Prime Minister Chris Hipkins is no stranger to crisis. Photo / Dean Purcell
On Wednesday night, Chris Hipkins was at a charity dinner for the Wellington Homeless Women’s Trust when the earth began to move.
For a brief second, Hipkins, who has fronted more crisis briefings than some people have had hot dinners, might have thought himself stupendously unlucky, juggling not one but three crises: a cyclone, a still-raging pandemic, and the flattening of the capital.
Surely that would be enough to etch the lines of age in Hipkins’ Ganymedian face.
But Hipkins got lucky, relatively speaking, on Wednesday. A devastating quake was not to be, and Hipkins was free to focus his attention on the cyclone.
The moment is an illustration of what’s often called the “polycrisis” - a word popularised by the economic historian Adam Tooze which burnt through the extremely online left in 2022 and was dubbed “the word” of Davos 2023 by Time magazine.
The polycrisis is what it says on the tin: the sense that we live in an age of simultaneous crises, each one enough to absorb a Government’s bandwidth.
It describes a buffet of Sturm und Drang that’s loaded the plate of state in the last few years: a pandemic, an inflation shock, a war in Ukraine, an unstable great power rivalry, and of course climate change.
There’s an even better word than polycrisis to describe all these - Collins dictionary’s 2022 word of the year: permacrisis, the sense of living through an unfolding sequence of crises.
Finance Minister Grant Robertson gestured to the notion that crisis is the new normal in a speech to the Auckland Business Chamber on Friday.
“If you’d told me back at Christmas that I’d be giving this speech in the shadow of just the third declaration of national state of emergency in New Zealand’s history, to be honest I wouldn’t have batted an eyelid and said ‘that’s about right’,” he said.
“There is no point talking about 1-in-100 year events anymore. We will be dealing with them regularly,” he said.
He’s not wrong. In the next half-century, events like Cyclone Gabrielle will get both worse and more frequent. Governments will have to make the country both resilient to them, whilst also leaving enough headroom to afford cleaning up what resilience cannot save.
And given what we know about the country’s seismic problems, it actually isn’t inconceivable that a future government will have to deal with a cyclone and an earthquake at roughly the same time.
Pity poor Hipkins - just a fortnight ago he framed his premiership as one of a streamlined focus on the cost of living; now he’s talking about shifting billions of dollars on infrastructure and homes.
In the more immediate term, it will be worth watching how our political parties grapple with crisis resilience.
Most importantly, keep an eye on how parties grapple not just with the cost of this resilience, but who pays it.
Parties in Parliament are relatively aligned on matters of climate adaptation, meaning adding resilience to roads, power lines, water pipes and the like.
But there’s little indication yet of how the Government plans to pay for this eyewatering cost.
Households are currently facing the heaviest tax burden in a decade at a time when inflation is putting the squeeze on budgets for fuel and food.
An example of this is the flooded Redclyffe substation in the Hawke’s Bay, responsible for knocking out power to the region.
This had been singled out as part of a potential $100m programme of increasing resilience, but that comes at the cost of loading increased transmission costs on to households already struggling with power bills.
The story is the same at Waka Kotahi, facing a $1b clean-up for the Auckland floods alone. That money would ordinarily come from motorists’ fuel taxes - an item that is already putting so much pressure on household budgets that the Government dramatically cut them.
And the bills for those things will come as food prices skyrocket thanks to the cyclone taking out one of the country’s most productive regions.
Mervyn King, the former governor of the Bank of England, described the benign economic environment of the 1990s and 2000s as NICE - Non-Inflationary Continuous Expansion.
Globalisation, and economic reform kept prices and taxes low, whilst the economy grew making many wealthier.
We’re moving into something of the opposite. A period of stop-start expansion (this year we could have our second recession since 2020) that is highly inflationary.
The fuel and supply chain problems that are destroying the purchasing power of households may drag on as geopolitical tension unpicks supply chains that have kept costs low for decades (a paper from Treasury economists last year warned the Ukraine war could see an inflationary “decoupling”).
High inflation also means high interest rates, which chews through house prices.
Meanwhile, on the growth side of things, floods and droughts already cost the economy about $120m a decade in insurance losses and $720m in economic losses - costs which will “almost certainly” increase over time.
So the pressure on public finances is threefold: there’s the cost of building resilience, the cost of recovery once damage inevitably occurs, all while the economy’s capacity to generate the income to pay for those things is crushed under the merry-go-round of crisis and recovery .
Let’s look at those costs: there’s increased transmission fees for resilience and rebuild for power lines, increased fees for water services to add resilience,higher driving costs to pay for strengthening roads, higher rates as councils move to strengthen essential local infrastructure, higher insurance costs as insurers get jumpy about added flood risk - and then there’s the big one, some form of charge to pay for compensating homeowners for properties that can’t be saved.
With households already struggling under the highest inflation in 30 years, politicians will need to grapple with how these extra, frankly unavoidable, costs can be passed on without crippling households.
These will be inflationary, but the cost of doing nothing is more inflationary.
This will upend politics.
Already economists are talking about a steady, relatively secular increase in the size of the state, from an average of 30 per cent of GDP to something larger. Independent economist Cameron Bagrie, who energised crowds at National Party conferences in 2019 and 2021, is now warning now isn’t the time for tax cuts.
This movement wouldn’t be dramatic but slow, and require difficult decisions for left and right.
The left must grapple with the fact that ordinary income taxpayers, grappling with inflation, face the highest tax burden in a decade. Raiding them for extra cash is easy but unfair.
And the right must grapple with redistribution. As costs rise everywhere, reducing the income tax burden will be essential, but the scope to do this in a fiscally meaningful way will almost certainly require looking at.
This raises the even more difficult question of distribution. Do Governments load these costs on to the existing tax base, adding to its existing unfairness - or do they take a gamble by asking difficult questions about redistribution: taking more tax from the top to alleviate the tax burden on the bottom.
This will play out in our politics this year; decisions about the setting of the next three years of fuel tax in the transport GPS, decisions about Transpower’s investment programme and, most importantly, the design of a managed retreat system are all scheduled to be announced this year against the backdrop of a cost-of-living and tax election.
The finance minister and the prime minister have both this week warned we’re on the cusp of decades of “new normal”. That was the easy bit. The difficult bit, as Robertson alluded to on Friday, is the conversation about how to pay for it.
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