The clean-up bill for Cyclone Gabrielle will be way in excess of the $14 million promised by our Prime Minister and much of the financial burden may well fall on hard pressed councils.  Councils are already struggling under the weight of the devastation caused by Cyclone Hale and other adverse weather events and it may be left to ratepayers or taxpayers to pay for the clean-up.

There is another option that does not entail an increase in rates, taxes or debt. Our Reserve Bank can create the money.  This money creation process is explained in the Reserve Bank Bulletin article released last month called Money Creation in New Zealand.  The Bulletin article explained, in part, how the Reserve Bank created money for the Large Scale Asset Purchase (LSAP) and Funding for Lending (FLP) programmes.

More than $55 billion dollars was created during 2021 and 2022, providing funding to financial institutions to assist with their liquidity and to lower interest rates.  This massive stimulus had the unfortunate consequence of pushing up the cost of housing and kept interest rates low for about six months before they took off.

We say that a better use of Reserve Bank money is to finance the building of public infrastructure — called “Direct Financing” — instead of supercharging speculation. 

It’s been done before, including to finance the building of thousands of state houses following the Great Depression.

Zero-interest Reserve Bank credit, rather than interest-laden debt, should be used for targeted infrastructure projects as part of the Cyclone Gabrielle clean-up. The projects will not be inflationary, so long as there is capacity to take on the extra work and it will provide a boost to the local economies.

Direct Financing can also be used to top up the EQC funds that have been depleted due to the numerous adverse weather event in the last year or two.  There is no need to shift the burden on to the taxpayer or to hike the levies. 

This Government has said its priorities are addressing the cost of living crisis, mitigating the causes of climate change (as opposed to cleaning up the mess caused by climate change), education, health and housing.  It will not be able to achieve them without adding a significant burden to the taxpayer, or cutting back on existing services.

We propose the Government adopt Direct Financing to fund the Cyclone Gabrielle clean-up and a topping up of the EQC Funds.  The thinking that got us into this hole is not the thinking that will get us out.


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