Hon Bill English
Minister of Finance

4 April 2011 Media Statement

Quake, guarantee scheme reflected in accounts

A significant impact from the second Canterbury earthquake and revisions to expected Crown recoveries under the Retail Deposit Guarantee Scheme are reflected in the Government’s accounts for the eight months to February.

“The accounts do not include the full costs of the earthquake,” Finance Minister Bill English says. “But they do include an estimate of the Earthquake Commission’s net cost of $1.5 billion.

“This is the main reason for the operating deficit before gains and losses coming in $1.7 billion higher than forecast at $9.2 billion for the eight months. Additional earthquake-related costs will be included in coming months when they can be quantified and as further decisions are made about the earthquake recovery.”

The latest accounts also include a $331 million increase in the Government’s expected loss from the Retail Deposit Guarantee Scheme, which covered eligible depositors in failed financial institutions.

“Most of this is attributable to a reduction in expected related party loan recoveries from the receivership of South Canterbury Finance,” Mr English says. “The receiver has provided updated information on South Canterbury’s lending business not available previously.

“In addition, the expected effect of the latest Canterbury earthquake has been factored into likely recoveries.

"Overall, we now expect a net loss from the Retail Deposit Guarantee Scheme of around $1.2 billion, compared with earlier estimates of around $900 million."

Mr English says these significant extra one-off costs would add to what was already shaping as a large deficit in the current financial year.

“The deficit forecasts will be updated in the Budget on 19 May. They will reinforce the need for the Government to carefully consider its spending priorities and set a credible path back to budget surplus. Only then can we begin repaying our debt and building a buffer against the next economic shock.

“We will do that while we set about to rebuild Christchurch. As I've previously said, the earthquake will have a significant impact on the Government’s finances and the wider New Zealand economy for years to come.

"It's therefore more important than ever that we stick to our broader economic programme to reduce New Zealand’s vulnerability to foreign lenders, get the Government’s finances in order and build faster growth based on higher national savings and exports.”

On a positive note, the operating balance after gains and losses was $2.5 billion in the eight months to February – about $3.5 billion better than forecast. This reflected strong investment gains by the New Zealand Superannuation Fund and ACC, along with actuarial gains on ACC and Government Superannuation Fund liabilities.

ENDS

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