English sees NZ$8.5 bln of govt spending on Christchurch rebuild and sees revenue losses of less than NZ$3 bln

Finance Minister Bill English has warned the Government will spend about NZ$8.5 billion over the next few years to help rebuild Christchurch.

“The earthquakes do not fundamentally change our economic situation or the Government’s programme,” English said in a speech to the Wellington Employers’ Chamber of Commerce.

“They simply make the task of returning to surplus a little more difficult.”

English said Treasury estimated the direct cost to the Government of the two earthquakes at about NZ$5.5 billion, which would be fully provided for in the Budget on 19 May.

“About NZ$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," English said.

“The remaining NZ$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," he said.

“In addition, the direct cost to EQC of meeting residential property damage of the two quakes will be at least NZ$3 billion, making a total direct cost to Government of around NZ$8.5 billion.”

English said Treasury had previously estimated the Government’s loss of tax revenue as a result of the earthquakes and lower economic growth could be between NZ$3 billion and NZ$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 NZ$3 billion, though we still await final Budget forecasts,” English said.

The cost of the Government’s share of rebuilding Christchurch needed to be put in context, he said.

“It sounds a lot. But New Zealand’s annual GDP is around NZ$200 billion a year; the Government spends around NZ$70 billion a year; and it has assets of over NZ$220 billion," he said.

“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."

Earlier the NZ Debt Management Office announced a NZ$1.5 billion increase in the government's borrowing programme for 2010/11 to NZ$16.5 billion. It has increased the programme by NZ$3 billion in 5 weeks. See our article here.