English vs. Key on rebuilding costs

Written By: - Date published: 7:13 am, March 24th, 2011 - 49 comments
Categories: bill english, disaster, john key, leadership - Tags: ,

The PM and the Minister of Finance are at odds on how the cost of rebuilding Christchurch will be met.

Bill English (last Wednesday) stated that the costs are too high to be met by cuts, and significant borrowing will be required:

The Budget deficit is set to blow out by $5 billion this year as the Government ramps up borrowing to pay for the rebuilding of Christchurch.

Finance Minister Bill English has previously warned he might need “a bit more borrowing” to cover the costs. But it has become clear that cuts to other programmes, such as Working for Families, will not deliver big enough savings to make a difference, leaving the Government to rack up more debt.

Mr English yesterday conceded the deficit would balloon by almost 50 per cent to $16b – equivalent to 8 per cent of gross domestic product – from the previously forecast $11.1b. “Meeting the Government’s share of the immediate earthquake costs will require a quite substantial front loading of Crown debt in the next year or two,” taking him outside his comfort zone.

Mr English and Prime Minister John Key had signalled cuts to Working for Families payments for high income earners and some tightening of eligibility for student loans and KiwiSaver. But those are now seen as measures to bring the Budget back into surplus.

Mr English said the scale of the borrowing would be “too large to be offset with any particular saving effort”.

John Key (in an interview with Guyon Espiner last Sunday) wants to avoid borrowing and cover the costs with budget cuts:

GUYON But it can’t have been unaffordable to be borrowing $300 million a week and now be affordable to borrow more than $300 million a week, can it?

JOHN No, we’re—

GUYON So it’s not affordable, is it?

JOHN Well, we agreed that as a long-term position, no, that’s not the desire of the government to be borrowing in the order of $15 billion a year – $300 million a week. But I think the third point is if you look at our budget expenditure, and this is really where the government’s response will come, that is that we were— the previous government spent about $2.8 billion a year. We cut that to 1.1 billion extra a year.

GUYON And then down to 800.

JOHN Down to 800.

GUYON Are you still going to spend $800 million more in the May Budget?

JOHN Well, I think the answer to that is no. What we are going to do is spend more on health and education. That may well be in the order of 600, 700, 800 million, but we are asking ministers and what they are working on is looking to reduce expenditure in other areas so that can be reprioritised to pay for the more in health and education we want and ultimately the Christchurch earthquake.

GUYON So this is a zero budget, then?

JOHN They’re your words, but certainly we’re taking a view that says—

GUYON Are they true words?

JOHN Well, you’ll have to wait and see on Budget day, but, I mean, the reality is, as you’ve just pointed out, there are very limited options to the government. We’ve inherited an earthquake. We now have to deal with that. The options are borrow more and sustain that position forever – not affordable; go out there and fundamentally put a big tax on people – well, again, that will have economic implications; or the third is cut our cloth to what we can actually afford.

My bet is that English has a better grasp of the numbers and the size of the problem than Key, and that the PM is going to end up looking pretty silly on this one. But either way, this disagreement is indicative of the Nats shambolic preparation for the road ahead. It’s not just that these clowns don’t have a plan. It is that, one month after the quake, they don’t even agree on the very basic first requirement of a plan — where is the money going to come from?

All of my posts for March will finish with this note. While life goes on as usual outside Christchurch, let our thoughts be with those who are coping with the aftermath, with the sorrow of so many who were lost, and with the challenges ahead.

49 comments on “English vs. Key on rebuilding costs ”

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  1. tsmithfield 1
    24 March 2011 at 9:35 am

    I think you are trying to paint a conflict where there is none.

    Note Key said he would “ultimately” want to see the budget paying for earthquake reconstruction, not immediately. This is a long project, likely to take many years. So the word “ultimately” is likely pointing to some distance in the future. Thus, borrowing will undoubtably be required in the short-term, consistent with what English is saying, but hopefully covered by the budget in the more distant future, as Key is saying.

