Low borrowing costs assumed

A low interest rate on borrowing has been assumed by the Dunedin City Council in preparing draft budgets for the 10-year plan.

Interest on existing and new debt has been calculated at 2.85% per annum for floating debt and council staff expect interest rates to stay low for a considerable period.

Cr Lee Vandervis said assuming a low interest rate, as well as seeming to rely on low fuel prices and likely underestimating power prices, suggested council staff had been optimistic.

There was not much room for interest rates to go lower, but there was a lot of room for them to climb in the next 10 years, he said.

Acting chief financial officer Gavin Logie said there were no indications the council should expect higher interest rates, but it maintained an ability to respond to changing circumstances.

Cr Vandervis asked if the council took into account much higher electricity prices that Aurora Energy wanted to bring in, or the possibility of slightly less steep power price rises if the Commerce Commission stuck to its draft decision about pricing.

The council received power at wholesale rates and had made adjustments for inflation, Mr Logie said.

It was not clear at yesterday’s meeting what assumptions the council had made about fuel prices, which was another area where Cr Vandervis suggested the council had been optimistic.

Mayor Aaron Hawkins wondered what would be gained from overly pessimistic assumptions.

He theorised they could be helpful for someone wanting to make an ideological push to slash council spending or cause panic.

Cr Jim O’Malley said economists had tended to be too negative about the impact of Covid-19 in New Zealand.

He had some doubts about projected population growth in Dunedin flattening off from 2038.

He suspected assumptions about growth could be on the low side.

The possible effects from Covid-19 was the biggest area of uncertainty for council staff in preparing budgets.

Among the assumptions was that international visitor numbers are not expected to return to pre-Covid levels until 2031.

grant.miller@odt.co.nz

 

Comments

Assuming low interest rates will continue in the long term is about as daft and incompetent as it gets. Do these people know nothing?

There's a famous NZ politician, who'd also deplored "overly pessimistic assumptions". His name was Robert David Muldoon. Perhaps some local-body politicians may not, due to their youthful exuberance, be aware of his Think Big projects and their economic consequences?

 

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