Peter Meecham / Stuff
The Treasury has attempted to account for some of the costs of climate change in its long-term fiscal position report.
More severe droughts and storms due to climate change could cause New Zealand’s net public debt to be about 4 percentage points higher than otherwise, over the next 40 years, according to the Treasury.
The estimate contained in the report on the long-term fiscal position of the Treasury, Il Tirohanga Mokopuna 2021, seems moderate compared to broader concerns about climate change, such as the danger of further mass extinctions, sea level rise, resource conflicts and ocean acidification.
But Infometrics senior economist Brad Olsen said the report probably went as far as it could from a “political and economic point of view.”
The Treasury said its modeling suggested the economy and the government’s fiscal position were “relatively resilient to natural disasters.”
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But he noted that extreme weather events were only one of the ways that climate change would affect the economy, and the impact they would have on debt could be greater than his modeling suggested.
“Climate change has started to impact New Zealand today, but the long-term effect is very uncertain at this point,” he said.
His model assumed that the frequency of droughts would roughly triple over the 40-year period and that occasional flooding would become 10 times more destructive.
Climate change was also just one of the long-term challenges for the economy identified in his report.
Others include an aging population.
Threats and historical trends meant governments had “important choices to make” to ensure that debt remains prudent and supports a higher standard of living for future generations, Treasury Secretary Caralee McLiesh said.
But current debt levels have remained cautious, the ministry also said.
Olsen said it was time to stop giving a helping hand to future generations “on everything from health care and social support, to climate change and economic resilience,” to avoid leaving future ones generations of New Zealanders with unbearable challenges.
Treasury analysis has shown that “the more we bury our heads in the sand, the more difficult the decisions we will eventually have to make,” he said.
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Finance Minister Grant Roberson told Parliament’s Special Committee on Finance and Expenditure on Wednesday that he continued to expect public debt to peak in 2023 as a proportion of GDP, but warned it would only decrease gradually thereafter.
The Treasury forecast that the 2023 peak would see net government debt rise to 48% of GDP.
He said that in his judgment there is currently no need to reduce debt levels because the government’s budgetary response to Covid was “largely temporary”.
“Current debt levels are also unlikely to limit our ability to borrow more if needed,” he also concluded.
This is the first time that the Treasury has attempted to incorporate any of the budgetary implications of climate change into its long-term budget report.
“Climate change will have significant impacts on all aspects of our well-being – economic, social and environmental,” McLiesh said.