Cyclone makes Robertson's Budget balancing act perilous

"We can build back better, we can build back safer, and we can build back smarter, and we will do that by working together" - Chris Hipkins

To tax, to borrow, or to cut spending: those are the broad options facing Finance Minister Grant Robertson. 

While somewhat bound politically by Labour's promise of no new taxes this term, Robertson's keeping all options open in his search for a way to fund the recovery from Cyclone Gabrielle and the Auckland Anniversary floods.

It's the first big test for the pairing of Robertson with Prime Minister Chris Hipkins - and they will need to carefully balance the practicalities of on-the-ground response with longer-term preparation for future challenges - all while keeping faith with voters, many of them still traumatised by the crises. 

More than a week on from the declaration of a national emergency, New Zealanders are coming to grips with the devastation wrought on homes and infrastructure, including key roading links that support economic supply chains. 

Slash is blamed for much of the damage from Gabrielle, and it's just the latest of several events where that's been the case. Forestry Minister Stuart Nash has announced yet another inquiry into the matter, giving former National MP Hekia Parata a two-month timeframe to get it done. At least one industry boss is expecting major changes. 

Communities in Hawke's Bay made vulnerable by the storm have also been raising concerns about rampant crime. 

Hipkins tried to give reassurances of extra police in the area, and apparently low levels of reported crime - but that went down poorly with isolated residents left alone to patrol communities - some still without power and reliable communications.

Opposition parties have been critical, calling for more to be done like doubled sentences for offenders during a state of emergency, or bringing in the defence force to help police. 

The government says a high bar would need to be reached before they resort to the latter. 

Read more: 

• Robertson weighing options, fends off 'cyclone tax' accusations
• Willis says tax cuts won't require borrowing - but cyclone will
• Reserve Bank raises official cash rate by 50 basis points to 4.75
• Parliament debates restart with focus on cyclone and climate
• National MP Maureen Pugh walks back climate change comments
• Govt announces cyclone recovery taskforce, $50m support package

Treasury says the response to the cyclone will be inflationary: limited food supply in the short term; construction, transport and labour market squeeze in the medium term.

Reserve Bank Governor Adrian Orr continued hiking the official cash rate yet again this week, with the aim of dampening that inflation down. 

Robertson - newly appointed as Cyclone Recovery Minister - is looking ahead to his Budget, set to go public on 18 May. He says we need a better picture of the scale of the damage before the funding mechanisms for the response can be planned out in detail - but he's looking at all his options.

The Kaikōura and Canterbury earthquakes, and the Queensland floods about a decade ago provide a useful barometer. 

National borrowed large sums to cover the cost of the Canterbury quakes, but in Australia a temporary flood levy was imposed. It had different levels depending on income, with those earning less than $50,000 or affected by the floods exempt.

Green MP Julie Anne Genter meanwhile has again suggested a windfall tax as a way to have polluters pay. 

National's Finance Spokesperson Nicola Willis has been pushing for Robertson to rule new taxes out, saying it's not fair on New Zealanders during a cost-of-living crisis, and runs counter to his pledge not to bring in new taxes this term.

But it raises similar questions for National should they win October's election, with Willis ruling out borrowing for tax cuts while still suggesting debt is the preferred solution for paying for the recovery. 

Orr also told MPs at a select committee borrowing was not at the top of the list when battling inflation.

"Reprioritisation of current spending and revenue raising through other alternatives makes the job of monetary policy easier because it's redirecting current income rather than creating new cash in the economy," he says. 

Along with natural coalition partner ACT, Willis argues the government should be looking to do more reprioritisation, making cuts to government spending. 

It will be a tricky ask for Robertson, under whose watch the government has rolled out significant spending programmes to make up for what they argue is a long history of underinvestment in infrastructure and services. 

"We've got people who want it all to be done from reprioritised spending, we've got people who want it to be done from borrowing, we've got people who want it to be done from levies, it's my job to pick my way through all of that," he says. 

"Obviously the total level of borrowing is a factor that the Reserve Bank Governor and others will look at when they are setting monetary policy. It's a balance, we've got to work our way through that. The government obviously borrows money in normal times, in normal circumstances, to do long-term work, long-term infrastructure work for example."

Balance is his watchword as he looks for a way to reinforce the increasingly weighty tower of fiscal books. His solution, then - to the tax, borrow or cut question - looks likely to be some combination of the three. 

In this week's Focus on Politics, RNZ political editor Jane Patterson assesses the impact of the cyclone and the financial tools the government has for dealing with it. 

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