    • Lanthanide 1.1
      24 March 2011 at 9:49 am

      Frankly, Key has such a conversational style in any interview he does that you can’t really analyse his words that closely, because he just uses whatever words he wants to describe what he’s thinking about at the time, not words that would indicate some longer term plan.

      I’d say that’s part of his appeal to the masses – he doesn’t come off and some super-educated person like Helen did, he just comes across as a bloke at the pub who knows a thing or two.

      • Jim Nald 1.1.1
        24 March 2011 at 10:41 am

        Yeah, he uses whatever words he is thinking at the time with no sense of anything longer than the next second and we’re left thinking he will bugger off next minute to whatever.

      • felix 1.1.2
        24 March 2011 at 10:55 am

        Exactly. He uses words like “ultimately” and “actually” and “therealityofitis” as fill-in sounds to bridge the gaps between ideas.

        They have literally no meaning in the context in which he uses them.

        • tsmithfield 1.1.2.1
          24 March 2011 at 11:14 am

          It is actually clear what he means, and there is no conflict with English.

          What Key says is unacceptable is to “borrow more and sustain that position forever” as he says above. So he is not against short-term borrowing for immediate requirements. However, he is against long-term structural debt.

          This is absolutely consistent with English when he said in the interview above:
          “Meeting the Government’s share of the immediate earthquake costs will require a quite substantial front loading of Crown debt in the next year or two.”

          English was talking about short-term debt. Key was against long-term debt. Key appears to accept the need for some short-term debt. No conflict. Just a beat up by R0B.

          • felix 1.1.2.1.1
            24 March 2011 at 11:32 am

            I don’t really care what he means as he’s proven he can’t be held to his word anyway, but you’ve put quite a few words in his mouth there.

            I was just referring to his use of language generally. He often talks so far out of any meaningful syntax that the only way to make it comprehensible is to replace some of his words (as you’ve done above) and change the order of others. In this way he can be interpreted to be saying almost anything you like.

            Which I suspect is just how you like it.

            • tsmithfield 1.1.2.1.1.1
              24 March 2011 at 11:36 am

              I understand exactly what you were saying. Which is why I pointed to quotes from both that didn’t involve any question of syntax.

              Anyway, both you, Bored, and CV are going off topic somewhat. We are discussing the perceived conflict between Key and English which is what I have been discussing.

              • felix …
                24 March 2011 at 11:48 am

                “So he is not against short-term borrowing for immediate requirements”

                Please show where Key says this.

                Not where you deduce that he thinks it, but where he actually says it.

                • tsmithfield …
                  24 March 2011 at 12:09 pm

                  I don’t need to. You are arguing for the affirmative. Therefore it is up to you to provide evidence of the conflict. You need to point out where Key has said he is against borrowing of any kind for the earthquake.

                  • Colonial Viper …
                    24 March 2011 at 12:16 pm

                    Evidence of the conflict?

                    English is pissed off that he has to keep hand holding and providing all the analysis and heavy lifting to support the lightweight Key.

                    And then get smashed down for it by the aforementioned lightweight Key.

                    That’s gotta be grinding inside.

                    • tsmithfield …
                      24 March 2011 at 12:28 pm

                      From the article linked to above quoting Key:

                      Borrowing the best funding option as a levy would be insufficient and “there’s no single either asset you could sell or expenditure that you could cut which would be great enough to actually fund the type of impact that the Christchurch is having on the books

                      Obviously no conflict whatsoever. In the article above Key is concerned about the long-term debt position, not immediate borrowing for the earthquake. Both Key and English are supportive of exactly the same things: cutting costs and short-term borrowing for the earthquake. No conflict. Just a beat-up, and comments taken way out of context by R0B.

                    • Colonial Viper …
                      24 March 2011 at 12:32 pm

                      ts, Key is NOT worried about the long term debt position.

                      If Key were worried about the long term debt position he would be advocating for ways to increase revenue as well as decrease operational spending.

                      But he’s not, so he ain’t.

                      And saying he’s worried about the long term debt position at the same time that he pushes for more borrowing – that’s just dumb.

                    • tsmithfield …
                      24 March 2011 at 1:20 pm

                      “And saying he’s worried about the long term debt position at the same time that he pushes for more borrowing – that’s just dumb.”

