By Alex Tarrant
Prime Minister John Key has signalled the Government may look at cuts to the Working for Families scheme for participating families on the higher income levels that qualify for the scheme.
Government is in the process of reviewing all its spending in the wake of last week's Christchurch earthquake.
“There may be the opportunity to make alterations to the generosity of those schemes, particularly Working for Families where it reaches into very high income levels, and where those people have enjoyed reasonably good tax cuts because we’ve lowered the top personal rates," Key said.
"We are looking at those sort of areas. In terms of interest on student loans, it’s not my expectation that we would put interest back on student loans," he said.
People don't understand the economics
Meanwhile, in his interview on Newstalk ZB this morning, Key said he thought there was "quite a lot of confusion around the economics" of the two Canterbury earthquakes.
"Think of it in these two parts: One, [we've] got to rebuild Christchurch – let’s call it NZ$20 billion, about 15 [billion] for the second earthquake, five [billion] for the first," Key told host Leighton Smith.
"We have a good scheme in New Zealand, EQC. When you pay your fire levy or fire insurance on your property you pay 1%, capped at a certain amount, so 60 bucks a household. So that fund, it has NZ$6.5 billion in it, but we’ll take about NZ$4 billion out of it. So that’s four billion," he said.
"We buy reinsurance, just like you have an excess premium. So we’ve got another five billion guaranteed there, so nine billion.
"Then you have the insurers, and they’re on the hook for fixing your house and that sort of stuff. We don’t know exactly but let’s call it another five or six billion."
That added up to around NZ$15 billion.
"Now we’re going to spend arguably maybe more than 20 [billion dollars], but it’ll be over a five to ten year period. So don’t worry so much about the rebuild, there’ll be some implications, but I think that’s sort of covered," Key said.
"Where we get knocked around is that, when you see the May budget numbers - and we met with Treasury night before last – you’ll remember the back half of last year was quite weak from a growth point of view. [The] September quarter [got] knocked around because of Christchurch," he said.
Growth would have been positive but instead went negative.
"That’s now going to be the case for Q1 and Q2 [March and June quarters this year]. So think about it in these terms: From a June to June quarter, in that 12 month period, my guess is we’ve lost NZ$15 billion worth of GDP – in other words, just less activity," Key said.
"Crudely, from the government’s point of view, that’s NZ$5 billion of tax we don’t get, so our revenue goes down, and on the other side of the coin our outgoings go up because we’re paying for all these [earthquake recovery] programs. So that’s what knocks us about," he said.
WfF's upper reach "quite extraordinary"
On the issue of Working for Families and putting interest back onto student loans, Key said he did not think anyone was arguing for the latter.
However, when it came to Working for Families, there were aspects of that policy worth having a good look at.
"For instance it’s reach up into very high income New Zealanders has been quite extraordinary," Key said.
"Now I think there might be an argument that says, there were tax cuts at the higher end, New Zealanders enjoyed those, that’s good - some. Maybe the reach of Working for Families is too high at that very upper end, so that’s worth having a bit of a look at," he said.
"I think it’s worth getting a bit of perspective around that."
(Updates with further Key comments from Newstalk ZB interview on student loans, WfF)
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