'We should pay back our own debts in fairness to future generations,' Finance Minister Bill English says

'We should pay back our own debts in fairness to future generations,' Finance Minister Bill English says

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?"

'Largely self-funding'

“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.”

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

27 Comments

Arrrrhahahahaha hahahahaha....oh dear me you win the prize for BS Bill. Best of the week...Beats Sam Stubbs by a small margin. We believe you Bill...honest we do...harrrrhahahaha......choke.

Did Bill ring you last night to get some advise as he should know by now who has all the answers

 

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.

 

How?  We borrowed expecting inflation to take care of the debt. We cannot pay the debt back we never intended to. if we have to then I guess its bankruptcy for  NZ.

 I take it he is also talking about the government because they appear happy to borrow and pay it off on the 'never never', and I love to see how they intend to pay it off.I see compounding interest for us and destruction for us

 

http://www.youtube.com/watch?v=DOpErJWSIg0&feature=related

But Bill, a while ago you were saying it was fine to borrow to keep up entitlements. I take it that hasn't changed or you would have said so.

He says the right things, but we know he will never do them.

We need to bite the bullet?

The easiest way to take a bit of everyone is to lower the excahnge rate. Everyone pays a bit more.

The exporters benefit but pay more tax on profits.

The Government can say "We haven't taxed you any more"

Then consciously keep it that way.

Look at China and some other Asians. They prosper because they remain competitive at all times

C'mon Bill, you know it's the way to go. JK have a word to Bollard "We all know you are not supposed to influence him but you have tried already so you know the MO.

BB lll,  How?

And what do you plan to do with the 187 billion we have borrowed in foreign currencies ? i take you are talking some kind of default?

Aj

What a good idea!

The threat of default should be enough and apart from that most of it is borrowed privately, not by the State. It may make the banks get real too.

BE today ruled out any decent cuts to WFF or Kiwisaver

CGT and Land Tax have been ruled out by John Key

these fools are just in it for re-election, how the hell do they expect NZ inc to deal with its issues if they are not prepared to consider either increased taxation or significantly decreased expenditure (IMF actually asked for both)

I think they are waiting for a ratings downgrade, then they will use that as the excuse for action

bunch of wusses

The current generation should take responsibility for paying back its own debts -- says Bill English?  Doesn't that mean he is now saying he will reverse the tax cuts we are having to borrow to pay for?

It depends what the debt is funding. If it is funding largesse like WFF and tax cuts then it should be paid for by the present generation but if it is funding public infrastructure that will be used by future generations, then the cost should be spread over future generations.

As someone who's never voted Green before I have to say I'm impressed with a number of things I'm hearing from Russel Norman lately.

Who is going to end up with the 'Auckland burden' round their necks?.....I am told the option certain to be selected by Cabinet will be to turn the current bridge into a double decker...something unique for Auckland....cars and light stuff on top...heavy crap and rail below and a special bike and walker track for John. This is what will happen because it costs the least for the most gain and can be done with the least disruption for all concerned. The clipons will be reinforced. Extra bridge supports will be placed between the current ones and each shore. These areas will be partly reclaimed and tidal generators installed to take advantage of the increased flow. A restuarant will be positioned on the very top to cater for the local pollies and other fatheads.

This government (and Labour) are completely deluded if they think they can keep borrowing like no tomorrow, and expect the next generation to pay it off, while also paying for the retirement of a much bigger baby boomer generation.

Especially if they are unwilling to change the retirement age.

The 'retirement' age is irrelevant. I don't know your age, but have you tried being in your 50's, and having been displaced, trying to find alternative work? It doesn't matter what it is, there are others, younger, fitter, with differing degrees of financial desperation, looking for that, any, job themselves. So the age of retirement has little to do with when working stops. It is a matter of choice, if your lucky, or 'convenience' ( an not your own) if your not.

But, yes, philthy....the Government are deluded; on pretty much all fronts!

There is no such thing as a "retirement age" in New Zealand.  There is, however, an age at which you become eligible for New Zealand Superannuation, currently 65.  That's the same for everybody and regardless of your circumstances (except in the specific case where you are in receipt of an overseas pension, in which case your NZS might be proportionately offset).

Paying for that is going to become much more expensive in future, as more and more of us (both in absolute terms and as a proportion of the population) become eligible for it.   If that burden is to be loaded onto future generations then we should at least try not to load them with the burden of paying back our debts as well. 

It's a remarkable and very welcome thing to hear a politician paying even lip service to the interests of people who are never going to vote for him (because he'll be gone by the time they are old enough to do so)

You could nominally raise the retirement age but, given how the future looks for me and many others of my age ie around 45/50 I cant see me/us voluntarily retiring at 65 anyway, more like 68....maybe 70....

So if you raise the retirement age for those who are unemployed/unemployable or low wages, what does it achieve?  they simply continue on social payments anyway....

Also such a raise hammers the lower socio-econimc section of the population because they tend to die off before 70.....so in effect they get no retirment and work until they drop dead....

ie I really have some doubts about these numbers....

regards

 

It is cheaper to pay somebody working-age benefits than it is to pay them NZSuper, and that gap is going to increase in future years as NZS is part-indexed to wage inflation while other benefits are indexed only to price inflation.  Unless that changes, raising the age at which a person can claim NZS would save some money.

