Stop borrowing, let's pay for it now
Friday 18 Mar 2011 3:29 p.m.
A car in central Christchurch is crushed under rubble (NZPA)
By Duncan Garner
The Government will borrow more to pay for the damage caused in the Christchurch earthquake. We shouldn't.
Bill English says it will cost the Government $10b. That's for damaged roads, schools, ACC claims and emergency housing amongst other things.
We're currently borrowing $300m a week because the economy is doing so badly. Mr English's decision means we will borrow more than that.
So let’s pay for the damage now using another method. I've argued this before and I'm arguing it again. Let’s pay a special tax over the short term.
And let me use the Government's own argument about its concerns over borrowing to state why - because in my view it’s sending some seriously mixed messages about debt.
Finance Minister Bill English said yesterday that net Crown debt could now exceed 30 percent of GDP by June 2014, up from 28 percent in the December update. That's a massive increase from 2010 when it was about 14 percent.
So what did Mr English say about that yesterday?
He said 'it's important we get net Crown debt back to pre-earthquake levels' so we can absorb future shocks and disasters. He also said; 'we are not keen to increase debt more than we have to.' So what does he do? He borrows more. Talk about mixed messages! I'm confused.
It means our children and grandchildren will pay the price. It limits our options. It pushes up interest rates. Let’s find another way.
Mr English also says he's concerned about New Zealand's total net foreign debt. By world standards, he says, it is extremely high at about 85% of GDP. So high, English points out, it is being watched by foreign lenders and credit ratings agencies.
If we are on credit watch - why on earth are we borrowing more to pay for damage?
Then English continues; 'the Government will press on with its broader economic programme to reduce our vulnerability to foreign lenders.' Really? Truely? Honestly? No its not. Show me the evidence.
Why can't the Government raise more money through a special short term tax? English and John Key appear concerned about what a special tax would do to people's confidence and spending patterns. But it could be small and progressive.
And let's not forget the Reserve Bank has moved to lower interest rates so those on floating rates have received a cash bonus in the last week.
If the Government ever had an excuse to whack on a levy for a good and justified cause for a limited period, it is now.
It certainly seems as a result of English's comments yesterday that large scale spending cuts are off the agenda. But English will still look to take the knife to some areas.
It seems clear the Working for Families package for those on high incomes will go. It will leave Labour arguing that a household with an income of $120k should get welfare. Labour's stuffed on that one. And I think Key and English are very keen to push Phil Goff into that corner.
But it won't save huge money. A few hundred millions dollars at most. That won't pay for Christchurch.
The Government will continue to cut budgets across Government Departments and that means job losses will continue. More programmes will be quietly cut.
So Budget 2011 will be grim. The numbers will be huge. The cash deficit will be somewhere close to $17/18b - rather the $15.6b predicted last December. Unemployment forecasts will shoot past 7 percent again.
Fifty thousand workers in Christchurch are yet to return to work. When will they? How many will lose their jobs on top of the 4200 who have taken up the Government's job loss payment already?
Some brutal realities are needed from both parties. The earthquake has seriously exposed how weak the economy was anyway. It is seriously brittle.
So Labour, at the very least, needs to cancel its tax cut promise of ten dollars a week to everyone. It needs to admit we can't afford $1.3b.
And National needs to tell those who got hefty tax cuts last year that's it time to help out with a progressive and special tax to help rebuild Christchurch.
It's not much to ask is it?
We have to rebuild. And the political parties need to rethink. That starts and ends with the Government. Let's start by not borrowing more when we don't have to.