Economic Reconstruction Plan

ROTORUA NEEDS AN ECONOMIC RECONSTRUCTION PLAN

An Opinion Piece, Reynold Macpherson, 14 April 2020

Executive Summary

Council’s Rotorua Economic Recovery Plan (RERP) was premature, underestimated the severity of the Covid-19 crisis and misunderstood the Government’s response strategy. It offered short-term and naïve hope in contrast with the more realistic timelines and increasingly measurable complexities being used to plan national and international responses.

The practical consequence is that RERP offers mechanisms to recover and restore Rotorua’s economy to achieve Vision 2030 rather than promote the economic reconstruction needed for long-term prosperity, especially by boosting innovation and productivity in all sectors.

Rotorua Lakes Council can choose between supporting economic recovery and promoting economic reconstruction.

I propose that elected representatives be invited to help revise the RERP to generate a long-term economic reconstruction strategy for Rotorua.

Introduction

On 3 April, elected representatives on Council were presented with a Rotorua Economic Recovery Plan (RERP)[1] at the Extraordinary Meeting on the eve of the lockdown. After a PowerPoint presentation by the Group Manager Policy, members of Council could ask questions, make a statement and then vote. There was no prior or written proposal. There was no debate. Most members approved the proposal.

I voted against the RERP for two primary and four secondary reasons.

First, there was no analysis of the impact of Covid-19 on Rotorua’s society and economy. This meant that the assumptions embedded in RERP about probable impacts were not clear and they should have been.

Second, there was no analysis of the Government’s relief packages to identify gaps in the provisions from a local perspective. Further, in the absence of income and employment data, Council lacked the evidence it needed to deliver the ‘rightful targeting’ proposed,[2] and in trying to do so could create unintended adverse effects, duplicate the Government’s packages and, potentially, enable cronyism.

RERP’s implied financial strategy ran counter to Parliament’s bipartisan Epidemic Response Committee’s view – that councils should freeze and cut rates to ease the burden on ratepayers.[3] Council’s subsequent discussion of rating was held with the public excluded, which denied public access to the information that would affect them and prevented public accountability. Referring to the Covid-induced economic crisis, Shamubeel Eaqub has since opined that “rates increases would be madness in this environment.” [4]

In my view, the Council’s largely uncritical endorsement of RERP was ineffective decision making on an extremely serious policy matter with long-term consequences for our community. Hence, since the 3 April meeting, I have researched more widely to evaluate the RERP. The evidence below indicates that RERP was premature, underestimated the severity of the crisis and misunderstood the Government’s response strategy.

Planning

Council’s endorsement of the RERP was premature because it predated the availability of trustworthy economic indicators.

It was not until 14 April that Treasury[5] reported that the rate of infection curve in New Zealand is flattening due to lockdown and closed borders, increasing the prospects of eliminating the virus and keeping unemployment under 10 percent and returning to 5 percent in 2021 with the help of additional government support. Government support payments have surged. Businesses fear for the future, confidence has plummeted, and world commodity prices have slipped. New Zealand’s Reserve Bank has added $3 billion of Local Government Funding Agency capacity to its Large-Scale Asset Purchase programme, taking the total capacity of the programme to $33 billion over 12 months. International markets have risen as growth in global infections slows, despite worsening longer-term economic indicators. Planning by Council needs to take account of these dynamics and unfolding data that were not available when RERP was presented for endorsement.

All of Treasury’s scenarios indicate that Rotorua faces a long-term recession (p.6):

What is clear is that whatever path the global and domestic economies follow, the effects of this recession will be severe and long lasting. Activity levels in some sectors, notably international tourism, may take many years to recover. Substantial amounts of income will be irretrievably lost for many businesses and households, and for the economy as a whole.[6]

It is also crucial that Council considers suggested corrections to its Covid response strategy before the end of June, when it will sign off its Annual Plan for 2020/2021, possibly without public consultations due to the virus. Council needs to retain public confidence. Without corrections, potential policy errors could also be embedded in the revised 10-year plan, the Long-Term Plan, to be signed off later this year, which legitimates long-term financial projections.

