I want to start with you on the big challenge of the year, and that's
cyclone relief. You've got to rebuild parts of the North
Island that were just shattered by the cyclone in February.
You've set us to be a multi-billion dollar price tag.
As you get ready for big budget released in May.
Do you have a more precise figure? We're getting more information every
single day. I mean, this is the biggest natural
disaster in New Zealand this century. The costs are sitting somewhere just
under where we are. The Canterbury earthquakes were which
were a very big impact for us.
But, you know, it will be multi-billion dollars, but it's a long term program.
We're talking here about costs, about rebuilding road and rail networks, our
electricity networks. So they're not costs that will all fall
in one year. They will actually spread themselves
over a number of years. But we're we're certainly talking a
multi-billion dollar bill. When you say multi, though, multi could
be three billion. It could be 20 billion.
I mean, seriously, do you have any sense of where in that range you are?
The latest information we've had is somewhere in around the 9 to 10 billion
area, but it's still coming together. But a large part of that is
infrastructure rebuild, which we can spread the cost of over a number of
years. So
how are you going to cover the cost? Yeah.
And look, you know, that will be announced when we do do the budget in
May. But New Zealand's balance sheet is
pretty robust. I mean, our net debt currently sits
under 20 per cent of GDP. So we certainly have the room on the
balance sheet to be able to manage the costs in front of us.
So when you look at the bill and you say it
looks gonna need some more figuring, maybe you just increase your borrowing
for a while. Well, as I say, with net debt down under
20 percent, we've certainly got that headroom on the balance sheet.
But we're also looking very closely at how we re prioritize and save money
within our current budget, making sure that we do have the sources of revenue
we need. And we'll put all that together when we
bring our budget out on the 18th of May. But you're not ruling out an increase
in. No, I'm Sydney not.
And as I say, with the balance sheet that we've got and the kind of bill
we're looking at, I think this is a manageable situation for New Zealand.
OK. Now, the RBA has said the Reserve Bank
of New Zealand has weighed in and they say if you rebuild with borrowing,
that's going to be potentially inflationary.
That could ultimately lead to more pressure for more interest rate
increases. How do you handle that?
Yeah, I think that's where it's important to recognize the kind of
rebuild that we're talking about here. So this is long term.
You know, we're not actually physically going to be able to fix all of the roads
or all of the rail network that's been affected within, say, when one year.
So when you actually spread that cost over one to three years, I think that,
a, the inflationary impact is significantly less than people might be
fearing. So we understand the point that the
Reserve Bank is making them. We obviously don't want to unnecessarily
increase our borrowing, but we think that this is manageable.
It could be useful then potentially, as you think of all your options, to maybe
do something like a tax, a temporary levy or something along those lines to
spread it over a bit. I think the issue there is obviously, as
you're saying, we have to look at all of the options that are in front of us.
The issue there is in the middle of what is for many New Zealanders, a cost of
living crisis, significant pressures. Do we want to put onto New Zealanders at
this time an additional impost in the form of a levy?
So we have to work our way through there to see whether that's the right thing to
do. But given, you know, the room we have in
our balance sheet, the ability we have to make savings to re prioritize.
We have to work through all of those options before we would consider
actually leaving. New Zealand doesn't.
I'm curious, I think you just alluded to as he started talking about this
redirecting spending from other projects.
When you look at it, that's I mean, can imagine might have a different approach
is maybe a little tax, maybe a little borrowing, maybe some redirecting.
What kind of spending? Are there anything right at the top of
your head that. Yeah, we could easily do that.
Well, there's certainly we've we've found a number of savings already in our
budget. The incoming prime minister, when he
came in in January, asked all ministers to look at their budgets and say, what
can we take out of here? So there's been some programs that we've
stopped our social insurance program that we've stopped our work on now.
And there are other projects that we have done that.
We've got money that we allocated during the Covid emergency that maybe isn't
needed as much now as it was then. So we've been bringing all of those
savings together and we think certainly there are ways that we can meet some of
the costs that we're now facing from those savings.
Your economy contracted a bit in the fourth quarter, about point six percent.
How does it look to you when you were are you watching many parts of the
economy all the time as the minister of finance?
Of course. Could it have cracked a contracted
again? Could you possibly be at least
technically in some kind of recession already?
And look, that has been the forecast of a number of economists.
Clearly, not only does the cyclone have an inflationary impact for us, but it
also does in the immediate term slowdown some economic activity and that will be
dealt with in the March quarter. The numbers of which we will see
shortly. So look at its.
But I still believe in the resilience of the New Zealand economy.
