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Key: quakes to cost 125,000 jobs

Written By: - Date published: 12:45 pm, March 3rd, 2011 - 70 comments
Categories: Economy - Tags:

We’ve heard figures of $20 billion damage from the Christchurch quakes, $5 billion uninsured for the government to cover. Now, Key has given an estimate of the lost economic output this year – $12 billion, 6% of GDP. He says that will mean $5 billion less government revenue – a hole the size of the defence and law and order budgets combined.

Speaking on NewstalkZB, Key said “From June to June, my guess is that we’ve lost $12 billion in GDP. In other words, just less activity. Crudely, from the government’s view, that’s $5 billion we don’t get.”

Frankly, these numbers seem far too big to me. Canterbury contributes only 15% of the country’s GDP and I don’t think these two quakes can have eliminated 40% of Canterbury’s annual economic activity. But, I don’t see any reason why Key would be so irresponsible as to make them up, so let’s consider the consequences.

$12 billion less economic activity implies about $5 billion less in employee compensation. The average employee gets $40,000 a year, so that’s 125,000 jobs lost – 40% of Canterbury’s workforce and enough to take national unemployment close to 13%. The extra dole bill would be on the order of a billion dollars.

The $5 billion slice out of government revenue and the billion extra dole bill is ‘only’ 12 days worth of the country’s economic output but when you ask who the government gets the cash from it’s huge, especially when you consider that the government is facing an extra bill of about a billion a year for the next five years for the rebuilding. While a disaster levy, like the one proposed by the Greens, could raise a billion a year to cover the extra costs, there’s going to have to be some extra debt to cover the lost revenue and extra dole.

Let’s be clear, cuts like National is mincing around won’t cover it. Trimming Working For Families would only save a million a year if (somehow) limited to families on incomes over $100,000. Excluding some more people from higher education, as Key is suggesting, will only save a few million too. Yes, National is planning to use the shock doctrine to do things they otherwise couldn’t but covering a $5 billion hole and the extra dole bill with cuts would be a slash and burn exercise like we’ve never seen. Thankfully, I don’t think Key has the guts.

Before anyone says ‘asset sales’, they still make no sense. We’re better off keeping the dividend stream to help pay these bills because the SOE’s returns exceed the cost of government borrowing.

The other question is how long the economy would take to recover from such a hit. You can’t expect it to slump 6% under expectations one year and shed 6% of the national workforce and then have everything bounce back the next year. Especially in the middle of a global oil/food shock. Even with insured property owners, hopefully, using the money to rebuild, we’re looking at years of economic activity well below the projections that the government’s budget is based on.

To avoid debt spiralling, National will have to make hard choices: it will have to ditch the least worthwhile government spending, the new motorway construction programme, and restore revenue to a sustainable level by reversing the tax cuts of recent years. I estimate those two moves would raise $20 billion over the coming decade, enough to cover the ongoing revenue losses and reconstruction costs, hopefully.

If the situation is as serious as Key says, there’s no other choice.

Update: Key has corrected himself – “$15 billion of lost GDP, which translates to about $5b less tax potentially (over four years).” So, that brings the job losses down to, maybe, 30,000, still a huge number. I wish Key would get his numbers right. He is a money man, after all.

70 comments on “Key: quakes to cost 125,000 jobs ”

  1. lprent 1

    The problem is that at present the government appears to be dithering around the edges. The only realistic alternative is to raise revenue to ensure that the immediate debt to be raised can be serviced. That means raising taxes or doing a levy. Since this is going to be a multi-year issue rather than a one off.

    The longer they dither, the more that Christchurch will become a ghost town and the larger the eventual bill gets with accumulated employment and business losses further reducing the existing revenue stream.

    • Colonial Viper 1.1

      Plenty of organisations in other municipalities are taking active steps offering Christchurch businesses (and workers) help to relocate to other cities. This is understandable, given that Christchurch may not have even a minimally functioning CBD until 2012, maybe longer.

      Beware, Australia will not be able to act as a sink for our excess labour pool much longer. That’s when things will start turning nasty.

      • SPC 1.1.1

        Their growth was 2.7% last year, the forecast is for very strong growth this year (higher despite the floods).