In sum, corrections to RERP are suggested to take account of the increasingly measurable impact of Covid-19, the likely timelines and the extent to which Rotorua’s economy will require reconstruction rather than recovery in a national and international context.

Post-Covid reconstruction would transition Rotorua from economic crisis to prosperity by rebuilding its economy, rather than aiming to recover or restore Rotorua’s pre-Covid economy. Suggested revisions to the RERP’S knowledge claims follow.

RERP’S Claims

The first claim is that RERP aligns with the Government’s Covid-19 economic recovery strategy. It is not possible to verify this claim because sources were not cited. The claim of close alignment, however, appears to be based on a naïve understanding that the Government’s approach comprises ‘fight the virus, cushion the impacts and position for recovery’. The Government’s response is far more complex than that, as the RERP’s own “key strategies” illustrate. On the other hand, the claim may be necessary for Rotorua’s people and businesses to get access to the Government’s relief packages.

The second claim is that RERP’s “key strategies” respond to the unique economic challenges presented by the virus when they are, in fact, derived initially from Vision 2030 – The Rotorua Way.[7] This is the ideological framework that established, in 2013-14,

a way forward for the Rotorua district and drives everything council does, working with the community to achieve a positive future.

The Rotorua Way focuses on what makes Rotorua special – the district’s active environment, the strong Te Arawa culture and manaakitanga, the fantastic lifestyle and the diverse economic opportunities that exist here. Together, these make Rotorua a unique place in which to live, work, invest and to visit.

What is significantly different in RERP to the social and cultural commitments heavily emphasized in Vision 2030 are five economic pledges:

Create a confident business environment that encourages investment and the emergence of new sectors
Work with business leaders to craft innovative strategies for impacted sectors
Position Rotorua as leading the resurgence of tourism and wood processing
Leverage Central and Local Government investment to drive employment in both the short and longer-term, and
Implement locality plans to connect our communities and transform our City.

While ‘locality plans’ are novel and undefined, the other four commitments are consistent with a post-Covid economic reconstruction agenda, far more so than with a recovery or restoration agenda intended to achieve Vision 2030. It could be argued that these five economically rational pledges indicate that Council’s Vision 2030 has been rendered obsolete by the virus.

The third claim in RERP is that it will lead the resurgence of tourism and wood processing but without referring to farming. This omission will tend to reinforce what many perceive to be a hostile attitude by Council towards that sector, despite farming being publicly acknowledged as an essential service[8] and matching tourism’s pre-Covid contribution to Rotorua’s economy.

Above all, RERP fails to appreciate the extent to which Government intends to reconstruct Rotorua’s three major industries: forestry and wood processing, tourism and agribusiness. It has already announced plans to reconstruct the industries that are the three leading contributors to Rotorua’s GDP.[9]

Tourism New Zealand has been tasked to ‘reboot’ the tourism industry to face the new challenges and opportunities, and most notably, to develop a different way of working.[10] This will presumably result in tourism operators developing new products and innovative business plans, rather than seeking Council subsidies. The forestry and wood processing sector has been strongly encouraged to boost wood processing capability,[11] compared to merely exporting logs, and to help retrain and redeploy its workers.[12] The Ministry of Primary Industry, the Ministry of Foreign Affairs and Trade and New Zealand Trade and Enterprise have ramped up their advice[13] on how the agribusiness sectorcan remain safe while responding strategically to the crisis.

The central theme of these Government initiatives is neither recovery nor restoration of the pre-Covid economy but post-Covid economic reconstruction by sector. RERP needs to adopt this strategy.

The fourth claim in RERP is that a combination of relatively short-term mechanisms will help ensure that Rotorua’s economy will rebound quite quickly. RERP proposed to defer rates for six or 12 months for the fourth quarter of 2019-20, consider rates relief for 2020-21, accelerate selected capital projects, partner with central government to identify economic investment options, assure rapid recommencement of existing projects, provide information and advice for business through Rotorua Economic Development (RED), have RED establish steering and sector groups (apparently without ratepayers), and revise the Council’s financial strategy post Covid-19 taking into account cost implications and 2020-21 funding requirements.

