By Alex Tarrant
The current generation should take responsibility for paying back its own debts, including ones that arise from increased borrowing to pay for the Christchurch earthquakes, Finance Minister Bill English says.
Early estimates put the two Christchurch earthquakes as costing government NZ$10 billion, including NZ$5 billion in lost tax revenue, over the next four years. Government has said it would increase its borrowing in order to pay the immediate costs of the quakes, such as those incurred by business assistance packages, temporary housing and civil defence operations.
Indications from English and Prime Minister John Key are that government would then look to cut back on its budget spending in order to get its books into a position where it could get to surplus and start to pay back debt by 2014/15 or 2015/16, signalling budget cuts on May 19 in areas other than education and health.
The government has repeatedly cast aside calls from the Green Party to impose a temporary earthquake tax levy on incomes over NZ$48,000 to pay for the future costs of the quake, meaning future debt would not have to be as high, and budget cuts not as sharp. See more on the Green Party's levy call here.
In Question Time in Parliament on Tuesday, Green Party co-leader Russel Norman asked English whether it would be fiscally responsible to increase borrowing to pay for the rebuilding of Christchurch.
“Yes, if two important conditions are met,” English said.
“Firstly, that the money borrowed would need to be invested in assets that increase productivity and benefit the economy. There’s no doubt that investment in rebuilding Christchurch would meet that test.
“Secondly, there needs to be a credible plan to pay the money back, and get debt back to pre-earthquake projections in a reasonable time. The government will lay out its plans for achieving that in the Budget 2011,” English said.
Norman then asked whether it would be more fiscally responsible to raise the money through a temporary levy, rather than by adding more debt to the government’s accounts.
“With respect to the levy there’s really two reasons we’re concerned about (it),” English said.
“The two reasons why we preferred not to do that: One is because, as the member and others have stressed, people are already dealing with pressures of increased costs of living, and an extra tax, which would have to be fairly significant, would simply add to those pressures on households,” he said.
“Secondly, given that the households are being very careful with their spending, economic growth has been flatter than expected, and an additional tax is unlikely to help the economy pick up.”
Norman then pointed to a comment from the New Zealand Institute of Economic Research saying, "the personal income tax cuts did not have much impact on overall spending," and asked, was this not strong evidence that a temporary earthquake levy on higher incomes would have very little detrimental impact on spending in the economy?"
“At the time that we announced tax cuts, particularly in last year’s budget, we made it clear we didn’t expect that the tax package would have a significant impact on spending, and that was because it was largely self-funding,” English said.
“Money that was staying in people’s pockets because of income tax cuts was offset by money coming out of their pockets by increases in GST and increases in taxes on housing,” he said.
Norman asked whether English thought the “savage cuts” in public spending expected in the upcoming budget were in direct contrast with the idea of “sharing the burden, which is embodied in the idea of a small temporary earthquake levy?”
English replied he did not agree with Norman.
“The fact is that any changes the government makes in spending will be considered and reasonably moderate – certainly not radical – and in our view financing the earthquake from debt is actually something we don’t have a lot of choice about,” English said.
“A lot of the costs are being incurred as we speak, or will be recognised in this financial year. So we don’t have much choice but to actually go ahead and borrow the money. What’s important is that plan to pay it back,” he said.
“And the member is right, in fairness to all New Zealanders, particularly future generations, we should take responsibility for paying back our own debts.”