Last week we reported here on the Government’s lackluster 4-page National Adaptation Framework.

As we reported, the Framework basically said: 1) we’re going to prepare a national flood map; and 2) we’re going to lean on local government to do more/better adaptation planning (which is already well underway in our region).

But the big news — who pays? — was not in the meagre Framework handout or Climate Minister Watts’ announcement … it was in the supporting Cabinet paper.

And there, the big news, officially revealed: the Government can no longer afford significant (possibly any) bailouts for future victims of natural disaster … in particular it cannot be expected to pay for buyouts to residential property owners.

Post-Gabrielle, the Hastings District Council paid out $80.4 million for Category 3 buyouts, of which the Crown contributed an ad hoc negotiated $37.6 million. The Government isn’t keen to see this kind of future exposure to its balance sheet and so is planning its guardrails.

The paper notes that Cyclone Gabrielle and the 2023 North Island severe weather events caused an estimated $9-$14.5 billion in damage across households, businesses, and infrastructure. These events had a significant fiscal impact, costing the Crown more than $1.7 billion. Crown liabilities for natural hazards are estimated to grow by nearly 6% annually up to 2050. 

And meantime, uncertainty about New Zealand’s exposure to risk is a contributing factor to global reinsurers raising premiums and the rising cost of insurance. In the last 5 years, dwelling insurance has increased 61.6% – a key driver of cost of living. 

Consequently, as the paper notes: “Resetting expectations about support for property owners ahead of the next event is important to realign incentives for risk management.” 

Where central government is considering requests for assistance, the principles to apply:

• “Central government’s support for local government recovery planning primarily covers infrastructure rebuilding and resilience. In some instances, property level resilience measures (including buyouts) may be part of area wide resilience measures, where that is the most cost-effective option.

• Central government’s objective is not to fully cover losses suffered, but to mitigate genuine hardship. Homeowners should not expect to receive financial assistance for property-level resilience measures based on a full pre-event property evaluation.”

The paper says: “It is crucial we move towards a state where the Crown no longer distorts risk signals and blunts incentives to manage risk by providing significant financial assistance (especially in the form of residential property buyouts) after major events. A transition to this state is likely to be necessary to support a politically durable approach.”

Of course the pressure for such assistance is felt most acutely by our local councils – the closest and natural port of call for disaster victims. So it is one thing for Wellington to say, ‘Don’t expect us to pay’; it’s another for local mayors and councillors to face down the folks they often know personally. Hence HDC’s expenditure of $42.8 million of its own funds for Category 3 buyouts … with a far bigger impact on its balance sheet than the Government absorbed for its contribution.

The Government is addressing a glum future fiscal reality, as it needs to; but it’s the locals who will face the victims when the disaster occurs. 

Nor can the Government hide behind, ‘We told them to better plan and implement adaptation’. Councils are well into that planning in HB, but they’ll have trouble paying for it when the Government (or whacky councillors) impose rates caps!

The paper adds the admonition: “The strongest signal we will send is any decisions relating to financial assistance if the next major event occurs before formal policy is in place.”

Less artfully put: ‘We need to get out s**t together on this, pronto!’

Stay tuned! It will take some doing to get Crown and councils on the same page on this, but in the end the government holds the upper hand.