On the road to somewhere: New Zealand’s investment in land transport

Infrastructure underpins a productive economy and high living standards. But it doesn’t appear overnight. To get it right, we need a long-term view of future needs, backed by consistent funding and delivery.

The New Zealand Infrastructure Commission is preparing a National Infrastructure Plan that lays out an approach for investment that can meet New Zealand’s long-term needs. In June we released a draft Plan for feedback. It focuses on four areas for improvement: securing affordable funding, streamlining delivery, prioritising maintenance, and sizing new investment realistically.

Our recommendations apply across all sectors. But the investment outlook varies by sector depending on existing assets, how demand is changing, the risks they face, and—critically—how investment can be paid for. Here, we take a closer look at land transport and invite those in the sector to test our findings against their own experience.

What we’ve been spending on the roads

In the late 19th and early 20th centuries, land transport—roads and rail—dominated New Zealand’s infrastructure spending. Connecting a geographically challenging country with a small, spread-out population required heavy investment.

We kept investing at a high rate through to the early 1970s, aside from sharp dips in investment during the world wars (Figure 1). We invested an average of 2.0 per cent of GDP in improving road networks in an interwar investment boom from 1925 to 1940, and an average of 1.6 per cent of GDP in the postwar investment boom from 1955 to 1971.

Over the last two decades, road investment has stabilised at around 1.1 per cent of GDP. That’s less than in the expansionary years but higher than the 1980s and 1990s. While that might look modest by historical standards, OECD comparisons show New Zealand now ranks among the highest-spending high-income countries relative to GDP (Figure 2).

Figure 1: Capital investment in roads as a share of GDP, 1870-2022

Source: New Zealand Infrastructure Commission estimates.

Figure 2: New Zealand’s current road investment as a share of GDP, relative to other OECD countries

Source: OECD-ITF data. Grey-highlighted countries are those that are most comparable to New Zealand in terms of population size, population density, urbanisation, and topography.

Expanding networks and lifting quality

So, what has that money bought?

Early on, land transport investment was mainly aimed at extending a basic road network throughout the country. By 1925, when New Zealand had 1.4 million people, we already had nearly 75,000 kilometres of road. Today, with 5.2 million people, the network totals just under 100,000 kilometres (Figure 3). In other words, three-quarters of today’s network existed when the population was only a quarter of its current size.

Since then, investment has been less about expansion and more about maintenance and quality. In 1925, fewer than 2 per cent of roads were paved. Today, almost 70 per cent are.

We’ve also added road capacity in urban areas. Motorway building began in the 1950s. By the early 1970s, we had over 100 kilometres of motorways. After a lull, investment picked up again in the early 2000s, tripling the motorway and expressway network to almost 450 kilometres (Figure 4). The trade-off is that this expansion consumed a large share of investment, limiting what was available for maintenance on state highways and local roads.

Today, the coverage, usage, and quality of New Zealand’s road network is similar to peer OECD countries with similar size and geography, like Sweden, Finland, and Norway. The one clear deficit is safety: our road crash fatality rate remains much higher than our peers.

Figure 3: Length of New Zealand’s road network, 1925-2023

Source: New Zealand Infrastructure Commission estimates based on data from NZTA and Stats NZ Official Yearbooks.

Figure 4: Length of New Zealand’s motorway and expressway network, 1954-2023

Source: New Zealand Infrastructure Commission estimates based on data from NZTA and Stats NZ Official Yearbooks.

The investment outlook

Transport investment must balance several demands: maintaining and renewing existing assets, managing natural hazard risks, adjusting capacity as freight and passenger needs evolve, and lifting service quality to meet rising user expectations.

The National Infrastructure Plan includes ‘forward guidance’ on future investment demands, drawing on asset stocks, population trends, and climate scenarios. The key message: the future will not mirror the past.

From the 1930s to the late 1990s, vehicle kilometres travelled (VKT) per person rose nearly 500 per cent (Figure 5). More driving meant more revenue from fuel excise duty and road user charges to fund road investment. But since the late 1990s, per-capita VKT has plateaued. We expect demand growth to remain more subdued in future, due to our ageing population and forecasts of slower income growth.

That means investment will tilt more toward maintaining, renewing, and strengthening resilience in the existing network, relative to building new infrastructure.

Figure 5: Per-capita vehicle kilometres travelled, 1930-2023

Source: New Zealand Infrastructure Commission estimates based on data from the Ministry of Transport and Stats NZ Official Yearbook

Upcoming choices

Here’s the crunch. Our aspirations for land transport increasingly exceed our ability to pay.

For most of the past century, land transport investment was funded through user charges—petrol excise, road user charges, fares, tolls—and local government rates. These revenues were typically ring-fenced for transport. When we wanted to spend more, we had to pay more.

But in the past decade the funding model has sprung leaks. Between the early 2010s and early 2020s, annual National Land Transport Fund (NLTF) spending doubled from around $3.8 billion to $7.6 billion (Figure 6). To cover that, local government contributions rose 80 per cent, petrol taxes road user charges, and vehicle rego increased 30 per cent, and Crown loans doubled. The big shift was Crown grants, which grew 35-fold to almost $2 billion a year. In other words, general taxpayers now carry a much larger share of road costs.

This approach is hard to sustain relative to other pressures. On top of the NLTF and other agencies’ ongoing budgets, the government plans to spend $3.5 billion a year in new tax-funded capital spending over the next three Budgets.[1] This is money that must also cover new schools, hospitals, courts, defence equipment, and more. If more than half goes to roads, other priorities will be crowded out.

Meanwhile, project intentions data from the National Infrastructure Pipeline suggests that many major transport projects are currently unfunded through the National Land Transport Fund, meaning they require new sources of money if they are to go ahead.

Figure 6: Breakdown of revenue sources for National Land Transport Fund spending in the early 2010s and early 2020s

Source: New Zealand Infrastructure Commission analysis of NZTA transport funding data and Treasury Budget data.

Your insights matter

New Zealand faces choices. Do we return to the traditional ring-fenced model of funding transport, or keep relying on general tax revenues even if it means trade-offs with other infrastructure? Do we expand user-pays mechanisms, or accept slower delivery of big projects? Can we lean on productivity and low-cost solutions to stretch our investment dollars further?

These are not questions that will solve themselves. Answering them will require a clear sense of trade-offs and a willingness to think differently about what is affordable and sustainable.

The Commission is currently finalising the National Infrastructure Plan. We want to ensure our understanding of the land transport sector’s needs, challenges, and opportunities reflects reality on the ground.

Although the formal feedback period on the draft has closed, you can still read it (https://tewaihanga.govt.nz/draft-national-infrastructure-plan) and contact us at info@tewaihanga.govt.nz  if you’d like to share insights or learn more.

The history of land transport shows that New Zealand has built a strong network over more than a century. The future will be different. The task now is to find a path forward that we can pay for.

Peter Nunns

Peter is General Manager of Strategy at the New Zealand Infrastructure Commission. He has a background in infrastructure and transport economics, urban economics, and economic development. At the Commission, Peter has led the Economics team, helped to develop New Zealand’s first Infrastructure Strategy, and established the ongoing Research Insights series. He previously held roles in consultancy, and local and central government, including advisory work on a number of major infrastructure projects and programmes. He holds postgraduate degrees in economics and political science from the University of Auckland and an undergraduate degree in mathematics and political science from Williams College (Massachusetts).

[1] https://budget.govt.nz/budget/2025/fiscal-strategy-report/capital-allowances.htm