The capital cost of the earthquakes

Fran O’Sullivan writes:

How many more major earthquakes can New Zealand sustain without crippling the country’s ability to maintain current economic growth rates?

It’s an unpalatable question.

But away from the cameras, that is exactly the question which John Key and Bill English should be pondering.

Whether they like it or not, they will have to reorder their fiscal priorities so the major infrastructure challenges in Auckland and Christchurch can still be addressed, at the same time as they gear up to fund what will be another very significant rebuild. Not all of the costs will be covered by insurance.

It looks like the cost is going to be in the billions, not the hundreds of millions as first thought.

The world’s reinsurance market players will be reassessing New Zealand risk.

At what stage do they think there is a pattern?

So too, should the political leaders in Auckland and Christchurch; two cities which are after further substantial central government capital injections to accelerate their own new infrastructure.

Given the new funding pressures the Government now faces, it is frankly about time that mayors Phil Goff and Lianne Dalziel also faced up to fiscal realism and extracted some capital by selling down council’s stakes in commercial companies to help fund their own patches.

Fiscal reality is indeed what they need. It is almost selfish for them to insist taxpayers should fund their capital desires when they have shareholding in commercial companies they could sell down to fund investment in areas they do need to own.

Key’s confidence-building abilities are obvious. He has had plenty of experience fronting the disasters that have plagued New Zealand since his prime ministership began: the global financial crisis; the Canterbury earthquake, the Pike River mine disaster and the subsequent Christchurch earthquake.

But having another spate of serious earthquakes within such a sort timeframe will also affect key sectors such as tourism, construction and insurance.

I can’t recall another period with so many challenges.

The critical issue is the Government’s finances.

After the first 7.2 Canterbury earthquake in September 2010, English warned “we’ve got to be in a position where we can handle another recession and another earthquake and frankly we won’t be there until 2020”.

Then central Christchurch was reduced to rubble in February 2011. While that earthquake registered only 6.3 on the Richter scale it had huge intensity.

This current series of earthquakes is different. There had already been more than 10 severe earthquakes (since the 7.5 earthquake at 12.02am Monday morning) at the time this column was written.

Even Parliament was rocked by another major aftershock yesterday as the Finance Minister spoke about the Kaikoura earthquake recovery.

Typically, English was sanguine. The economy was in good shape; there were Budget surpluses and relatively the level of debt was low.

Yet better placed than a few years ago but could still pose some challenges.