The economic consequences of Cyclone Gabrielle

Reweti Kohere

Cyclone Gabrielle will significantly widen New Zealand’s burgeoning infrastructure gap, with early cost-estimates of $13 billion adding to the current shortfall of hundreds of billions of dollars.

With roads buckled, bridges washed away, power lines broken and some cell towers still out-of-action, repairing cyclone-ravaged infrastructure in as many as seven regions in the North Island will be a priority of any rebuild.

While the Treasury is getting a clearer picture of the economic cost of Gabrielle’s devastation, Finance Minister Grant Robertson has likened it to the $13b expense of the Canterbury earthquakes 12 years ago.

“[Gabrielle is] going to be the biggest weather-related event this century and it will have a multi-billion-dollar price tag,” Robertson said in a recent interview with TVNZ’s Q&A

But even before the cyclone hit, a deficit in public infrastructure stretched nationwide across several crucial sectors of the economy.

Meeting the gap over the next 30 years would cost $210b, according to research commissioned by the New Zealand Infrastructure Commission – a figure the Treasury cited in its investment statement last year.

“We need around $104b more public capital to meet the current shortfall,” Sense Partners’ report said. “If we keep investing at the current rate, we will not keep up with renewals and future demand. We will be short by another $106b in 30 years’ time (in today’s prices).”

Not enough

New Zealand’s infrastructure deficit arose from a slump in investment in the 1980s and 1990s, the report said. While investment recovered in the early 2000s, it hasn’t been enough to meet the country’s needs.

The total bill, factoring in the necessity of renewing and upgrading investments now and in the future, could exceed $1 trillion if New Zealand simply spent more to close the gap.

However, “we cannot build our way out of the infrastructure challenge,” the report stated, adding the cost of reversing the historical and future deficits would require almost doubling current spending of 5.5% of GDP – an amount equal to $31b a year.

The fiscal burden created would be unpalatable to both levels of government and would require a bigger workforce to plan, deliver and maintain the additional infrastructure, the report said. The government is looking at adjusting visa settings to increase labour supply for the rebuild, an acknowledgement of the challenge of a persistently tight labour market.

Besides increasing spend, New Zealand needed to make better use of infrastructure, better project selection, broaden funding options and streamline delivery.

Some of the total cost of the cyclone would be absorbed by insurance and the existing budgets of government agencies, Robertson told Q&A. Ensuring shelter, food, water, power and communications were the government’s immediate priorities in allocating disaster relief funds, while transport networks would take longer to repair.

Budget talk

The government has announced $300m of initial cyclone relief funds, most of which will fund Waka Kotahi’s efforts to repair damaged roads, with the remainder supporting hard-hit businesses.

Prime Minister Chris Hipkins said the package was an

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Continued from page 03 interim measure and signalled a “rolling maul” of support would follow “as we get a better picture of the scale, cost and needs in the wake of this disaster”. The government also extended the national state of emergency for another seven days.

The government has $4.5b in new operating spend and $12b in multi-year capital expenditure to play with in this year’s Budget, plus $40b it can spend before reaching its new debt ceiling of 30% of GDP, a fiscal rule Robertson introduced in the 2022 Budget.

Asked if he would tighten spending to rein in inflation, the minister said a balance must be struck. “We’ll be careful – we’re not going to blow things apart here fiscally. But we’ve got to respond to the needs in front of us.”

Economic growth would take a hit though. “If you include Auckland, 58% of New Zealand’s GDP has been affected by a weather event in the last month,” Robertson said, adding the recovery phase of the response would stimulate productivity.

‘Now is the moment to reset’

The economic cost of Gabrielle will hit insurers’ books too. Last week, the Insurance Council of New Zealand (ICNZ) estimated insurers were dealing with more than 40,000 claims arising from extreme weather events in the past month.

Already, insured losses so far this year surpass all those incurred from natural disasters in 2022.

During the Environment Select Committee’s recent hearing