Kerre Woodham: I'd prefer Govt cut back on spending rather than hike taxes to pay for Gabrielle recovery

Listening to Adrian Orr, the Reserve Bank Governor this morning, you realise New Zealand is between a rock and a hard place.

As a country, we need to rebuild and rebuild a more resistant, resilient infrastructure in the wake of Cyclone Gabriel, and indeed all the other cyclones that have hit this summer.

And we're going to need to be looking at reinforcing existing infrastructure around the country. Gisborne, parts of Hawkes Bay, Coromandel, the far north and parts of Auckland have been devastated this time around.

Next time, it could just as easily be another part of the country that's in the line of fire of the next weather event. It's going to cost and it's going to cost billions.

We've already spent billions insulating the country against the effects of Covid, or more aptly, Covid lockdowns. Now we have a huge task ahead to try to help devastated communities recover from the effects of the numerous cyclones, but more specifically, Gabrielle and to future proof the rest of the country.

So how are we going to pay for it? There are two choices.

We either borrow, or we tax.

The Reserve Bank is trying to get inflation under control after the boom of the Covid recovery spending. Yesterday, it raised the OCR the wholesale rate at which banks can borrow money from 4.25 percent to 4.75 percent.

There were also predictions that, along with the rest of the world, inflation would begin to get under control by mid-2024 as unemployment rises.

However, if the Government opts to borrow to spend up big on the cyclone recovery, it will pump cash into the economy. And as we saw with the Covid spending that will make it harder to keep inflation under control.

Alternatively, if taxes were hiked up to pay for the recovery, that wouldn't be very popular. If the Government cuts back on its spending, that’s not particularly appealing to the Government. That's a reprioritisation of money and won't be inflationary.

Now, neither option really is appealing to any political party. Reserve Bank Governor Adrian Orr says it's not up to him to make a recommendation; it's purely a political decision. Like everyone else, he's waiting to see which way the Government jumps

So what is the more fiscally sensible thing to do? What option would you prefer?

I don't particularly want to see a hike in taxes, I'd much prefer to see the Government cut back on much of its spending A) because it's leading by example B) because I believe there's a lot of fat in the system.

We will all have to pay at some point. I'd really rather not borrow given the billions that were spent on Covid. I'd rather we find it within our own budget if we can, but it's going to be expensive and it is not just the areas that have been hard hit by successive Cyclones, culminating this time around in Gabriel.

We are going to have to make all of New Zealand more resistant to weather events in the years ahead. All of us, and we're all going to have to pay for that. How do we do it?

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