A leading economist warns the Prime Minister is in an "awkward position" and is going to have to throw more money into education despite building costs skyrocketing due to "ruthless inflation".
Prime Minister Christopher Luxon and Education Minister Erica Stanford said on Monday the Government had inherited a school property system "bordering on crisis".
News broke last week several schools were still waiting for construction to begin on newly promised classrooms - only to find out they were paused without their knowledge.
The Government has since announced an investigation to get to the bottom of how and why there are currently so many projects on hold.
It comes as costs have skyrocketed, with Independent economist Cameron Bagrie telling AM on Tuesday morning in the last three years $4.3 billion worth of building consents have been issued for the sector.
"Now that includes tertiary education, but a fair chunk of that will also be primary and secondary. So it's a big sum of money that's been allocated to throw at the education sector," Bagrie told AM co-host Melissa Chan-Green.
On top of this, construction costs for a non-residential building are up 25 percent in the past three years.
"Most of those projects you can pretty well guarantee that's been consented, whether it's underway or not yet underway, is facing a very big, strong cost blow-out and we've seen the same thing with roading. We're going to see exactly the same thing within healthcare," he said.
"Inflation is absolutely ruthless and the finger can be pointed at management of these projects and whether you're getting a little bit fancy in regard to what you're providing, and there will be elements to that I suspect, but the bottom line here is... inflation undermines project viability and there's not enough money to go around."
Inflation peaked at 7.3 percent in July 2022 and is currently down at 4.7 percent, still well above the Reserve Bank's (RBNZ) target of between 1 and 3 percent.
But despite the Government believing they've inherited a "crisis", Bagrie believes the only option they have is to throw more money at education.
"The Government's in a very awkward position here at the moment in regard to they're going to need to throw more money at this thing because the Prime Minister and the Minister of Education have talked an incredibly big game about the importance of education, and it's going to require more money," he told AM.
"The only issue is, when are they prepared to pony up?"
This all comes as Kiwis with mortgages are just one more sleep away from finding out whether the RBNZ will raise interest rates.
The Official Cash Rate (OCR) remains high at 5.5 percent but the RBNZ has left it unchanged for its past five meetings after tightening it 12 consecutive times before that.
The RBNZ will reveal its decision on Wednesday and Bagrie's opinion is the central bank will hold interest rates, but he couldn't rule out a hike.
"I don't think it's quite there to hike rates, but I think we're going to see what's called a pretty stern or hawkish hold," he said.
"Economic developments pretty clearly say the economy's on the right track in regard to getting the inflation genie back in the bottle. The problem is that that path, that trajectory to getting inflation lower has proven to be hellishly slow and the Reserve Bank's patience is going to be running out."
Watch the full interview above.
