission accomplished. 

In 2020, Parliament passed a new Act to rebuild what was dismantled. But five years later there are just two projects to show for it, both council-led. Neither was started by a developer.  

Every project routes through Cabinet. The process is slow, expensive and hostage to the mood of the day. Cabinet can change the rules after investors have committed their money.  

The Crown guarantees every transaction against itself. The fire exit leads back into the building. 

The Amendment Bill is another attempt to get it right. It is a good first step to optimise the current model. But it does not relieve taxpayers of the burden of protecting investors from their government. It can do more to initiate rebuilding the second finance channel we once had, one that is independent from the state. We may call this “finance freedom.”