Finance Minister says Government has strong enough balance sheet to borrow billions of dollars needed to rebuild infrastructure around Kaikoura; says "funding is not an issue", although some other projects could be delayed

Finance Minister says Government has strong enough balance sheet to borrow billions of dollars needed to rebuild infrastructure around Kaikoura; says "funding is not an issue", although some other projects could be delayed

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).

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

34 Comments

Comment Filter

Highlight new comments in the last hr(s).

Yet pm turned down offers of financial help. Rule 1 of economics. Never turn down free money.

Who offered us free money and how much?

we need a lot bigger gear, we need to bring in offshore companies who have specialised equipment that can handle these huge volumes of spill.

Jk's ego got the better of him before he realised the full extent of the costs

A very good point Aj. Those of us who know about Big Machinery have watched, frustrated, for years now, little RMA approved diggers and trucks shifting spoil (pointlessly) 50km or so. Most of this rubble now can be bulldozed straight into the sea to form foundation for new expressway. Just watch Maoris and Greenies chuck their respective spanners in. I do hope I am wrong, in this regard.

Who will suggest we increase income taxes to fund the unexpected added costs?

You talking about Kaikoura or new motorways for Auckland?
Guess which one will contribute a few more export dollars than the other.

It's not just Kaikoura

It's the distribution corridor from Picton to Christchurch. The lifeblood of all the villages and hamlets and rural communities in between

This government cannot shrug its shoulders again and leave our kin to struggle alone

SH1 - 337 Kilometres
https://www.google.co.nz/maps/dir/Picton/Christchurch/@-42.4970199,172.4226965,7z/data=!4m14!4m13!1m5!1m1!1s0x6d3926eaa4d43805:0x500ef868479a160!2m2!1d174.0010044!2d-41.2905926!1m5!1m1!1s0x6d322f4863c5ed01:0x500ef8684799945!2m2!1d172.6362254!2d-43.5320544!3e0

If the inland road becomes the preferred option then it's really only the small North Canterbury town of Cheviot that would cop the tourist drop off.

I will; with rising interest rates the cost of borrowing may get prohibitive.
Increase by 1% over 100k, 2% over 150k, 3% over 200k

David you are on to it.

John Key and Bill English are playing both sides of the disaster -just like they did with the Christchurch earthquakes. John Key gets to make warm fuzzies by vaguely promising to rebuild better, while Bill English gets to be all Mr stern Finance Minister-man by saying no one needs to fork out any extra taxes.

A major upgrade of the Picton to Kaikoura to Christchurch road/rail transport corridor to modern first world standards would be expensive. It would be a significant drain on any future Roads of National Significance budget. It is also not consistent with the government's strategic direction -if the government wanted to improve the top of the South Island road/rail corridor then they would have proceeded with moving Picton port to Clifford bay -as that had huge time savings for both road and rail. They chose not to. http://www.transport.govt.nz/sea/cliffordbay/clifford-bay-ferry-terminal...

Upgrading the roads around Kaikoura would involve improving the route so that there were no one-lane bridges, no 30km/hr corners, no being stuck behind trucks crawling up and down steep inclines with nowhere to pass, no narrow tunnels that cannot take full size trucks. The only way to do that for large stretches of the Kaikoura coastline is by moving both the rail and road further back into the mountainside i.e lots of really expensive tunnels. Then the Hundalees south of Kaikoura would require a different route which again would involve expensive bridges and tunnels.

A infrastructure spending government could do it, but it would require the voting public agreeing to it by paying higher taxes. Because first world infrastructure cannot be bought by scrimping and saving here and there.

I predict that will not happen. Bill English has said it will be the scrimping and saving here and there route and it is always better to listen to the guy who controls the purse. What will happen is existing road maintenance resources will be redirected to removing rubble, which will cleared slowly and if we are lucky the road and rail will be repaired to the standard which existed last Sunday. Hopefully progress will be faster than the 7 year project to fix the Sumner to Lyttleton Road. http://www.stuff.co.nz/the-press/news/66698418/Quake-ruined-Lyttelton-ro...

In the meantime the government will act like they are undertaking a massive infrastructure expansion and use that as an excuse for all critiques of the economy, government finances, poor government services....

As I said, we have seen it before...... Over promise and under deliver -that is this governments motto when it comes to disasters.

David, does a lot of road tax still end up in the consolidated fund, or is all spent on roading today?

