The shock of the Hanmer earthquake continues to roll through the political economy in Wellington -- sometimes literally.
Bill English was answering a question in Parliament shortly after 2.34 pm yesterday when a 5.8 magnitude aftershock rattled the debating chamber. After a quick glance around and a few murmurs from his colleagues, English barrelled on to answer a supplementary question from Matt Doocey.
"This time I will be more careful with what I say," English said.
Hansard recorded the subsequent laughter as "Ha, ha!", which I think overstated the defiance and understated the slightly unnerved tone of the house.
The cost of the rebuild is becoming clearer, with both John Key and English agreeing in a news conference in Parliament that the repair or rebuild of State Highway 1 and the rail lines north and south of Kaikoura could cost billions, particularly if the road and rail lines have to be re-aligned or re-routed.
Key again compared the scale of the work with the 13 month-long NZ$40 million rebuild of the Manawatu Gorge road after one massive slip in 2011. There are reports of more than 200 slips on roads and rail lines in the region.
English and Key told Parliament the Government's balance sheet was strong enough to fund the repairs.
"The Government has capacity to borrow, to the extent that we do not actually have cash surpluses, and we want to make sure that financing is not an impediment to the rapid recovery, particularly for the vital transport links that have been so affected by the quakes," English said.
He acknowledged to me earlier that this would involve borrowing.
Asked how 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 Government'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. Ten-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 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. 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% of GDP, 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.
Big 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.
The scale of the work ahead was emphasised by Simon Bridges in Parliament, who said it could be several months before the main road and rail route through Kaikoura was re-opened.
"Due to the sheer scale of the slips, it is expected that State Highway 1 and the main trunk line between Seddon and Cheviot will remain out of action for months—probably several months—rather than weeks," he said.
He acknowledged the Government would look at alternative routes or alignments for the main trunk routes and at coastal shipping options.
"Possibly there is a question of capacity around that, but we are looking at that actively," he said of coastal shipping options.
Steven Joyce and MBIE are also looking at support options for small to medium businesses in and around Kaikoura that are likely to be affected by disruptions to tourism and transport through the normally busy summer period, Key said. He also said it was less likely any CERA-style agency would be created to deal with the Kaikoura rebuild.
Bill English said in answer to a question from Grant Robertson that the Government would also look at helping Councils, which have low rating bases, with repair costs for roads and infrastructure beyond the usual mechanism of the Land Transport Fund.
"With regard to roading, some of that would come from the National Land Transport Fund, but that may need to be supplemented by the Government. So we will just work it through on a case by case basis, but it will probably be similar to Christchurch," he said.
Earlier Bridges said the Land Transport Fund had NZ$0.5 billion available for emergencies, but the Government had capacity to add to that if necessary.
More funding for RNZ?
One interesting post-script to the outbreak of Parliamentary bi-partisanship was a question from Gareth Hughes to Bill English on behalf of Amy Adams on funding for RNZ, given its widely acknowledged stellar performance over the last three days.
English appeared to leave open some wiggle room for a bid for more funding in the current Budget round, given its funding has been capped since 2008 and therefore cut NZ$4 million in real terms.
"If there is a greater need for the long-term sustainability of the organisation then I am sure the board and executive of Radio New Zealand will see merit in putting up a bid," he said, having earlier complemented its new website development.
In other economic and financial news...
Wholemilk powder prices, which are the basis for Fonterra's payout, rose a further 3.2% to US$3,423/tonne in Globaldairytrade's auction overnight. They have now risen 66% in US$ terms since July 5 to their highest level since July 2014. Economists are now forecasting a payout closer to NZ$6/kg than the current Fonterra forecast of NZ$5.25/kg, which they said could be upgraded before its next scheduled update in early December.
Business New Zealand and BNZ reported its Performance of Services Index (PSI) survey found activity in the services parts of the economy expanded at a faster rate in October than September. The Index rose 2.1 points to 56.3, with any measure over 50 indicating expansion.
Statistics New Zealand did not publish its retail trade survey due yesterday. Its website was down and its staff have vacated their office on the waterfront in Wellington after the earthquake, which caused concrete beams to separate from the outside of the building and one end of one floor to collapse onto the one below.
Quote of the day:
"This time I will be more careful with what I say. Ha, ha! The economy is generally in good shape. Government debt is relatively low. We have budget surpluses. We are in about as good a shape as we could be to deal with this natural disaster."
Tweets of the day:
Dean Nimbly on the three cows rescued from an 'island' in an earthquake slip:
I'm not saying these cows killed JFK, but they are standing on a grassy knoll
"Well, we finally got the message from Donald Trump. He sends his commiserations because the earthquakes were only rated 7's."
McCully apologises to tourists trapped in Kaikoura by buying each of them a sheep farm in Kaikoura.
Donald J Trump yesterday on seeing he won the Presidential election but lost the popular vote by over 800,000 votes.
If the election were based on total popular vote I would have campaigned in N.Y. Florida and California and won even bigger and more easily