As this is my first blog post since the quake, can I preface my comments by acknowledging the devastating loss suffered by too many Cantabrians and their families, of ther lives and homes shattered, and our shared determination to everything necessary to support their rebuilding and renewal.
In this immediate post-quake period we are all exercising restraint – both in the quantity and tone of poitical comment. But the debt question has in fact been brought into starker relief by the quake, so I am moved to observe the following.
Before the quake, National would have you believe that New Zealand had a huge international debt problem, and that the solution to that was for the Government to compress spending and services to pay down this debt.
It was always a half truth: 90% of that debt is private debt and only 10% of it is public (government) debt.
The second deception was that this high debt was “Labour’s fault”. The facts are that in 2008 net debt (including NZ Super Fund assets) were in surplus to the tune of 4.7% of GDP. Virtually no government in the western world saw the collapse coming in advance, but at the least the former Labour Government had the books in strong shape.
Post quake, we are all confronted by huge costs. Families have lost loved ones. Homes and businesses destroyed will take time to rebuild and renew. Infrastructure is hugely dislocated. Much of the CBD will have to come down. Hopefully there will be proper consultation and an eye to the heritage that makes Christchurch unique.
The financial costs are also huge – in Treasury’s February Indicators, around $12 billion (later estimates put it around $15 billion), of which some $5 will fall to the Crown because it is not covered by EQC, its reinsurers or private insurance. Around a further $5 billion in lost Crown revenue will occur due to the reduced tax take from decimated business activity and personal earnings in Christchurch. (I will blog further on the “growth gap” shortly).
So, to use the PM’s very round numbers – there is $10 billion for the public to find over the next four years or so.
Some of that can legitimately be redirected from other investments – for example the “holiday highway” north of Auckland – to help fund Canterbury roading costs.
Mssrs Key and English believe the rest can be borrowed – that is, placed on the international debt pile – and say that is now acceptable becasue it is a “one off”. They are so far dismissing suggestions of any additional support for Canterbury through the tax system. (Raising the EQC Levy only restores its capacity to deal with future disasters, rather than this one).
Why then was the international debt pile so huge that reducing it by slashing Government spending and prolonging the recession was necessary a month ago, but borrowing the lot is no problem now?
Forgive me, but could it be that the answer is not economic but political? Could it be that reducing government expenditure pre-quake was the price of Budget 2009 and 2010’s – largely upper income – tax cuts; and that even Canterbury’s needs have been trumped by the need to protect National’s traditional voter base from even a temporary reduction in these tax breaks?
I feel unclean even thinking that. But the question has to be asked: why not expect the whole community to share part of the cost through the revenue system? Even the NZ Herald agrees with that.