Construction and Infrastructure | Government Budget 2024

Budget 2024
Construction and infrastructure

$2.68bn over four years in roads, rail and public transport

“Building high quality, resilient infrastructure is a key part of our economic plan.” This was the message from Minister for Infrastructure, Hon Chris Bishop in his speech to the 2024 Infrastructure Symposium. For construction and infrastructure business leaders, more investment will not only be welcomed, but expected.

While the construction sector appears to be recovering from the sector-specific challenges – including labour shortages and supply chain issues – prevalent in recent years, our 2024 BDO Construction Sector Report shows construction business owners and leaders are now feeling the pressure of wider macroeconomic pressures, including inflation and interest rates. So what support is coming for this key sector?

The Government has committed to building a long-term sustainable pipeline of infrastructure investments, despite cancelling Auckland Light Rail and Let’s Get Wellington Moving early into this Parliamentary term. Ahead of Budget 2024, the Government also announced it was replacing the New Zealand Upgrade Programme with the Roads of National and Regional Significance programmes. New Zealand’s consenting framework has also been a topic of conversation, with the introduction of the new Fast Track Approval Bill and debate around replacing the Resource Management Act.

These updates will be studied with interest by construction and infrastructure business leaders, who have long been calling for more clarity and certainty on regional and national project pipelines. However, will the announcements from Budget 2024 be enough to meet our country’s complex and ever-growing infrastructure and construction needs?

Budget overview – policy highlights

Budget 2024 claims to lay the foundations for a better performing infrastructure system, and transport is high on the agenda. More than $68bn has been forecast to be spent on infrastructure by the Crown, Crown entities and KiwiRail over the next five years.

The Government has committed $2.68bn over four years in roads, rail and public transport and $1.2bn has been allocated to the Regional Infrastructure Fund, which aims to grow regional economies by investing in new and existing infrastructure projects. In addition, there’s a significant commitment to building schools and classrooms.

Confirmed new policy areas

Transport

$2.68bn in road, rail and public transport, including 17 Roads of National Significance and funding for the Rail Network Investment Programme. The Budget boosts the Land Transport Fund with an additional $1bn in capital funding, over what was previously signalled, to accelerate the construction of Roads of National Significance.
More than $1bn in a package of initiatives for Cyclone relief, resilience and emergency preparedness. This includes $939m for the NZ Transport Agency and local councils to continue their response and recovery works on local roads and state highways and $10.6m over the next four years for a new National Emergency Management Facility in Wellington.
$1.2bn Regional Infrastructure Fund to grow regional economies, including $200m into flood resilience infrastructure.
$266.9m to upgrade and maintain metro rail in Auckland and Wellington.
$200m tagged capital contingency to support KiwiRail to carry out national rail network maintenance and renewals.

Buildings

$1.5bn to build new schools and classrooms and maintain and upgrade existing ones.
$2.1bn law and order package, including funding for an 810-bed expansion of Waikeria Prison.
$408m to upgrade Defence equipment and infrastructure, including delivering 35 leased homes to families.
$140m to deliver 1,500 new social housing places.
$103m to meet emerging cost-pressures in Health NZ’s infrastructure pipeline, which includes $11.6 billion of investments over the forecast period.
$153m to establish approximately 15 new charter schools and convert approximately 35 state schools to charter schools.
$28m of further funding for the Temporary Accommodation Service (TAS) to support households who are still displaced by Cyclone Gabrielle and the January 2023 Auckland floods.

Other

$65 million of funding over four years to continue the Apprenticeship Boost scheme
$5m for the creation of the National Infrastructure Agency

“The construction sector is suffering from New Zealand’s slow economic conditions, and recent developments, such as the Ministry of Education’s school building review and the Kainga Ora report, will further put strain on leaders who are looking for more clarity around project pipelines. Budget 2024 appears to be a step in the right direction, but construction leaders will be looking for more detail from Government beyond this Budget announcement.

Our recent BDO Construction Sector Report shows inflation and interest rates are key concerns for construction business owners and leaders, so the Government’s commitment to rebuilding the economy is a positive for our sector – but many will be worried that change won’t come soon enough. Competition is increasing and many construction businesses are seeing a squeeze on margins, and some of the sector may have hoped for more committed spending toward construction in this Budget.”

Nick Innes-Jones, National Construction & Real Estate Sector Leader

“The Government’s commitment to 30-year National Infrastructure Plan and 10-year National Infrastructure Pipeline, and the work being done to assess infrastructure priorities, is incredibly important for the sector. The Pipeline and the infrastructure priority list – a ‘menu’ of independently prioritised infrastructure proposals - will offer industry stakeholders a clear view of the highest priority projects and the delivery timeframes, which will give the market increased confidence. It’s positive to see the Government’s strong focus on infrastructure in Budget 2024, especially around resilient infrastructure solutions.

The relationship between industry and government is paramount. The stronger this partnership is, the better the outcomes will be, both in terms of infrastructure delivery and value for money for the New Zealand taxpayer. The work being done by the Infrastructure Commission and the Treasury on the infrastructure priority list and alternate funding, financing and delivery models is to be commended. It will be critical to maintain an open and robust dialogue with industry in the near term to ensure the Government can deal with the market’s current capacity challenges to deliver existing and planned projects. This will also help to gauge the market’s views and levels of interest in alternate models to finance and deliver infrastructure projects moving forward.”

Sean O’Meara, Head of Project & Infrastructure Advisory

Quick tips

Monitor your sales pipeline, margins and forward cash flow carefully. If your forward work reduces, consider the adjustments you can make to ensure there’s no strain on cash flow.
Don’t take a job at a low margin just for the sake of winning a job. This will impact your cash flow and could take your focus away from other jobs that may be more profitable.
If required, be prepared to downsize your business to remain competitive. Identify key costs you can cut.

Read more tips for the construction sector in our 2024 BDO Construction Index here.

More information and help available

You can read more details on Budget 2024 at the Government Budget website here.

Construction and infrastructure businesses face the same financial and economic pressures as other sectors in New Zealand. Our BDO construction advisory team is here to help.

To talk about how any of today’s Budget announcements will affect your business and for help with cash flow, forecasting, scenario planning, or to talk about your business, reach out to your local BDO office today.

View our BDO Construction Sector Report 2024 for a summary of the key challenges facing the construction sector, as well as practical advice for how to alleviate them. Our BDO Business Wellbeing Index April 2024 also has a sector report on construction with tailored tips and advice.