        • Colonial Viper

          Assumptions of continued high hard commodity demand from China. limited energy price increases and ever increasing private debt is needed for Australia to continue on this “growth” track.

          • SPC

            No problem – the constraint is actually access to energy and the Chinese and Australians have plenty of coal – there is also uranium for the transfer to nuclear energy.

            • Colonial Viper

              No problem

              I envision you as the guy egging the Captain of the Titanic on to make a speed record to New York.

              One thing I will say about nuclear energy – it takes a decade to build a nuclear reactor and while China has very many going up, Australia has (I think) none.

            • RedLogix

              No problem – the constraint is actually access to energy and the Chinese and Australians have plenty of coal

              So no constraint on the CO2 content of the atmosphere then?

              • SPC

                No, not on the coal shipped to China and that speaks to why growth is occurring in both countries.

                And uranium resource exploitation will add to the revenue flows to Oz.

                • RedLogix

                  My bad.. I didn’t realise the Chinese had this marvellous technology to burn coal without releasing CO2.

                  Or are you saying that the Chinese are growing their economy by ‘cheating’ on the rest of the world, willfully ramping up their CO2 emmissions (now 40% greater than the USA’s) …while much of the rest of the world struggles to find ways to limit theirs?

                  • SPC

                    You do know the different obligations on nations that did not sign Kyoto?

                    • RedLogix

                      So those nations that did not sign on to Kyoto… and perhaps more importantly, have no commitment whatsoever to the global expectation that CO2 emmissions should be limited… are simply freeloaders, growing their economies at the expense of the rest of us. No?

                      Highly recommend the linky above… it’s a fascinating read. But enough thread-jacking from me.

                  • SPC

                    In mitigation it can be argued that they import the high grade coal from Oz and us (as do the Indians) – lower emmissions – and they are investing more in green tech than the Americans.

                    The irony of Kyoto is that some western nations are meeting their committments by transferring production offshore – either to the Chinese or to plants in Eastern Europe.

                    The flaw of Kyoto is that the appropriate measure is not production but consumption. And the appropriate global control is not 1990 level caps on a few nations but placing a tariff on the carbon content of goods traded between countries – so the market price provides an incentive to reduce carbon inputs.

                    We for example bear the production burden of methane emmissions rather than those consuming our exports – and we are world leading in efficient production (and grass fed contributes less to greenhouse gas build up).

                • Colonial Viper

                  Can’t just look at the revenues, gotta look at what assets the Australians have built up over the last 20 years.

                  Its arguable that they have a far more dispersed population base than us – but they were doing better than us even 10 years ago when China was a much smaller player.

                  Frankly, we have failed to diversify our real economy base. Relying on low paying/low employment dairy and low revenue per employee/lowish skill tourism.

                  • SPC

                    They have of course the assets built by their super savings and an expansion into assets offshore (especially here) – they have also been measured in selling public assets – and not doing so when the market is weak – allowing buyers an easy capital gain at the public’s expense.

                    It’s an irony that Douglas would look at any radical idea since 83-84 but his own from the 70’s.

        • south paw

          A yankee hedge fund manager is in the news saying Aussie houses are 42% over valued and due to crash. Other bad signs the game is up over there too.

          • SPC

            The average value of a home sold in the USA this year is about $160,000 and there is currently parity between the two nations currencies. So housing is valued a lot higher in Oz.

            But wages are lower in the USA (average public sector wage is 49,000, average private sector wage is 47,000) than in Oz, the unemployment is at 9-10% and understated, and they built too many homes on the cheap credit binge and now have surpluses in most areas, and in some areas simply no jobs.

            Also in the USA people can leave the debt with the bank owning the house whereas here and in Oz the person has to pay back the mortgage even if the house is sold for less. So as soon as a house value falls to the value of the mortgage people walk – more sales push the value down further and the whole cycle continues over and over. People simply leave their old property and buy another one (bidding low at auctions) or rent until prices fall further. This may mislead American commentators assessing property values in other countries. Not all countries are that stupid or that mismanaged.