I'd love to understand more about your apparent contention that people with a lower life expectancy should be able to claim superannuation earlier.  How would you propose that the Government goes about identifying them?

The social contract that retirees had/have with the community is that their entitlement ; the one worked for over many decades until they reach 65, would be available to them at that age. How would you feel if after making lay-by payments on your widget for 40 years, within weeks of the collection date, the shop told you it had altered the purchase price? Bring in the GMI ( and scrap all other benefits etc. and set a fiscally neutral flat income tax rate) for all over 18 y.o., at the Superannuation rate, and all can be treated equally and no one fell hard done by.

Working age benefits v super.....in both cases someone with no savings is going to get support....yes that amount may well differ...I guess Id like some clarification on whether the savings are actual and correctly calculated for NZ's situation.  

NZS is indexed to wage inflation.....looking forward right now wages dont look to be going up much....yet CPI looks to be a possible problem ie some things rise in cost while others deflate to balance.....even if you take core inflation that has risen 2% but wage rises seem very minor....any?  in which case OAP against CPI would seem to be the better way...

I think you have mis-read me, or taking a very strange view on what Im saying.....there is no practcal way you can determine an individual's life expectancy and say "well you are 59 but have 5 years left so you can claim OAP now....The comment I am making is rising the age at which OAP can be paid out dis-advantages the lower socio-economic section of the population...as they tend to live less long...great way to save money I suppose, assuming they still have jobs otherwise they get WINZ instead....in which case the savings are those between the WINZ payments and OAP.

regards

The comment I am making is rising the age at which OAP can be paid out dis-advantages the lower socio-economic section of the population...as they tend to live less long

Yes, that's true.  But it is also true that on average, lifespans are getting longer, which (combined with the demographics of the baby boom) means that NZS entitlees are both getting more numerous and spending more time collecting NZS, and that means a large additional cost - which will have to be met by somebody.

It's all very well to get fine and noble and say "they are entitled to it, they have worked all their lives in the expectation that that was the deal" but the fact is that it's not your money that you are being noble and generous with; it is the money of other people, those who haven't been born yet.

It seems to me to be extremely unwise to rely on the assumption that future generations will be prepared to pay the bill for our retirement in future, when that bill is going to be far greater than the bill we are paying for our parents' retirement now.

"And the member is right, in fairness to all New Zealanders, particularly future generations, we should take responsibility for paying back our own debts.”

Right on, Bill.

There's just one wee fly in your ointment:

your accounting is flawed.

Debts - ultimately - are physicalities, not fiscalities.

 

I find it interesting that he can try and take some moral high ground on some things but ignore others that are flashing huge red neons but ignore them....

He's just full of it....

regards

I've been saying it for a while, I reckon everyone should be paying more taxes, and I think there needs to be a lot more fiscal responsibility by the government. I can understand why the government is borrowing so much money every week, its to keep money flowing in the system and to stop the economy from tanking.

 

Basically I think we are screwed. If we have flat growth with all the money we are borrowing floating around, we are going to have negative growth when it is not. Asset deflation will occur, interest rates will rise, COL will also rise. This WILL happen, as we cannot keep borrowing. Everyone will feel the pain, just need to stick together.

The next generation can't vote yet (so Dipshit does not care) and the current moblie young generation have already left for Aussie.

Good luck baby boomers finding some sucker to fund your sunshine years!

Can always sell up the family silver to the foreginers and leave nothing for the future.

They have already done that plus some (ie nothing for the future).........its known as use up all the oil and resources and leave huge debt.

regards

The Earthquake Commission (EQC) sought to hire New Zealand-based loss adjusters to improve "public perception" after taking on mainly Australian contractors.

In an email to a former police officer, commission acting claims manager Barry Searle stressed the importance of hiring New Zealand-based assessors.

"We have over 160,000 claims to process and our workforce is predominantly made up of Australian ex-policemen.

"We are trying to up resource [sic] from NZ for a number of reasons, not the least of which is public perception."

A Christchurch builder, who did not want to be named, said the email was passed on to him after he did not get a loss-adjuster job.

"I wasn't rejected. I was just told they were only after ex-police officers at this stage," he said.

"It basically says the only reason they were looking for 100 New Zealanders was to make it look good."

The email also confirmed the starting rate for "people with no previous loss-adjusting experience" was $75 an hour for the first three-week rotation.

Adjusters were eligible for a pay rise to $100 an hour on their second rotation "provided they reach certain levels of performance".

 

 

Yeah Bill, Sounds like real good value for the NZ taxpayer. And everyone accused builders of price gouging after the first quake!

'We should pay back our own debts in fairness to future generations,'

Ohh, good luck with that vote winner Bill!. NO CHANCE. NZ is fast becoming an economic Titanic, only this time there will be very few survivors and for good reason. Most have been 'head in the sand' fools not wanting to hear the truth about massive 'debt', no real productivity, and the evils of  years of inflation' now coming home to roost due too a decade of ponzi lifestyles