In the face of economic uncertainty, both governments and private investors are increasingly focused on ensuring infrastructure projects are financially sustainable. A recent report by the New Zealand Infrastructure Commission (NZIC), Paying it Back: An Examination of the Fiscal Returns of Public Infrastructure Investment, explores whether public infrastructure can generate enough revenue to fund itself and what factors influence this potential.
High-Quality Projects Deliver Better Returns
According to NZIC, the key factor is project quality. Infrastructure that is well-designed, serves a broad population, and is cost-efficient is more likely to recoup its costs. Projects that are expensive but have limited reach often fail to recover their initial investments.
Value for Money Matters
Projects with high benefit-cost ratios (BCRs)—a measure of how much value a project delivers for its cost—tend to yield better financial outcomes. However, NZIC notes that for infrastructure to fully pay for itself, the BCR usually needs to be exceptionally high, in the range of 5 to 9.
Revenue Tools Make a Difference
Tolls, water charges, and value capture levies (monetizing increases in land value due to infrastructure) can all help offset project costs. By attaching income streams to infrastructure assets, governments and investors can better cover initial construction costs and ensure long-term upkeep. Collaboration with the private sector often results in stronger financial returns.
Gradual Growth Can Be Smarter
Larger investments don’t always equate to higher returns. NZIC suggests that phased investments—incrementally expanding networks based on proven demand—may yield better outcomes than launching massive, high-cost projects all at once.
Not All Projects Are Meant to Turn a Profit
The commission acknowledges that social infrastructure, like libraries or community centers, provides value beyond financial returns. These projects often enhance quality of life but don’t generate significant revenue, meaning public funding is essential.
Balance Is Crucial
Ultimately, the balance between revenue-generating and non-commercial projects matters. The more governments invest in infrastructure without financial returns, the more taxpayers must cover the difference. Prioritizing affordable, cost-effective projects helps manage this balance.
ICE’s Perspective
The Institution of Civil Engineers (ICE) recently addressed similar issues in its Next Step programme, examining how the UK could attract more private investment in infrastructure. With limited public funds and a high-risk perception from investors, the UK must seek projects that can pay for themselves, either directly through revenue or indirectly through economic growth.
The Enabling Better Infrastructure programme by ICE reinforces the importance of selecting the right projects based on affordability and fiscal return. The NZIC’s findings offer valuable guidance to governments worldwide as they decide which infrastructure projects to prioritize and how to finance them wisely.
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