                      No its not. It is very common. Have you ever heard of bridging finance for instance? It is quite possible to incur a short-term debt without considering it a long-term liability.

                      Anyway, you’re going off topic again. The take-away from what I have been arguing is that Key and English have not actually been contradicting each other, which is the point R0B was trying to make. If you read both the link to the English and Key articles, it looks like they are actually saying pretty much the same thing if you read the whole articles, not just the excerpts that R0B has clipped and pasted. Do you agree?

                    • Jim Nald …
                      24 March 2011 at 1:42 pm

                      Key is so smart that we have to be smarter to read sense into the mumbo-jumbo he and Douple Dipton cook up.

                      When we stare into our alphabet cereals for breakfast tomorrow morning, we’ll be able to read the embargoed speech for Budget 2011.

                    • Colonial Viper …
                      24 March 2011 at 3:31 pm

                      Key is NOT pushing for “bridging finance” for the country.

                      That’s just dumb to suggest he is. Is is advocating debt, lots of it, and while moaning about all that debt he still wants to keep tax cuts for the rich.

                      It’s clear his priorities.

                  • felix …
                    24 March 2011 at 1:39 pm

                    tsmithfield:

                    So you claim that Key believes something or other (I’m not even paying attention to what it is, btw) and I have to prove he doesn’t?

                    Weird world you inhabit there buddy.

                    I quoted you saying you know what Key thinks about something, above. He doesn’t say it in the snippets you quoted from him.

                    If you can’t show where he’s actually said any such thing then it’s your opinion and you should say so. (Looks like this: “I believe that Key thinks blah blah…”)

                    Otherwise you just made shit up and attributed it to Key.

                    • tsmithfield …
                      24 March 2011 at 1:44 pm

                      Actually, I found it for you. Read my post previous to my last one.

                    • felix …
                      24 March 2011 at 2:54 pm

                      Bollocks. That says there is no *single* asset or cut that would fund the cost.

                      From that you have deduced that Key *must* support extra borrowing.

                      Which he may well do for all I know or care, but you’ve still totally failed to quote him saying so.

                      Which means you’ve still made shit up and attributed it to Key.

                    • tsmithfield …
                      24 March 2011 at 4:39 pm

                      Sigh…

                      Here is the quote directly from the interview:

                      One is you can temporarily borrow the money and start the process, and we think that is the right thing to do because there’s no single either asset you could sell or expenditure that you could cut which would be great enough to actually fund the type of impact that the Christchurch is having on the books.

                      See. Key does think that borrowing in the short-term is the right thing to do. No contradiction with English at all. Just as I have been saying.

              • Bored …
                24 March 2011 at 11:51 am

                Mr TS, you are right,we have gone off topic…and we are right as well. As an accountant (you did say something like that so I am assuming) can you answer my question (3)?

        • Bored 1.1.2.2
          24 March 2011 at 11:33 am

          Felix, in telephony it is a well established technique to generate “white sound” to fill in gaps etc to make it sound “good”….I think that is hardwired into John Key. From now on I will only envisage him as a crackly phone line smoothed out.

        • burt 1.1.2.3
          25 March 2011 at 12:31 am

          OMG you guys are bagging Key because he is not scripted.

    • Colonial Viper 1.2
      24 March 2011 at 10:58 am

      So the word “ultimately” is likely pointing to some distance in the future.

      Key isn’t thinking of Christchurch past November, in the short term, and in the long term, he isn’t thinking about Christchurch past the day he leaves Parliament, whether its this year or next year.

    • r0b 1.3
      24 March 2011 at 12:03 pm

      Hey TS, I love the way you’re always prepared to bend over backwards to help the Nats, but do please read the first link in the post (to the Armstrong piece).

      • tsmithfield 1.3.1
        24 March 2011 at 12:24 pm

        Yeah I read that link. Seems to support what I was saying. Key and English being on the same sheet so far as reducing expenditure is concerned, and borrowing for the earthquake being short-term, not the long-term structural stuff that Key was concerned about.

