Just over seven months from the election the Labour government has been granted as great a political momentum as that leading into the 2020 election.
Labour now shows all signs of pulling out of the death-stall it was trapped within under Ardern, to pulling up into near-total media and political dominance. This in the course of less than a month from Hipkins’ swearing in.
From Budget 2023 likely in May, to election in October, is just 5 months.
The recovery plan and Budget 2023 set the course for the election campaign.
Cabinet now prepares for the rebuild of the northern half of New Zealand. The rebuild is according to Minister Woods larger than the Christchurch earthquake recovery over a decade ago. Direct state asset liabilities include damage to about 20% of the North Island’s road and bridge networks, rail network, telecommunication network, central electricity network, massive welfare increases, and civil defence costs. To pay for this rebuild, the export economy that provides a substantial part of the state income has been materially weakened with damage to about 60% of its pip fruit exports, and 10% of its dairy exports. Both of those would have been at peak production for export right now.
The entire National Land Transport Plan into which local governments have all put their regional bids will have to be drastically revised to enable this recovery.
EQC will receive claims that will hit the limit of what they are able to provide.
The above will have a material effect upon Budget 2023, into which submissions were supposed to close on January 29th just gone. Departmental bids are already in. The previous policy drivers of Budget 2023 were focused on:
Even as bodies are still recovered and towns and families are reconnected to each other, Treasury will be figuring out new policy drivers to enable this scale of national emergency response. It is going to require a completely new budget.
This Budget reallocation for central government will also be mirrored in local government budgets out for consultation throughout the northern half of the North Island as they too seek to respond and rebuild to this declared national emergency.
Prime Minister Hipkins had already put the spade through some projects such as Auckland light rail, the RNZ-TVNZ merger, and worker unemployment insurance. Expect the 2nd Waitemata Crossing plan to also be iced. Minister Wood has said that other projects included water infrastructure especially stormwater. He has said there needed to be “better coordination between transport, council, and water agencies about stormwater …”. That was before Gabrielle.
If I were to speculate I’d say that out of this will emerge a single national water entity asset owner and operator with a Board that includes Maori representation. Just like the centralisation of health and tertiary training. The state is not yet strong enough to withstand shocks of this magnitude, but it is the only public entity capable of growing such strength. This will be reflected in water governance.
Minister of Finance Grant Robertson is holding the ship as steady as he can as this budget reprioritisation is underway, noting that Core Crown tax revenue was .7% below forecast at $54.5 billion with core Crown expenses at .7% above forecast at $60.5 billion. Net debt is 21.6% of GDP, roughly the same as forecast, yet interest repayments are now ever-growing.
But none of the big bills have arrived yet, and they are going to come in fast. Anyone who thinks this isn’t a graver test of the entire collective strength of the state and far greater than COVIDs, is fooling themselves.
Even before Cyclone Gabrielle, the OECD was predicting New Zealand would be in economic stagnation.
Businesses surveyed by the Reserve Bank of New Zealand expect that the economy will basically stop, with an average of .79% growth for 2023. That’s down from an expectation of 1.27% for the year just 3 months ago.
Economic growth expectations help banks prepare capital, businesses prepare for consumer demand and for their own investment and employment planning, and help IRD predict the kind of tax take they could get. It is a dire forecast.
Let’s remind ourselves of the big spend areas from Budget 2022 to get a sense of what might need reallocation.
One 2022 budget highlight was the leftovers from the $61.6 billion COVID-19 response fund (CRRF). Most of this has been reallocated already for urgent public health needs.
It had also allocated $10.9 billion over 5 years to the NZ SuperFund. It’s very hard to see that standing uncut this year.
It had allocated $777m in capital allocation for fixing up schools. Whatever is at this moment not signed with construction contracts is going to get reallocated northwards.
One should expect a wholesale reallocation of budget priorities in road and rail transport as well, unless the construction contracts are already signed.
Cabinet has already killed off the unspent portion of the $2.9 billion allocated out of the Climate Emergency Response Fund to help change our cars, and likely it will drain this fund dry to pay for the recovery.
The great big sucking sound you hear is New Zealand’s 3 million people from Hastings northward pulling in every public dollar in the country not yet nailed down with a signed contract.
There will be a question to answer for the rebuild about how much Minister Robertson is prepared to go into debt and how much he will reallocate from existing Departmental expenditure. There’s not much point subsidising the national ballet when your school, town, and hospital care need actual rebuilding.
There will be no tax cuts. There is no electoral mood for tax increases. There will be higher public bills and lower public income. There will be more public debt.
Government has but 3 months in which the Prime Minister and Cabinet have to form, prioritise and cost a complete recovery for New Zealand’s worst disaster since World War 2. This is on top of what was already the Year Of The Long Grind.
The entire budget is going to change. Robertson will propose this as a great field of calm to disguise a very painful public sector reprioritisation, in order that the rebuild gets underway fast and no matter what the national cost.
As with 2020, the 2023 recovery plan and the budget to make it happen will dominate the 2 months to budget and the further 5 months of election 2023.
The plan will be huge, the budgetary changes will be huge, and on both rest the fate of several million New Zealanders trying to recover their lives, and the future political direction of New Zealand through to 2026.
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