The Government will spend about $8.5 billion over the next few years to help the rebuilding of Christchurch, Finance Minister Bill English said today.
“The earthquakes do not fundamentally change our economic situation or the Government’s programme,” he said in a speech to the Wellington Employers’ Chamber of Commerce. “They simply make the task of returning to surplus a little more difficult.”
At this stage, the Treasury estimates the direct cost to the Government of the two earthquakes at about $5.5 billion, which will be fully provided for in the Budget on 19 May.
“About $3 billion of this relates to our share of local government infrastructure, roads, insurance excesses on schools and hospitals, temporary housing and land remediation agreed after the September quake, demolition costs in the CBD, ACC costs and the business support package.
“The remaining $2.5 billion will cover expected costs of decisions we have yet to make – the biggest cost is likely to be remediation of land damage from the February quake. The final cost of land remediation is yet to be determined.
“In addition, the direct cost to EQC of meeting residential property damage of the two quakes will be at least $3 billion, making a total direct cost to Government of around $8.5 billion.”
On the other side of the ledger, the Treasury had previously estimated that the Government’s loss of tax revenue as a result of the earthquakes and lower economic growth could be between $3 billion and $5 billion over the next five years.
“However, the good news is that on current forecasts this loss of tax revenue is likely to be a bit less than $3 billion, though we still await final Budget forecasts,” Mr English says.
He adds the cost of the Government’s share of rebuilding Christchurch needs to be put in context.
“It sounds a lot. But New Zealand’s annual GDP is around $200 billion a year; the Government spends around $70 billion a year; and it has assets of over $220 billion.
“Meeting the Government’s share of the immediate earthquake costs will require a quite substantial front loading of Crown debt in the next year or two. That’s because we need to get the rebuild underway quickly and therefore we need the money immediately.
“The Budget will clearly set out the Government’s plan to return to surplus, so we can start paying off this debt,” Mr English says.