        But that link to Key’s interview. You seem to overlook what he said further down:

        Borrowing the best funding option as a levy would be insufficient and “there’s no single either asset you could sell or expenditure that you could cut which would be great enough to actually fund the type of impact that the Christchurch is having on the books

        Stacks up exactly with what I have been saying and shows there is no conflict whatsoever.

        • Pascal's bookie 1.3.1.1
          24 March 2011 at 12:39 pm

          So the long term structural cuts they are talking about don’t really have anything to do with the earthquake then, in spite of how they sell it?

        • r0b 1.3.1.2
          24 March 2011 at 1:07 pm

          Yeah I read that link. Seems to support what I was saying.

          Apart from, you know, Armstrong writing about how Key and English disagree, and how folks around Parliament are talking about it. “Even so, the different stances taken by Key and English on the Christchurch rebuild have raised eyebrows around Parliament”.

          So yeah, I guess that seems to support what you were saying, in the sense of saying exactly the opposite.

          • tsmithfield 1.3.1.2.1
            24 March 2011 at 2:10 pm

            Actually, I missed seeing your first link, and looked at the English one. You also need to read what Key said fully. He was talking about needing to borrow short-term as well. So there isn’t actually a conflict.

            Even Armstrong concedes:

            Neither is the disharmony that unusual in their case. The Prime Minister and Minister of Finance have different audiences to satisfy – be it voters, the money markets, the credit rating agencies or whomever.

            That leads them to emphasise different things.

            So, even Armstrong agrees that the apparent conflict may well just be a difference in emphasis. Reading fully both the other links you give suggests that to be the case.

            • r0b 1.3.1.2.1.1
              24 March 2011 at 2:24 pm

              Yup, yup. White and black, really just a difference in emphasis too. That’s why Armstrong wrote a piece about it and the surprise that it generated around Parliament. I guess he should have checked with you first TS, and you could have explained it to him.

              • tsmithfield …
                24 March 2011 at 4:41 pm

                From Key’s interview:

                One is you can temporarily borrow the money and start the process, and we think that is the right thing to do because there’s no single either asset you could sell or expenditure that you could cut which would be great enough to actually fund the type of impact that the Christchurch is having on the books.

                There. Did you actually read through the entire interview? Because Key has plainly said that he (as part of “we”) is in favour of borrowing money in the short-term. No contradiction with English whatsoever.

  2. Lanthanide 2
    24 March 2011 at 9:47 am

    “My bet is that English has a better grasp of the numbers and the size of the problem than Key, and that the PM is going to end up looking pretty silly on this one.”

    Yeah, that’s my impression. I said the same on the incoming splitting post yesterday – there just doesn’t seem to be any way to realistically make small enough cuts to enough areas and not piss everyone off at the same time. They should just introduce a levy and be done with it.

    captcha: variables

    • Colonial Viper 2.1
      24 March 2011 at 9:57 am

      The Budget is supposed to be released in ~2 months or less. How on earth are they going to sort this out by then?

      Conclusion: high likelihood that the Budget will be full of holes and random line items appearing and missing.

      Scary.

      • Lanthanide 2.1.1
        24 March 2011 at 12:42 pm

        The budgets are generally signed off and completed in mid April, so there’s only 1 month left.

        • Jim Nald 2.1.1.1
          24 March 2011 at 1:08 pm

          Appreciating the current lot of Nats’ (Simon Power’s excepted) deep thinking, originality of thought, impressive vision, and policy freshness, we can expect John Key and Bill English to use the latest technological abilities of Microsoft Word and, with the fantastic help of some conjured figures, apply a superquick ‘find and replace’ job on to a digitised version of Ruth Richardson’s budget of yore.

          Voila!

          Mother of All Budgets resurrected.

          Let’s look to bless the upcoming 2011 budget as Mickey Mouses’ Grandmother of All Budgets!

          • Jim Nald 2.1.1.1.1
            24 March 2011 at 1:13 pm

            Btw, wotz happened to old lady Ruth?
            We should extradite her to face trial for economic crimes committed on New Zealand.

