Stop borrowing, let's pay for it now

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Fri, 18 Mar 2011 3:27p.m.

A car in central Christchurch is crushed under rubble (NZPA)

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.

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Comments

29/03/2011 12:03:31 a.m.

RobertM wrote:

But should the government really be spending another $10 billion on reconstructing a worn out city in addition to the $10 billion that earthquake insurance will provide. Surely it would be better to let the future Christchurch just be a Hamilton or Tauranga, clear the rubble in the CBD as soon as possible and let business's build whatever they want within safety reasons within the old CBD. Town and council planning in Christchuch has always in the past ruined the chance of interesting development and pockets of interest, freedom and celebration. Everything in kiwiland has to be managed like the ghastly little English LSE boys Oram, Barnett and Robert Green Clark encouraged into the country to channel business, sex and commerce along safe and manageable lines.
Given Christchurch small businessmen, artisans, artists and Eastern proles are likely to fight and obstruct every sensible and progressive move, why bother to bankrupt or tax the nation helping totally unviable small tatty business. Christchurch is a repressively conservative city and university. Nothing original,outspoken or challenging will get a chance there from the cities lawyers, specialists or arts community. The Law and History department are the most right wing in the country. No one questions the suffocating hand of the police department. The Ellis affair was nothing but outrageous homophobia and an attempt to destroy any possibility of a Sydney style lifestyle. The liberal heroes of the city like Susan Tait, Pippa MacKay , Lianne Dalziel et all are insane embittered old feminists obsessed with l5 year old girls having sex which is all they do anywhere else in the world- notably in Sydney or LA. Pulling the plug on this boring old town would be an excellent idea.

25/03/2011 12:24:18 p.m.

gd wrote:

Unfortunately politics and the fear of not being re-elected gets in the way of solving the problems we face.

Asset sales would reduce our debt, a levy would reduce our debt, mining on conservation land would reduce our debt, reducing freebies to student loan borrowers would reduce our debt, cancelling welfare to the middle class would reduce our debt, taking a machete rather than a trimmer to the govt sector would reduce our debt (ministry of youth affairs and ministry of womens affairs come to mind). Most of the above will not happen because politicians are too afraid that such moves would be unpopular.

It would be great if the govt would take note to "never waste a good crisis" to allow things to be done that couldn't be done before.

Sometimes you've got to make things worse before they get better, which admittedly some of the action the govt could take might do, but unfortunately policitians won't do in an election year.

23/03/2011 3:10:25 p.m.

John Maxwell wrote:

Some good points Duncan. Something that appears left out of the calculations is the Govt recouping GST on all rebuild spend, on a total of 20b this works out at 2.6b which puts a bit of a hole in the Govts share - halving it.
You might be interested to note that secondary teachers are expected to fund a large part of this as the Govt has cut the pay offer "because of the quake". In spite of 'promise' that there won't be a levy.

23/03/2011 8:32:01 a.m.

Wikitoria wrote:

Why can't John Key give back the brand new cars he bought for $200,000 each and get something more affordable, cheaper on gas and more economical, to show us New Zealanders that even the government is contributing. So far, it looks like the government is taking more off the tax payers and saying they're doing everything they can. I don't understand why there is so much pressure on tax payers, we already have enough stresses to deal with. I like that Duncan can offer his views they are not only accurate because he knows what he's talking about, but they're fair.

22/03/2011 5:42:49 p.m.

kane wrote:

The ChCh Bill we have isn't the only problem we face.. Rising petrol cost and transport cost are a slow moving process... Might not effect us all at once but will slowly drown us...10 billion to fix the problem.. Say 500 hundred million lost so far due to ChCh not running at full capacity economic wise... They predict a good late 2012 GDI but that's if things stay the way they are... Our country's problems are just starting... Even with state assets sold it wouldn't even cover loses we have and will experience in the next 5yrs... Free trade will have a large impact on us in all the wrong ways as we are now finding out with milk prices... That is only the start Jobs and employment that were post to come with easy trade have not happened nor will they if it hasn't happened yet its never going to happen... We are now even talking about sales of our farms to over seas investors.. Why because the easy trade has ruined farming... While some become rich from dairy most of us will suffer with high food prices and heavy increased transport cost due to increases in international trade... We traded cheap food for cheap TVs Cell-phones and computers which are not everyday goods we buy regularly...

22/03/2011 2:14:47 p.m.

tom wrote:

I agree with you Duncan on mixed messages. What are the real facts.This would be a good time for the government to be blunt. plus i have noticed that through all this no mention of state asset sales are they keeping them secret.

22/03/2011 1:31:50 p.m.

braam wrote:

The real issue here Duncan, is that you seem to, just like the Labour party, stand on the sideline and moan about whatever National is doing. It's never positive, it brakes down the image of our leaders every time someone reads your work. To be honest, the only reason I am National is because they stand for something, their own policy, much like we would want to see you write about your own view, not a very obvious left swing to whatever is happening in parliament, it's so Labour... Cheers Braam

22/03/2011 11:30:37 a.m.

James J. Read wrote:

When are we going to reduce our living standards and live within our means? Now, the I.M.F. has joined the throng of those calling for a halt to our reckless borrowing.We could for instance cut back our overseas aid which we can't afford.We could look at likely income from permitting more mining. Finally,that bloated sacred cow Treaty settlements needs close examination.

22/03/2011 9:06:35 a.m.

duncan garner wrote:

Braam,

I'm offering this as an opinion piece as Political Editor. All Political Editors write opinion pieces, whether it's for their websites or newspapers. It's nothing more, nothing less. Thanks for reading it.

Cheers Duncan

22/03/2011 4:47:21 a.m.

Iain Parker wrote:

Why do we continue to swallow the bollocks that we have no alternative but to continue to surrender to the practice of surrendering to private originated intermediated monetised debt with interest attached circulating as all but a tiny fraction of our money supply.
It consigns us to a ponzi pyramid scam that is mathematically impossible to ever repay due to the fact that when our loaned money supply is drawn down only the principal enters circulation. Thus there is never physically enough money in circulation to repay both principal and interest. Collectively the interest continues to compound unadressed until inevitable debt repayment crisis and recievership at which time it is insisted that you hand over your hard assets and necessities of life to subsidiary corporations that are majority stakeholder owned buy those that originated the bogus predatory loans in the first instance.
Debt peonage is when your income never exceeds the cost of credit required to obtain access to your necessities of life.
For loads of irrefutable evidence from the very mouths of the major players and tried and tested solutions
http://publiccreditorbust.blog.com/
Duncan once you read and learn about the core most impacting policy area of monetary, banking and credit systems and its impact upon social and economic development can you please pass it on to the rest of the totally financially illiterate corporate media commentators of this nation and much of the world.