Analysing government expenditure related to natural hazards
Part 1: Introduction
Purpose of our work
1
New Zealand faces a range of risks from natural disasters and other hazards. Although many of the risks can be easily identified, it is difficult to assess the likelihood associated with these risks. The threats posed by terrorism, climate change, and, recently, the Covid-19 pandemic highlight the need for public assurance about how well risks are managed.
2
Resilience has been defined as “the ability to anticipate and resist disruptive events, minimise adverse impacts, respond effectively, maintain or recover functionality, and adapt in a way that allows for learning and thriving”.1 It is about remaining effective across a range of future conditions. One of the focus areas for our Office’s 2020/21 work programme is resilience.
3
The purpose of this document is to improve our understanding of government expenditure administered through appropriations2 related to preparing for, or responding to, risks associated with natural hazards. Specifically, we want to know:
- How much government expenditure can we identify as related to natural hazards each year?
- What types of natural hazards does the expenditure relate to?
- What is the nature of the expenditure? How much is related to responding to hazard events compared with risk reduction?
- What votes incur the greatest expenditure?
- What trends can we observe in expenditure from the past 10 years?
4
This document describes our approach to answering these questions and the key findings from our analysis (including a discussion of the limitations). This work is intended to develop our understanding of government expenditure related to natural hazards as we consider further work on risk and resilience. It is not intended to be, and should not be used as, an estimate of total government expenditure related to natural hazards. Rather, it provides information that could assist in understanding how much government expenditure can be identified in publicly available appropriation data. We welcome feedback on this work.
5
Work that others have done indicates that government expenditure related to natural hazards is much higher than our numbers in this document. For example, government expenditure related to the 2010/11 Canterbury earthquakes alone has been estimated to be about $15 billion in analysis carried out by the Treasury.3 Our analysis highlights the limits of appropriation data to provide a clear picture of total government expenditure related to natural hazards.
6
We wonder whether there are similar limitations in relation to other aspects of expenditure of public interest. If so, this has important implications for the Government in terms of its own ability to analyse expenditure and assist with long-term fiscal strategy and planning, as well as the degree to which it can be held accountable for the expenditure.
Scope
7
For the purposes of this analysis, we looked at only natural hazards that can be broadly categorised as geophysical. This includes geological, meteorological, and climate hazards.
8
We have not included biological natural hazards, and so have not looked at diseases, outbreaks, epidemics, pandemics, or other biosecurity hazards.
Limitations
9
Our analysis focused on government expenditure authorised through appropriations. We know that there are significant levels of expenditure in other parts of the public sector that are outside of the scope of this work. Our analysis does not include expenditure by local government and some Crown entities on insurance, risk financing, climate change adaptation, post-disaster recovery, or any other expenditure not provided through appropriations (such as Earthquake Commission spending that is funded by levies).
10
Our analysis provides information only about expenditure that can be identified in publicly available appropriation data. Relevant expenditure by government departments, for example on climate change mitigation, might not be separately identifiable in the appropriation data we used for this analysis. A full description of the limitations of our analysis is provided in paragraphs 38-40.
11
We identified some government expenditure related to most major natural geophysical hazards. We did not find explicit reference to droughts or drought-related natural hazards, which have been topical hazards in recent years. This is likely to be included in appropriations related to other areas of government expenditure (for example, adverse events or income equalisation)4 that we have included in the analysis, but we cannot be confident of this. There is a need to look at a wider range of data sources to develop a more complete understanding of government expenditure related to natural hazards.
12
We have limited our analysis to two main categories of expenditure, “response and recovery” and “risk reduction”. These categories draw on the concepts of the 4Rs (reduction, readiness, response, and recovery)5 framework. However, because of the limitations of our analysis, we have combined readiness and reduction results under the “risk reduction” category and response and recovery results under the “response and recovery” category to minimise the risk of misrepresenting the focus of expenditure.
13
Our methodology does not attempt to align completely with the 4Rs, the risk management cycle set out in ISO 31000, or other risk management frameworks such as ACTA (avoid, control, transfer, and accept). Our analysis is intended to help us understand where the expenditure that we have been able to identify in the appropriation data is targeted.
14
Our analysis should not be used as an estimate of total government expenditure on civil-defence-related activities. It can only be considered as a contribution toward, or input into, any estimate. The limitations we set out in this document should be referenced if our analysis is going to be used in this way.
1: Ministry of Civil Defence and Emergency Management (2019), National Disaster Resilience Strategy, page 7 at www.civildefence.govt.nz.
2: Both departmental and non-departmental expenditure (including capital expenditure).
3: This estimate is taken from the Financial Statements of the Government of New Zealand for the Year Ended 30 June 2017 at www.treasury.govt.nz. The last time estimates of Canterbury earthquake expenditure were included in the Government's financial statements was in 2017. However, it is worth noting that the Government's financial statements in 2018 and 2019 included a note that indicated total expenditure might actually have been less than previous estimates.
4: Inland Revenue, Income equalisation schemes at www.ird.govt.nz.
5: Civil Defence National Emergency Management Agency. The 4Rs: Reduction, Readiness, Response, and Recovery at www.civildefence.govt.nz.
Photo acknowledgement: Ginny Dunn