While there are many self-evident benefits to these proposed mechanisms, there are objections to the short-termism from local tactical viewpoints. The rates affordability crisis in Rotorua predated Covid-19 and remains unresolved. The massive increase in unemployment and business closures since suggests that Council consider freezing and cutting annual rates and living within much reduced revenues. It must also consider ‘right sizing’ the organisation to only deliver essential services. Capital projects, especially where Council has partnered with other parties in tourism, should be significantly downscaled to meet real domestic demand. The earthquake-proofed Museum and SHMPAC should both be quickly reopened for business. Urgent discussions should be held with Government on how we can best to redirect PGF funding already allocated to local ‘pet projects’ to assist with economic reconstruction, most especially into startups.

There are also objections to short-termism from a strategic viewpoint. In financial terms, RERP means that Vision 2030 projects might be rescheduled and refinanced using increased rates and debt as in the past. Another danger is featherbedding; where a council might ‘make work’ for its employees not involved in delivering essential services, principally by redeploying them to ‘facilitate’ the Government’s packages intended to support the people and businesses. A third danger is panicked decision making. For example, omitting the Housing Plan from RERP was probably an error made in haste. The Government’s confidential National Action Plan[14] confirmed that, without being specific, crisis measures “will have to be sustained over a protracted period before a transition to recovery can be considered.”

There are many objections to short-termism from an international perspective. The International Labour Organisation[15] has predicted that 195 million full-time workers could lose their jobs during the second quarter of 2020, suggesting that unemployment in Rotorua is yet to spike. The International Monetary Fund[16] has forecasted that most of its member states will experience negative income growth this year, a partial recovery in 2021, and experience disruption to their communities and economies on a scale not seen since the Great Depression (1929–39). The Organisation for Economic Co-operation and Development[17] has warned that business closures in the ‘median economy’ could result in output declining by 25%, with countries in which tourism is relatively important being more severely hit by shutdowns and limitations on travel. RERP does not seem to appreciate the probable depth and scale of the economic impact of Covid-19 on Rotorua.

Summary

RERP prematurely offered a short-term strategy at odds with the more realistic timelines and measurable impacts being used for planning responses to Covid-19 at national and international levels.

It also offered short-term mechanisms that may recover and restore services consistent with Vision 2030 rather than promote economic reconstruction taking Rotorua from crisis to prosperity, especially by boosting modernisation and greater efficiencies by sector.

Rotorua Lakes Council can choose between supporting an economic recovery strategy and an economic reconstruction strategy.

I propose that elected representatives be invited to help revise the RERP to generate a long-term economic reconstruction strategy for Rotorua.

Thank you.

[1] https://www.rotorualakescouncil.nz/our-council/agendas-and-minutes/livestream/Documents/2020/Council/Rotorua%20Economic%20Recovery%20Plan%20Build%20Back%20Better.pdf

[2] https://www.nzherald.co.nz/rotorua-daily-post/opinion/news/article.cfm?c_id=1503435&objectid=12320955

[3] https://us7.campaign-archive.com/?u=c86359d14575615d6ae8c2b60&id=a41f875bbe

[4] https://zoom.us/rec/play/upd5dOqvrW83HNyTsQSDAKJwW427e_6s0XAY8qBYy0m0AHEGYwXzMOZANLChXbBY_ToKFYWeewfMtRV8?continueMode=true&_x_zm_rtaid=NkeZ6dHiR6mIxT2R5Z8ljg.1586301680722.62f6383b15d7c949df7283fb1311016a&_x_zm_rhtaid=451

[5] https://treasury.govt.nz/sites/default/files/2020-04/weu-14apr20-v2.pdf

[6] https://treasury.govt.nz/sites/default/files/2020-04/c19-4265378-t2020-973-economic-scenarios-v3.pdf

[7] https://www.rotorualakescouncil.nz/Rotorua2030/vision2030/Pages/default.aspx

[8] https://www.nzherald.co.nz/rotorua-daily-post/news/article.cfm?c_id=1503438&objectid=12322579

[9] https://ecoprofile.infometrics.co.nz/rotorua%2BDistrict/QuarterlyEconomicMonitor/Gdp