Mayoral poll provides litmus test of political handling of the quake

BY VERNON SMALL

OPINION: Emotions are too raw and events too fresh for politicians to express anything other than bi-partisan sympathy for the victims of Canterbury's 7.1 earthquake.

Hence the cancellation of the normal gladiatorial question time. Hence the shoulder-to-shoulder appearances of Prime Minister John Key and Labour leader Phil Goff at welfare centres on Tuesday.

There have been things to criticise: the flow of information in the first few days – presuming it existed – lacked the detail many residents and the media were urgently seeking.

Labour could have made hay over Mr Key's hesitation before he canned his trip to London to see the Queen – and the British and French leaders. High tea at Balmoral castle while the people of Christchurch were boiling their drinking water would have defined "bad look". But Labour bit its tongue.

Residents of some eastern suburbs of Christchurch in particular felt abandoned in the early days as the focus stayed on the damaged CBD and the impact on businesses there.

Labour Christchurch East MP Lianne Dalziel fired a few warning words yesterday at Civil Defence; about how in some areas where there were pockets of major damage people did not know what was going on, and the lack of direct access for MPs "to someone who can find answers to our constituents' questions". But by and large, Labour and National have kept their swords sheathed through the initial trauma of the quake and the cruel torture of the aftershocks ... though it has been apparent to everyone that Mr Key, his ministers and Christchurch Mayor Bob Parker have not been above expressing mutual admiration for their handling of the disaster.

The mayoral election on October 9 will be the first litmus test of whether Mr Parker (and by marginal analogy National) is rewarded for a job well done, or whether the mood for a change in the city to Jim Anderton has survived – or even been intensified by – the quake. As residents' grief moves into the anger phase, central and local government could suffer a nasty backlash.

Longer term, though, there are big economic and fiscal hurdles ahead that will be present a greater test of the Government's management.

So far the only hard numbers to emerge are short-term and low-cost Government initiatives, such as the $15 million for income support and the peppercorn contribution to the mayoral fund, as well as the release of an existing contingency fund for road building.

The Earthquake Commission has assessed its liability at about $2 billion – though it is only up for the first $1.5b before reinsurance cuts in. At an average of $20,000 per household for the 100,000 expected to make claims, that looks on the light side.

The Government has acknowledged it will have to pick up maybe 85 to 90 per cent of the cost of repairing infrastructure, based on experience with natural disasters such as Cyclone Bola.

The rating agencies have been sanguine about the overall impact on Government debt – even taking into account the financial shock of South Canterbury Finance's failure.

Even the Treasury's new estimate of the cost of the quake, $4b, could yet prove very light.

All quakes are different, but the impact of two similar-sized quakes – in Kobe, Japan, in 1995 and California in 1994 – give a hint of the sort of numbers and level of uncertainty the country could be dealing with.

The Kobe quake measured 6.8 and killed more than 5000 people – illustrating again how blessedly free of injuries Christchurch was. But its cost has been estimated at anything between US$30b and US$140b. The Christchurch cost amounts to US$2.9b.

The California quake – spookily at 4.31am on January 17, 1994 – measured 6.7 and resulted in 72 deaths. It caused an estimated US$20b in damage with total economic losses under one estimate of US$49.3b.

But whatever the nationwide economic impact, the damage at household level will be severe. Anecdotally, real estate activity has all but dried up and – despite a pending shortage of houses – it is hard to see how Christchurch property prices will not suffer badly, at least in the short term. Many businesses, especially in the service and retail sector, will suffer mortally from the drop-off in activity. Figures just issued by eftpos company Paymark show that, since the quake, businesses in the Canterbury region are trading almost one-third less than at the same time last year.

The overall impact on the economy could easily be in the 0.5 per cent to 1.5 per cent before the reconstruction phase. (One of those frustrating things about our measure of GDP is how a disaster, or the cleanup of an environmental mess, shows up as a positive for the economy.) If there was ever a compelling reason for the Reserve Bank to still its hand on interest rate cuts, the outlook in the aftermath of the quake must surely be it.

It will be small comfort to Canterbury residents, surveying their wrecked houses and damaged sections, but the quake may have reversed Alan Bollard's thinking on future interest rate rises.

A cut next week, Dr Bollard?

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