By Bernard Hickey
Finance Minister Bill English has expressed confidence that the Government's balance sheet is strong enough with low-enough debt levels that it can borrow to fund the billions of dollars needed to rebuild the roads, rail and other infrastructure damaged in Monday morning's 7.5 Hanmer quake.
Earlier English agreed with Prime Minister John Key that the damage could cost billions to repair in the years to come because the Government would have to look at completely rebuilding or even re-routing State Highway 1 and the rail line linking Picton to Christchurch, given the ongoing seismic risks to the joint road-rail route along the eastern coast of the Upper South Island.
Askedhow the Government, which had expected to start repaying debt with growing surpluses from next year, would fund it, English said: "Borrow it. We've always got a squeeze on Government funding, but there aren't easy or obvious things that you'd stop doing."
"With the Christchurch earthquake and this one, funding is not an issue. We'll need to be careful, but the constraints will be technical and physical constraints. The money will be there," he said.
Asked if other ongoing spending or capital projects could or should be delayed or substituted for the Kaikoura rebuild, he said: "It may have some impact on some of the other capital ideas that have been in the pipeline. If they're not as urgent, this might push them down the queue a bit."
The Government forecast a NZ$0.7 billion OBEGAL surplus and a NZ$4.2 billion residual cash deficit for the current 2016/17 year in the May 26 Budget, with the Government receiving net proceeds from Government bond issues of NZ$7.2 billion this year. It forecast in May it would start repaying debt -- which stood at NZ$62.3 billion or 24.9% of GDP in May -- from 2017/18. Net debt had been forecast to fall to around 20.8% -- the Government's target -- by 2019/20.
But the Goverment's surplus has been more than NZ$700 million above forecast in the first three months of the year, suggesting it may have been able to reduce its borrowing faster this year and begin repayments sooner. That was before Monday's earthquakes.
Borrowing could be substantially more expensive than just a few months ago. 10 year Government bond yields have risen from a record low 2.14% on August 19 to 3.2% yesterday, largely due to rising US interest rates, particularly in the last week since the election of President Donald Trump.
Looser fiscal policy?
Asked if the Government would therefore be loosening fiscal policy, English said: "We've yet to see whether that would be of any particular significance. We could end up spending a bit more, but in the scale of the whole economy, we're yet to see whether that would matter much."
Last Thursday Reserve Bank Governor Graeme Wheeler said there was no need for further fiscal stimulus to help the Reserve Bank boost inflation back into its 1-3% target band. See more here in our article last Thursday.
Wheeler had said in December last year he would appreciate fiscal help to stimulate the economy, but since then economic growth has surged and the Government's fiscal impulse was a loosening of around 0.5%, as outlined in Budget 2016.
English said the Government did not set out to coordinate fiscal policy with monetary policy.
"He does his job and we do ours. This is going to at least reorder our priorities and could mean more spending," he said.
Hit for KiwiRail
KiwiRail is expected to receive extra cash to cover operating losses and capital for rail repairs.
"It won't be good for KiwiRail. If they can get the ferry up and running that's good, but it's going to be quite some time before they can get trains up and going between Picton and Christchurch so it's bound to have some kind of negative impact," English said.
Later in Parliament, English was asked about the economic and fiscal impacts of the quakes. An aftershock struck during his answer. His response can be seen in the video above from 56 seconds on.
(Updated with video).