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.