            • Bored 2.1.1.1.1.1
              24 March 2011 at 3:29 pm

              Ruth is busy with the planned larceny of the Canterbury water resources by the farming lobby and a dairy company she is involved in. You can be certain that the environment and the public domain will be treated with the same cavalier disregard that the general public of NZ were. Post prime euthanasia wont suit her…God is likely to have her on the reject list. I am not looking forward to my extensive years in Purgatory with her as company

  3. Bored 3
    24 March 2011 at 9:58 am

    A question to anybody there able to answer: Is the difference between insurances and actual damages known or has it been estimated?

  4. Kevin Welsh 4
    24 March 2011 at 10:13 am

    I’m picking that the “Allowance for macroeconomic effects” will be rather large.

    • Bored 4.1
      24 March 2011 at 12:31 pm

      Seems “Allowance for macroeconomic effects” is the best get of of jail free card to date. What worries me most about this is the likely shortfall between the insurances and the cost of the damage, nobody sems to be able to state what it is likely to be, or if the insurances will be able to be paid. Ultimately that is the number we may be borrowing against.

  5. the pink postman 5
    24 March 2011 at 3:57 pm

    Well it seems to me that Christchurch is being flooded with money.Everywhere I go, there is a fund raiser in action. Then there is the insurance money plus the government Earthquake fund .( I forget its proper name) . Then there must be some payouts from ACC, So why the excuses byKey and Co to soak the Taxpayer and to sell assets .

  6. Puddleglum 6
    24 March 2011 at 6:29 pm

    My favourite from Key’s interview: “We’ve inherited an earthquake.” Who from? Labour??

    That slip says to me his brain/mind is in “don’t blame us for anything, blame Labour” mode.

    • kriswgtn 6.1
      24 March 2011 at 7:20 pm

      Totally agree.
      I read that and thought WTF?? Inherited from who?

      Both unfortunately happened on your watch Key.own up and take charge and do something before winter sets in

      Because if they dont do something satisfactorily,they will pay at the eelction

      anti spam-costing

      • Puddleglum 6.1.1
        24 March 2011 at 8:09 pm

        If the authority they’re about to announce (Tuesday by Brownlee, after Cabinet on Monday) doesn’t have local officials with equal if not more clout than those from Wellington, Christchurch people are going to get very angry.

        We’ve already had ECAN taken out by central government. And Key’s wishy washy, evasive answer to Guyon’s question about whether Christchurch people will have a say in the rebuild (in the link to Key in the post) doesn’t inspire confidence.

        Letters to the Editor in The Press, this article on the front page of the print edition a day or two ago, business people protesting that we’re ‘in a communist state’ – Christchurch is in no mood to be bossed around.

  7. Dan 7
    24 March 2011 at 7:27 pm

    Strategic deficit strategies are clearly in place. Tory parties worldwide have given tax concessions to their mates, spent up large and then determined the debt is so great they will have to sell assets to the private sector to reduce the debt. The earthquake provides English with another justification for selling the public resources.
    The reality is they privatise profits when something is profitable, but expect government handouts when something fails.
    The NACT philosophy is quite immoral.

    • ZeeBop 7.1
      25 March 2011 at 9:33 am

      Bubble capitalism: Where people cycle into town past homes whose value is high because of their location (but are held as an asset by the car owning owners). The low energy lifestyle is merely just another way for the free market to create scarcity. Sustainable and resilient communities need two things for a free market to produce; low wages and high equality. Government could step in and charge inner city homes for their car usage and their occupation rates, and reduce the value of inner city homes as asset warehouses, but the very people who would need to change, own the assets that will lose value as they move from being assets to productive elements in the economy. Just as any goods when used become less valuable. So inner city homes as extensions to the trophy wife syndrome, trophy homes if you will, only become valueless (in terms of financial wealth) when they become something more engaged with. Governments and councils need to flatten the advantage of location by providing public services to outer suburbs and charge inner city homes for having cars.

  8. logie97 8
    25 March 2011 at 7:21 am

    English quoted on the BBC that the Government must borrow to rebuild Christchurch. (Even has a photograph of him with the quote under it…)

    http://www.bbc.co.uk/news/12834145

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