Tom Pullar-Strecker: Cyclone leaves less room to deal with more shocks

Tom Pullar-Strecker is a senior business journalist at Stuff.

ANALYSIS: Any time I drive around Lake Taupō I can’t stop myself doing the arithmetic again in my head.

Scientists reckon that the volcanic blast that created the current crater-lake 27,000 years ago ejected 1170 cubic kilometres of magma, ash and other debris.

That’s an almost inconceivable 1.17 trillion cubic metres of debris or, conservatively, perhaps 2.5 trillion tonnes of material.

Bringing it back to something very slightly more relatable, that’s 312 tonnes of debris for everyone alive on the planet today – or about 500,000 tonnes for every New Zealander.

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One point being that we don’t face some regular cycle of “one in 100 year” earthquakes, floods, pandemics and other crises that we can ever be sure we have planned for.

When Finance Minister Grant Robertson said in response to the latest Crown accounts last week that the country was “well-positioned to handle the impacts of Cyclone Gabrielle and future economic shocks”, that can only be a guess, as we can’t know what is around the corner.

Those latest accounts showed the Government’s net debt climbing to just over $80 billion, or 21.6% of GDP, at the end of December.

If the latter figure sounds comfortingly low, remember that the Government last year changed the way it reports net debt to bring it into line with international norms.

Based on the old measure, which doesn’t, for example, take into account the assets the government holds in the NZ Superannuation Fund, “net core Crown debt” stood at a much more heady 41.7% of GDP.

The Government now has a “ceiling” on government debt of 30% of GDP under the new measure, or about 50% of GDP under the old measure.

It was devised based on assumptions about how far a future g​overnment might need and be able to pop its head above that 30% ceiling for a while in the event of a “one in 100 year” economic shock.

So think of the 30% ceiling as being the limit that the​ Treasury thinks net debt could get to without risking defaulting on its debts after the “big one” strikes – assuming that’s an earthquake and not a massive volcano, of course.

Robertson said on Sunday that Cyclone Gabrielle would cost the Government “billions” and potentially up to nearly $13 billion.

He qualified that by saying, on the one hand, that some of that cost would be covered by insurance, and, on the other, that “each day, we discover more, each day we understand more”.

But bearing in mind that the cyclone will reduce GDP and the tax take at a time when the economy was already expected to be heading into recession, it would seem conceivable from those comments that net debt could now be heading towards 25% of GDP and net core Crown debt towards 45% of GDP.

It depends a bit on the timing of the costs from Cyclone Gabrielle, among a host of other variables.

Sure, that would still leave a buffer.

But to see how far government debt has drifted, note that Robertson was trying to keep net core Crown debt in a range between 15% and 25% of GDP before Covid came along, which in turn superseded a previous target under National of getting it to less than 20% of GDP by July last year.

In the absence of clear answers about the affordability of Cyclone Gabrielle, questions are proliferating.

One obvious unknown is what proportion of the fruit trees and vines in Hawke’s Bay and other regions struck by the floods and covered in silt will survive, and what if any assistance the Government may choose to provide to ensure replanting.

How serious is the Government about “managed retreat” from areas threatened by climate change and will that be a process that will ultimately be directed by politicians, decided by communities, or left by default to insurers?

Will the rebuild compete with and potentially delay the possible multibillion-dollar investment in the Lake Onslow pumped hydro scheme, or might that be seen as part of a necessary investment in more resilience? What about Auckland light rail?

Could the heightened pressure on public finances finally tip the Government – or even National – into considering broadening the tax base by taxing more capital gains or wealth?

Might we see a more “grown-up” election campaign as the Government eschews lollipop policies such as the likes of the Cost of Living Payment​ and fuel tax cuts, and as National shifts its public line on climate change initiatives towards the centre?

Will we see business-as-usual work within g​overnment agencies, such as competition and regulatory reform, grind to a halt as the rebuild and managed retreat take centre stage?

Or might we see Wellington mandarins adopt the same urgency to their work that engineers have shown restoring power and communications to the Hawke’s Bay and Gisborne over the past few days? Well, one can ask.