Cyclone Gabrielle: Storm will have ‘very significant’ cost - Treasury

Treasury Secretary Dr Caralee McLiesh warned the storm would have significant costs. Photo / Mark Mitchell

Treasury Secretary Caralee McLiesh has warned that Cyclone Gabrielle will have a “very significant cost” to the Crown.

But thanks to an oddity in the way our economy is measured, the storm may actually be good for New Zealand’s GDP.

There are several common ways of talking about the cost of a disaster. There’s the cost of destroyed and damaged property, the cost to the economy, measuring the cost of lost output, and the fiscal cost, which is the cost to the Government.

McLiesh was appearing before Parliament’s finance and expenditure committee on Wednesday morning for Treasury’s annual review. She later confirmed that there was time for the floods to have an impact on this year’s Budget, which will be delivered in May.

McLiesh would not put a figure on the cost of the cyclone, but said a Treasury team had been stood up to work on the cyclone.

“It’s an unprecedented and evolving situation and we have stood up a team within Treasury and our role is to assess the impact, particularly the economic and fiscal impact,” McLiesh said.

“The full economic and financial cost will take some time to realise.

“We know the biggest economic costs are going to be in the form of lost capital and lost economic opportuntiy.

“There’s been severe damage to housing, to buildings, to infrastructure, to livestock.

“We know it will flow through to GDP in the short term in the disruption to the primary sector, tourism and services.”

On the other side of things, reconstruction after the floods will likely have a positive impact on GDP, as the rebuild will count as economic activity.

“In the medium term there will be a boost to GDP as reconstruction proceeds that is why GDP alone is not a good measure of living standards and wellbeing,” McLiesh said.

Treasury was also looking at the fiscal cost - the cost to the Government itself.

She said Treasury expected “to see a very significant cost” to the Crown “in particular asset damage and infrastructure”.

Economic support would also come with a cost.

McLiesh listed Civil Defence payments and small business support as a cost the Crown would have to incur.

Treasury was also working with agencies to make “sure that the financial flows are getting to where the need to be and understanding the gaps in support”.

The 2023 Budget is in its final stages, ahead of being delivered sometime in May. McLiesh confirmed Treasury had enough time to make alterations to the Budget in light of the floods.

The challenge for the Government will be whether it is able to stick to its previously announced spending allowances. Spending more in the Budget will likely have an impact on inflation, unless it is accompanied by a tax rise.

Treasury is currently forecasting inflation to slowly decrease.

McLiesh said the current forecasts were “based on the allowances that Government has set and as the minister highlighted in the HYEFU and Budget Policy Statement that achieving those allowances will require a degree of reprioritisation acknowledging there are cost pressures and high inflation rates in New Zealand right now”.

She noted the Government has already said achieving those allowances would be “hard”.

National’s finance spokeswoman Nicola Willis said the problem for Finance Minister Grant Robertson is that nearly half of the $4.5b in new operating spending has already been committed.

“This leaves precious little to meet impending bills for disaster recovery and infrastructure replacement,” Willis said, noting that current Crown expenditure is roughly $1b a week higher than when National was in office.

She said this was “a time for careful prioritisation of taxpayer funds - not pet political projects,”