Govt likely to increase borrowing after quake, but still targeting surplus; third quake would be a struggle, English says. Should NZ borrow more?
By Alex Tarrant
The cost of Tuesday's deadly earthquake in Christchurch means government would have to increase its borrowing program, Finance Minister Bill English says.
Early estimates put the overall cost of Tuesday's quake anywhere between NZ$10 billion and NZ$20 billion. The Earthquake Commission (EQC) will initially pay out NZ$1.5 billion in cover to home owners, and has reinsurance in place for another NZ$2.5 billion after that. It would also be able to contribute further if needed.
However, EQC payments will not cover businesses in the city's CBD, which will have to be covered by private insurance. Insurance also does not cover public infrastructure such as roads or sewerage or water.
Eighty to ninety per cent of the costs in the CBD "you see on the TV" should be covered by reinsurance from private reinsurers, English said on Andrew Patterson's Radio Live Sunday Business Show. Private insurers had told the government they had sufficient reinsurance offshore to cover their costs, English said.
However, the extent of the damage, which includes damage to public infrastructure such as roads and sewerage systems, was "likely to mean some sort of increase" in government borrowing, English said.
The government is currently borrowing on average NZ$300 million a week to cover its budget spending. Strong demand for New Zealand government debt at low interest rates had allowed Treasury's Debt Management Office (NZDMO) to accellerate its borrowing program over recent months. Treasurer Philip Combes told interest.co.nz two weeks ago the NZDMO was looking to progressively ease the program down as the government sought to return its books to surplus over the next three years. The NZDMO is currently planning to borrow NZ$13.5 billion in the 2010/11 year. See more here at NZDMO.
Surplus track still in the picture
English said the government would see whether it could still return to surplus in 2014/15 as planned, and would take another look at its upcoming May budget due to the quake.
Government had already been planning to tighten its spending by cutting back office costs in the public sector, English said, although would still maintain peoples' income support and frontline public services.
"If we had a third earthquake we'd find that a bit of a struggle," English said, adding the costs of Tuesday's quake "will take a bit of pain on the government's part".
Government would be setting out to maintain its current credit rating, English said. Credit rating agencies Standard & Poor's and Moody's have said the latest quake had no implications on New Zealand's sovereign rating as yet, although both would be watching any increases in government debt above previous projections, which had net government debt peaking at 28.5% of GDP in 2015. See Treasury's Crown net debt track in this article on its upside and downside scenarios for the New Zealand economy from its half year update in December.
Doubt on levy
Meanwhile, English said government would prefer not to introduce a levy on taxpayers in order to help pay for the quake costs. Home owners would already be paying higher private insurance and EQC premiums due to the quake, he said.
Green Party co-leader Russel Norman proposed the introduction of a small levy on higher-income earners as a way of helping pay for the quake costs. See more on his proposal here.
Asked whether government would do whatever it took, financially, to rebuild Christchurch, English said they would "take a balanced approach". Following Tuesday's quake, Prime Minister John Key promised Christchurch would be rebuilt.
"You don't write a blank cheque for anything these days," English said.
"Yes it can and yes it will [be rebuilt]," English told Patterson.
10 Comments
The challenge is enormous – after the earthquakes I’m not sure if we see the right results under the leadership of “Key -Brownlee Ltd.”
Too many things in New Zealand go wrong over too many years.
When does the public, the central and local government start budgeting, planning their finances ? When becomes saving money a more common issue then consumption? When do we start to live and spend within our means ? When do lobbing, greed and political parties games stop in the best interest of the wider population and our environment ? When do we start stopping of thinking the world is continuing the way she was and when do we think the world is changing fast ? When do we see a clear, planned ** and structured economy in this country ?
Of course in the path of the two major earthquakes, decision making isn’t easy, but let me say following.
The Christchurch CBD should never be built again. It is too costly, unsafe and takes too long, considering the clean up including demolishing unsafe buildings and restoring infrastructures. The CBD should develop into the biggest most wonderful recreational Garden City in the world. Rubble should be used to create features such as play- grounds, mini- golf, skate- parks, small shops/ cafes, water features, platform for performances, events, walk- and bicycle tracks etc. for places to remember, works of art in middle of trees and botanical gardens - with unbelievable results to revitalise Christchurch as a destination.
The costs are minimal in comparison to the official version of spending Billions - I’m sure.
Smaller, 1- 3 storey businesses complexes should be built urgently on safer ground and where people live on the outskirts of Christchurch. Businesses need to be operational and people have to go back to work as soon as possible.
** Please read and understand this in context to many of my other articles
And how are people supposed to get from one side of this suburbanist paradise to another? Drive their cars? I thought you were interested in energy efficiency, Kunst.
It's pretty simple really. Steel frame and reinforced concrete buildings held up very well in Christchurch. The inner city should be rebuilt to modern earthquake resistant standards using these methods. More details here http://architecture.org.nz/2011/02/26/resilience-earthquake-resistance/
Can we afford and (therefore) do we really need big City Centres ?
In today’s world New Zealand and other nations don’t need big city centres, but can afford “Work and Life Communities.” – downsizing, living within the means and preserving resources.
http://www.liveworknet.com/live-work-sec75-1.html
As I wrote many times before New Zealand could be the world leaders and model - introducing and branding a “100%NZpure Economy” with spectacular results on many fronts.
Our limits - one planet only.
There are still only a small number of people, who see the limits of what can be done, should be done and behave accordantly, try to live/ work in harmony with nature. The majority of people don’t or will not adapt, are ignorant to see these limits given by nature, despite nature telling us constantly. Unfortunately, without revolutionary events, we all have to take and live with the consequences.
Watch oil/ food price - eating up wages.
mark, totally agree...economic union is the way to go...an 'Anzac$' or 'Austral$'?
kunst, with respect, mini-golf and cycle tracks aint gonna cut it...this seems to me to typify green economic thought. trad green economics would have us slide further into the mire...and theres no greater chance of env degradation than if we're poor. look around the world, conservation is a luxury of the rich. i share ur goals, but not ur means!
There are no means accept the acceptance that our llifestyle of consumerism is dead and we have to start living very simply...otherwsie all we do is delay things a bit....and yes the global poor destroy faster, but because of their numbers...So population control because if we dont, Nature will.........and its way more messy. Of course the former wont happy so messy it is.
regards
mjt - you miss the point completely.
Try defining 'poor'.
Rich only comes on the back of environmental degradation - particularly depletion and pollution. All that rich - if in isolation - does, is transfer the cost to others - the poor. We can't raise them globally now - there's not enough 'stuff' left.
And while you're at defining 'poor' (Dunedin ratepayers come to mind - the DCC were told about Peak Oil and it's financial ramifications, the ODT coverage of that being contained between the following brackets () ) try defining 'economy'.
It's a man-made construct, entirely artificial, needs to grow exponentially, and needs to be underwritten by extraction of physical resources. From as finite planet. If you think the planet is 'too big' for that to be an issue, you don't understand exponential math.
Why do so many think 'the economy' is a god-like 'given'?
life-expectancy is probably the ultimate expression of wealth. defining development is multi-factorial and quite tricky but how long we live is objective. sustainability is a nice idea but its like communism, it can only work if its global. it cannot have a capitalist competitor. capitalism is unsustainable because it is a contest, but until it crashes through lack of resources we must position ourselves favourably. we must be good capitalists. greens will always get 7%...good, they're cute. but green discourse sits on a sub-structure of capitalism. race to the bottom? yep. dystopian? yep. real-politic? yep.
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