We continue to make goods that the rest of the world wants to buy.
We are investing heavily in our skills. Our free trade agreements are starting
to take hold in a number of places. And so while I think we're in for a
difficult period, if if it is if we go into a shallow recession, I think
Zealand will come out of it relatively quickly because of that resilience in
our economy. The RBA said never reluctant to surprise
people get a bigger than expected rate hike in early April, 50 basis points
instead of 25. As you see, the economy may be already
in some kind of mild recession. You've got resilience nevertheless.
Could more rate hikes be something that could tilt toward a deeper recession?
Yeah, I make it my practice. Not to comment too much on the decisions
of the Reserve Bank is that it can have unfortunate consequences.
What I what I did read, though, through the Reserve Bank statement when they
made that decision was what they were interested in doing was maintaining
current interest rates. You know, they.
Their concern wasn't really sincerely that they wanted to see rates go up per
say. And I think, you know, they've got a job
to do, and that's to bring inflation back down to between 1 and 3 per cent
over the medium term. I also have a job to do, which is to get
fiscal consolidation, but also support people through a difficult period of
time. There is a balance within that that we
can strike together. But the Reserve Bank have their job to
do and the official cash rate is the tool that they used to do it.
But I take heart in the fact that they spoke about maintaining current rates.
They weren't looking to see much in the way of increases there.
And I will note for the record that, yes, I seem to be you have been
supportive of of the moves as much as you say, as all finance ministers or
treasury secretaries do, that you don't want to say too much.
But could there be a point where you think you're doing a bit too much to
stop inflation versus keeping the economy on some kind of track?
Yeah. I mean, these are the decisions they
have to make and we all have to make tradeoffs and we all have to juggle
competing priorities. I think, you know, one of the things I
have heard from Reserve Bank in the past is there is a time lag with the impact
of what they do. And I'm sure they'll be thinking about
that when they're making their policy. Is the full impact of an interest rate
increase may not be felt for some time. So they'll be looking at that.
They'll be looking at the state of the New Zealand economy and the resilience
and trying to make a balanced decision from there.
But in the end, I have enough to worry about on fiscal policy, to be frank, and
putting our budget together. So I'll stick to that for the most part.
Housing market, just about every country actions that so
many countries around the world. Last year or so, a housing market has
been a very difficult, contentious issue.
And we know in New Zealand we're starting to see more signs of stress
emerging, more people falling behind on their mortgage payments.
So are you, number one, concerned about that on the economy and then the impact
of these further rate increases on a market that's already showing signs of
some stress? Yeah.
And look, you know, obviously, we saw a massive increase in house prices and our
market where we are now. I think we've nearly got a drop off of
around 20 per cent from its peak. That doesn't even take us back to where
we were before Covid. So while for individual households,
there is definitely stress. If we look at the market overall, we're
actually just getting ourselves back to where we were maybe 2020 rather than,
you know, anything before that. So I think the we've had extraordinary
amount of house building in New Zealand, record number of building consents.
So we're starting to see supply and demand come back to a form of
equilibrium, particularly in our largest cities.
So I'm confident the market will survive.
But at an individual household level, there is stress.
And obviously for those families, they have to look at how they manage their
outgoings, what they can do to, you know, within their own households
retrench a little bit in their spending. That's a real challenge for them.
Our focus is on supporting low and middle income households to make sure
they can get through this difficult period.
But I think the housing market in terms of supply and demand is starting to come
to some kind of balance. A couple of quick questions, do you
think? One last question on the RBA said, I
promise. How do you think they're near the end of
their tightening cycle and if maybe they should be by now?
Oh, look, I think if you look at their own comments, they would they would
argue that they are near the end of their tightening cycle.
They've actually made that comment. They do have that job to do of getting
inflation to between 1 and 3 per cent. And so they'll make their judgments on
that. But their own commentary would tell you
that. Okay.
Finally, I promise you, the biggest risk for for the New Zealand economy and how
it underpins all the plans you have this year, including those those costs of
starting to rebuild after the cyclone when it came to a place like Will Bank
and IMF meetings. It's always the international
environment. New Zealand is a small, open trading
economy. We rely on stability within the global
markets. And clearly there's a lot of different
conversations going around here, both about big picture issues like.
Climate change, but also geo political issues, and so for me, there always
remains the biggest risk to New Zealand. It's important for me that we diversify
our economy, that we make sure we're selling more goods to different places,
that we develop our services sector. We do all of those things.
But ultimately, this international environment will dictate a lot about
what happens when New Zealand. So that's that's my number one risk.