by Nick Stewart
The floods, having caused devastation to land and life, will also devastate the Hawke’s Bay economy by putting pressure on many businesses who are also having deal with flooded homes and staff members who have lost everything. Many have still not regained their pre covid strength before being dealt this latest blow.
Our horticulture, viticulture and cropping businesses will be unable to operate profitably this year. This will have a huge downstream impact on our regional economy, even if the influx of infrastructure & rebuilding of flood damaged buildings provides an influx of cash in other areas.
Like the Christchurch earthquake and covid, the government will find a way to fund the rebuild for the flood damaged areas.
There’s a solution to finding some funds for a rebuild: Stop vanity projects and concentrate on providing essential aid to places like the Hawke’s Bay, Wairoa, and Gisborne. Places where, if the roads aren’t functional, we’re entirely cut off.
Can we really afford light rail in Auckland when Wairoa and Gisborne are completely cut off from the rest of New Zealand?
Can we afford to spend years back and forth on navel-gazing exercises like Let’s Get Wellington Moving? The recent pedestrian crossing addition near the airport came with a $2.4M price tag – and opposition from the airport itself.[i]
Then there’s the doomed cycleway across the Auckland Harbour Bridge. $51M spent on planning only to scrap a project which shouldn’t have been considered a priority in the first place, given it only served a very specific subset of the city’s populace.[ii]
We need to stop the dithering, recategorize certain projects as ‘nice to haves’, and provide the necessities for productive areas like Hawkes Bay and Gisborne.
This is not the only way that the Government could help us rebuild our economy. They can help us to help ourselves without having to spend much money (which will ultimately save money for the taxpayer).
A pragmatic Government would take the lessons from Christchurch and managing insurance claims, and pressure insurance companies to settle quickly and fairly with those who have suffered flood damage.
Even more important is for the Government to take a firm line with the banks. Banks complain that the increase in their capital ratios has made lending difficult and forced them to call in loans, or not reissue debt where they would have done so in the past.
For our growers this has meant sound, longstanding businesses with cashflow issues caused by a poor season have not been able to convert their seasonal finance into long term debt. In the past banks have allowed this. They know that in a normal ten-year period there will be some good years, some bad years, and some extremely profitable years. This tends to balance out over time, while season by season financing puts our growers in a very tough position.
The Government could ease up on the capital ratio requirements for banks, if the banks agree to allow businesses to convert this season’s debt to long term debt. The Government could also provide guarantees to banks who provide loans to our successful viticulture and horticulture businesses – who are now going to have a terrible year due to the floods.
The Government has a huge number of levers it can use to help our region recover from the floods. It is the Government’s influence, as much as actual spending, that is a key component here. The key is to front-foot the package and give the damaged region and its people confidence.
The impact of Cyclone Gabrielle has been compared to Cyclone Bola in 1988 – it’s likely much worse, as the brunt of Bola was mostly localised to Tairāwhiti/Gisborne while Gabrielle has severely damaged several regions (and has surpassed Bola’s death toll already). Northland was hammered with property damage and loss of power. Auckland lost power, lives, and now has red and yellow zoned homes. Coromandel has property and road damage. Gisborne and Hawke’s Bay are all the above, plus core infrastructure and crop losses. It’s a grim list.
With Cyclone Bola, the compensation package was huge for its time. It was the brainchild of the David Lange-led 4th Labour Government. The farm funds alone were $50M, which is $121M today adjusted for inflation. In this agriculture package, compensation was paid on the basis of 60% of non-insurable losses based on market values, also incorporating income and stock losses.[iii],[iv]. The wider package cost the government $110M, or $268M today adjusted for inflation. When you consider how much the Hawke’s Bay region has grown in terms of population, economic intensification and productivity over 35 years the potential rebuild cost is sobering.
The aftereffects of Gabrielle are going to hurt for a while because they impact the nation’s primary growing and food-producing regions. Even those who got off lightly in the actual storm will feel its lingering presence. It will be hard for the population to avoid the inflationary impact from the reduced fresh produce, and the stimulatory effect of the rebuild. Furthermore, as we move into repair mode, we (and the Government) need to be thinking of not just clean up, but risk management.
We’re living in a time where climate change is a real and present risk, and these extreme events are becoming ever more likely. How can we rebuild our infrastructure so our cell towers and electricity aren’t brought down in one fell swoop? How can we reduce the flood risk present over multiple regions? How can we best secure a road network which will stay open for supplies and aid?
We need to think for the future. We need to push both local and national government to think for the future. It’s hard to go beyond what’s happening right now when it’s still unfolding and everything feels so raw, but this initial impact is just the beginning of dealing with an event of this magnitude. In the months and even years to come, we will see the social and economic impact of Cyclone Gabrielle – much as we did with Bola.
Hopefully a robust announcement is forthcoming. The sooner, the better.
Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions.
The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
[i] https://www.rnz.co.nz/news/national/467465/controversial-wellington-pedestrian-crossing-gets-the-green-light
[ii] https://www.newshub.co.nz/home/politics/2022/04/prime-minister-jacinda-ardern-defends-51-million-spent-on-cancelled-auckland-cycle-bridge.html
[iii] https://www.inflationtool.com/new-zealand-dollar/1988-to-present-value?amount=50000000&year2=2023&frequency=yearly
[iv] http://nzjf.org.nz/free_issues/NZJF33_1_1988/D06AF7BE-BE5B-41C0-A2D9-03236C4845AC.pdf
https://nzhistory.govt.nz/culture/the-1980s/1988
