Politics / Election 2023

Robertson weighing options, fends off 'cyclone tax' accusations

19:43 pm on 22 February 2023

Photo: RNZ / Samuel Rillstone

Tax, borrow or cut: those are the broad options now facing Finance Minister Grant Robertson as he prepares to foot the bill for Cyclone Gabrielle and the Auckland floods, which will run into the billions.

Budget Day is set down for 18 May and it will be yet another driven by a major economic shock. Robertson had been wrestling the books back into shape after the Covid-19 years, but now has to pretty much rip up the election year budget he had planned for 2023, and start anew.

He's also under pressure from the opposition, with National demanding assurances he will not impose a new 'cyclone' tax or levy to help pay for the cost of the recovery.

Robertson has repeatedly refused to rule out imposing such a tax, along the lines of the temporary flood levy in Australia's Queensland, introduced in 2011.

"What I'm doing is the responsible thing to do, we still don't know the full scale of this event, we've got to work that out, then we have to work out how to pay for the government's contribution," he said on his way into the first parliamentary question time of the year.

The questions were the same in the House: "Does he think New Zealanders suffering a cost of living crisis should pay more tax, and why won't he rule out introducing a new tax to help pay for the Cyclone Gabrielle clean-up?", National's Finance Spokesperson Nicola Willis asked.

Flourishing a report given to National's Finance Minister Bill English shortly after the Canterbury earthquakes in 2011, Robertson argued precedent for keeping all options on the table.

He quoted the report as responding to English's "request for advice on options for funding the earthquake recovery, including a dedicated earthquake levy".

"It's a pity the member doesn't share the responsible approach of her former boss," Robertson shot back at Willis.

She persisted: "Isn't it an indictment on the minister's economic management that, faced with the rebuild following a natural disaster, he won't rule out smashing Kiwis with a new tax, something the previous government did not do following the Canterbury or Kaikōura earthquakes?"

"As I have already stated today, we have not taken decisions," Robertson replied. "We are in exactly the same position of assessing the scale and working out how the government will pay for it. It is what a responsible government would do. It's what Bill English did. Clearly, the member is not in that category."

Robertson told reporters he would make decisions about the best approach "as soon as it's responsible to do so and as soon as we know the total cost of what we're dealing with."

"It's easy to play political games here and do 'rule in rule out' and 'why don't we do it now' - there are people whose home, whose businesses, have been completely devastated. We owe it to them to consider carefully both how much this is going to cost and how we're going to pay for it. That's what they did in 2011, it's what I'm doing now."

He said he expected it would take weeks rather than months.

National leader Christopher Luxon said they opposed a "flood tax".

"I do think it's appropriate that New Zealand borrows for it but it [must be] well defined and we make sure that it's not loose like it was with Covid," he said.

"What we're hearing from the government about the possibility of a tax flood (sic) is the completely wrong response at a time when people are under immense pressure, stress and pain."

Cyclone to put more pressure on inflation - Treasury head

The Treasury is also warning the cyclone and flooding in Auckland will make it harder to bring inflation under control; already running hot at more than 7 percent, the floods are estimated to boost that by 0.4 percent.

Treasury secretary Caralee McLiesh told Parliament's finance and expenditure committee the "costs of the cyclone will take some time to assess, but we know that they will be considerable".

She said the affected regions "contain approximately half of New Zealand's residential dwellings and account for almost 60 percent of GDP and population".

"Some of the costs will be borne by the insurance sector, by banks, by local government, but we know also that a significant amount will fall to the Crown. Roads, rail, other public infrastructure needs to be restored, affected businesses and individuals need support, and a range of response and recovery services have been activated," she told MPs.

"Economically, the biggest costs will be in the form of lost capital and lost economic opportunity."

There will be a flow-on impact on inflation. McLiesh said "disruptions to horticulture, food supply and increased transport costs" were expected to increase inflation in the near term.

"And over the medium term, additional demand for residential construction, infrastructure repair will add to demand in what is an already stretched economy generating additional inflationary pressures."

She was also pushed by opposition MPs on the work being done for the ministers on the various revenue-raising options available, and whether that included a tax or levy.

McLiesh gave nothing away, telling the committee those "conversations are ongoing".

"We're also in the middle of a Budget process right now so, consistent with long-standing convention, can't talk about any specific elements of it but we're very actively providing advice on a range of different matters."

Political reaction to OCR hike

The Reserve Bank today raised the official cash rate (OCR) by 50 basis points to 4.75 percent - the 10th rise in a row - and signalled the possibility of more to come.

Robertson said the change was a decision the central bank made independently and it was simply performing its function to keep inflation down to between 1 and 3 percent.

"Inflation is well above that at this time. Inflation is a scourge particularly for low and middle income earners, and so that is their job to do that.

"In terms of the recovery from the cyclone and the extreme weather events, fiscal policy is clearly a more immediate way of delivering support and that's exactly what we're doing - we put that $350m in, we've been clear that there will be significantly more money to come."

It will mean more pain for mortgage holders, but that's part and parcel of the intention of the rate hikes: dampening spending from households.

Prime Minister Chris Hipkins said the government acknowledged many people on fixed-rate mortgages would face an interest rise.

"There are a lot of people on fixed interest rates that will be coming off in the next six months or so, they're likely to find a significant increase in their mortgage payments on a weekly basis. That's one of the reasons that we've put cost of living front and centre of everything we're doing."

Opposition Leader Christopher Luxon said the Reserve Bank was independent but its hands were tied: the rate rise was because of mismanagement by the government.

"It's in a rock and a hard place, because essentially we've got high levels of underlying inflation in this economy even before the disaster that we've got that we've encountered in the last few weeks," he said.

"This is happening - let's be really clear - because the government has mismanaged inflation and fighting inflation, doesn't have an economic plan, and now we have the audacity of a new prime minister saying 'we're going to focus on the cost of living crisis'.

"The worst thing to say is that it's only going to get worse because we've got a third of New Zealand's mortgage holders about to refix their loans in the next six months."

He said the cyclone would only add to the inflation pressure.

"You're hearing economists now saying there'll even be a further [OCR] increase in the coming months as well, it's just incredibly alarming if you are a person at home at the moment and you're talking about finding another $500, $600 a fortnight to be able to meet payments."

"The Cyclone Gabrielle effects are going to affect growth and also inflation. On one hand were going to have less growth with respect to logging and with respect to horticulture, on the other hand ... food prices are going to go up higher, we're gonna have higher rent inflation, we're going to have higher levels of construction costs."

ACT's David Seymour said the government should be doing more to rein in costs.

"Government expenditure is out of control, it's up $50 billion in the last four years. All that government spending is competing with everyone else for consumption, that means the Reserve Bank governor has to put interest rates up higher than it would otherwise have to.

"The Reserve Bank governor's just doing his job."

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