Further debt not the only way to pay for rebuilding Christchurch

The Government’s plan to simply borrow to fund the rebuilding of Christchurch will cost us millions in interest; a levy makes more economic sense, Green Party Co-Leader Dr Russel Norman said today.

Dr Norman was responding to recent remarks from Finance Minister Bill English who said that there was no other option for the Government but to borrow to pay for the Christchurch earthquake. As a result, this year’s operating deficit is likely to balloon to $16 billion with Crown debt expected to exceed 30 percent of GDP by 2014, doubling from just 14 per cent in 2010 when National first took office.

“Now it is more important than ever for the Government to live within its means,” said Dr Norman.

“The Government is being fiscally irresponsible by putting the country into further debt when it could raise some revenue to help pay for the rebuild instead.

“The Government is proposing to borrow a further $5 billion to cover the uninsured cost of rebuilding Christchurch. This will cost an additional $255 million a year to service alone.

“On the other hand, a temporary levy on income could raise an additional $1 billion each year to cover quake-related expenditure avoiding costly borrowing,” said Dr Norman.

The Green Party has modelled a number of different levy scenarios for income earners above $48,000. A levy of 1.5% applied to an individual’s income between $48,001-$70000, 3.0% on income above $70,000, and leaving the corporate tax rate unchanged at 30% would raise $1026 billion per annum.

People earning $50,000 a year would pay an additional 58 cents per week. People earning $70,000 per year would pay an additional $6.33 per week. People on $100,000 would pay an additional $23.59 per week.

“Australia is raising a levy after their flood disaster and their Government is, financially speaking, in a much better position than ours,” said Dr Norman.

“Australia is also not on a negative credit watch. We are, meaning that there’s a 50:50 chance of a credit downgrade, and this was before the Christchurch earthquake hit.

“Bill English is gambling that borrowing to pay for the earthquake won’t affect our credit rating. If he’s wrong, everyone with a mortgage or loan will be paying an additional 30-100 basis points on their debt.

“A credit downgrade and a subsequent rise in interest rates would mean more money will simply go offshore taking further money out of the local economy and dampening a rebound.

“We don’t agree with Bill English who says that a small levy could stifle economic performance. The levy would target those on higher incomes who typically save or invest their additional income rather than spending it.

“The risks are all with further debt. Raising additional revenue is sensible and New Zealanders desperately want to help Cantabrians re-build their city – helping thy neighbour is a deeply held belief.

“The fastest, fairest, and most economically sensible way for New Zealand to rebuild the livelihoods of those in Christchurch is to introduce a temporary earthquake levy on those who can most afford it,” Dr Norman said.

More information of the levy proposal:
http://www.greens.org.nz/sites/default/files/how_an_earthquake_levy_could_look_green_party_research_1.pdf

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