Petrol tax and road user charges do not cover all the expenditure. Roads of National Significance is a giant pork-fest -not a reasonable assessment of need based on cost benefit analysis. There is a lot of cross-subsidies in transport spending. Areas with a lot of new motorways and rapid transit services get subsidised, areas with lots of country roads and few people get subsidised. Trucks do more damage than lighter vehicles but do not pay in proportion to the damage they do so they get subsidised too.

We could ask the Multinationals to pay a bit more tax - don't you think

Good idea. How about an additional fee payable by new residents, say $10,000 per head. At say a net of 50,000 newbies per annum, that's an additional $500 million. Would help to drill a few tunnels down in North Canterbury.

A 20% raise to petrol tax would still not result in the highest petrol prices we have had in NZ. Combine that with raising GST to 20% and we should have enough.

It would be a lot fairer to add 1% on to the highest income tax bracket, or introduce a higher bracket for incomes over, say, 100k or 150k.

Remove interest free student loans and raise GST. Increase minimum wage. So basically let companies and the young fund the rebuild since they will benefit the most from it in the future.

I suspect a Wellington to Christchurch ferry service may negate the need for quickly fixing SH1 giving time to thoroughly investigate all options before spending up large. Thank goodness the Clifford bay terminal never eventuated.

Yes that is probably the best short term option.

The old Rangatira service was great, you could drive AK-Wgtn in one day, sleep on the boat overnight, and wake up in ChCh
Was canned because there were more stewards than passengers, and Unions would not allow change, so they all lost their jobs...

Oh well, bye bye to those tax cut bribes planned for 2017...

I think it is bye bye to the Auckland holiday highway

"The first US warship to visit New Zealand in decades has been drafted in to help humanitarian efforts as the Government continues to help stranded tourists in Kaikoura out of the area."
http://www.stuff.co.nz/national/politics/86479193/us-warship-may-help-re...

Well amazing who you call on to help, whist giving them the cold shoulder for years.
If i was them, i wouldn't bother.

Which is why you probably wouldn't make for either a decent diplomat or strategic planner. An act like this does more to cement goodwill than a dozen TPPAs.

"Always forward."

"The money will be there" says Bill.

Of course it is - its made up out of thin air - even Bill must realise this.
The problem is the energy behind the money will not always be there. So in the meantime, load it all on the credit card, card name JKPonzi, and make plans for a future which doesnt exist.

US OIl in big trouble
http://peakoilbarrel.com/big-trouble-at-exxonmobil/
Chinese coal output down
http://www.sxcoal.com/news/4549173/info/en

Once energy surplus disappears , the need for road infrastructure evaporates. Infrastructure should be working towards local sufficiency, independent of reliance on foreign supply chains. But no one wants the consumption party to end.

How will the loss of tourism revenue, following this quake, affect the budget and future spending ability on such development ? Any numbers ?

Just do what they did in the 1930s when there was that huge infrastructure expansion. Print the bloody money rather than borrow it and pay interest. Call it QE if you like but it is just printing money. Export money is only needed to buy overseas things. Anything we do ourselves is paid in New Zealand $. So we can print it. Why is there this burning desire to pay interest?

Because we need Oil ... and its priced in US$ courtesy of the petrodollar... So printing devalues our dollar and makes it harder to pay for this essential. Oil is the economy. Theres no way out of this bind, the US military has us and everyone else over a barrel literally

We can buy oil, (or we could go electric) with the money we receive from selling our exports. There are two sorts of money. Our NZ money and the overseas money we receive from our exports. The country should not be paying interest to anyone when we can organise our affairs not to do so. And plenty of countries are now not using the petro dollar.

Too late for social credit economics now. Debt is useful in bringing consumption forward and building infrastructure - thats how we accelerated the "build" of the country in the first place. Tough to turn round now and say we dont want your debt anymore but thanks for the help with the build.

And electric can't replace Oil, for a million reasons, including the infrastructure isn't there.

This is actually stimulating for our economy, correct me if I am wrong but our GDP rose due to the rebuild and this has just added billions more to our future GDP? rebuilding has a positive effect on economy

right - just like employing people to go round and smash everyones windows then refix them is stimulatory.
Infrastructure is an ENERGY sink. The energy it comes from isnt limitless, although our economic system assumes it is (or can be supplied regardless of the (energy) cost). This is the heart of the problem with our financial system.

Put another way, economies to scale (our solution) meets diminishing returns & finite resources/world.