Before the shocking Christchurch Earthquake, the National Government said New Zealand had a huge international debt problem. They said the solution was for the Government to cut spending and services to pay off this debt.
That was only half-truth: 90% of that debt is private debt and only 10% is public (Government) debt.
They said this high debt was “Labour’s fault.” The fact is that in 2008, net debt (including New Zealand Super Fund assets) was in surplus by 4.7% of GDP. Labour left the books in strong shape so that we could stand the ‘rainy day’ of the global financial crisis.
Post-quake, we are all confronted by huge extra costs. Families have lost loved ones. Homes and businesses have been destroyed. Infrastructure is hugely dislocated. Much of the CBD will have to come down.
The financial costs are also huge. In Treasury’s February Indicators, around $12 billion, (later estimates put it around $15 billion), of which some $3 to $5 billion will fall to the Crown because it is not covered by Earthquake Commission, its reinsurers or private insurance.
An additional amount of $4 to $5 billion in revenue will be lost due to decimated business activity and personal earnings.
Some of that can legitimately be redirected from other investments; for example, the ‘Holiday Highway,’ north of Auckland, to help fund Canterbury roading costs.
Prime Minister John Key and Finance Minister Bill English believe that the rest can be borrowed; that is, placed on the international debt pile.
They are 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 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?
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 2010s – 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?
The question has to be asked: why not expect the whole community to share part of the cost through the revenue system? Kiwis are generous and want to help.
David Cunliffe is an elected Member of Parliament from New Lynn and Labour Party’s Finance Spokesman. Guest Editorials do not necessarily reflect the views of Indian Newslink.