            • RedLogix

              Yes… I agree. I’m not sure on all the details but I also understand that in the USA mortgage interest, even on the family home, is fully tax deductable. This has to have an impact as well.

              The Aus/NZ situation isn’t 42% overvalued. But they aren’t right either.

              • SPC

                Yeah, with the mortgage tax relief and a jobs recovery their homes will be worth more – but in their system the floor value has to be seen to be reached first. They’re worth less than ours at the moment.

                The Australians can grow into their house values with rising wages – whereas we have a long period (like 76-81 when prices were flat while inflation was high) at our current low inflation about 10 years (c2017) before housing gets back to/rises above the 2007 nominal value.

                It’ll be like farm values of tha pst year, income return from rent will the be the new measure of value until more home buyers can afford to buy.

      • Zaphod Beeblebrox 1.1.2

        Abbott advocated capping immigration (of all comers) at 180K per annum during the election last year. Tearing up the Oz-NZ agreement and limiting NZ migrants would not be an unpopular move. If that happened you could be looking at 10-15% unemployment in NZ eventually. Hope it never happens though I fear one day it will.

        • SPC

          So it would be a smart move by the current governments to develop CER to prevent that being possible.

    • U 4 United 1.2

      Whither the dither? I see a decisive government in CHCH,

  2. bobo 2

    Does that include jobs lost before the quake…. seems like their poor economic record to date will all be scapegoated on the quake (and previous labour gov) leading up to election.

    • Colonial Viper 2.1

      People who are suffering won’t buy that rationale. Although the upper middle classes unaffected elsewhere might.

      100,000 new direct Government funded jobs is what we need over the next few months.

      Bring back the Ministry of Works as an entity to oversee and direct the rebuilding of Christchurch over the next 10-15 years.

    • Marty G 2.2

      It does include all under-performance compared to forecasts. But, like I t,say, I think Key’s numbers must be too large.

  3. bobo 3

    “Upper middle classes unaffected” is probably the majority of swing voters… would like to see Labour come out with a alternative plan in next month or so fast tracking youth apprenticeships with maybe business grants and tax relief to companies who commit to rebuild and stay in Christchurch.. I’m not holding my breathe on the gov having the vision or follow-through, wasn’t it only a few months after the first quake Brownlee said to shop owners to move on and stop asking for hands outs or something to that effect? Besides organizing party central in Auckland was hard enough for National.. How is party central going by the way??

  4. SPC 4

    The government gains $5B by axing the Kiwi Saver tax credits over 5 years (the cost is currently $1B pa and can only increase as more people adopt Kiw Saver).

    Labour should make this a bi-partisan move. It’s not gutting Kiwi Saver to acknowledge one cannot subsidise private savings with public debt. Not when the public interest has a short term focus on budget pressures and a long term interest in a savings Fund to afford tax paid super.

    • lprent 4.1

      Short-term thinking. The point about kiwisaver is to increase the number of people saving in NZ from across the economic spectrum, especially the young and the poor.

      This has widespread support across the political system simply because it has been long recognized that out chronic savings deficit constrains our economy. What you are talking about is to remove one of the incentives to meet a short term issue (less than a decade) by helping to gutting the incentives to relieving a long term issue. It seems totally silly.

      It’d be better to do a short-term solution to a short-term problem. Of course I haven’t even gotten into the social issues related to breaking contracts.

      • SPC 4.1.1

        What contract?

        The 2% employer contribution is sufficient incentive to save – it’s a doubling of the amount saved by the worker.

        As for the ethics – paying people who can afford to save (dollar for dollar for many) and making provision for those who cannot afford to save less affordable results in what exactly? Hardship to the least well off in society.

        As for the stupidity – stupidity is subsidising private savings without providing for any means to save to afford tax paid super itself.

        • Colonial Viper

          The 2% employer contribution is sufficient incentive to save – it’s a doubling of the amount saved by the worker.

          Meh. A cheap pittance compared to Oz.

          It’s not gutting Kiwi Saver to acknowledge one cannot subsidise private savings with public debt.

          The exact rationale English used to stop paying into the Cullen fund. And look, we are $300M worse off because of his (and your) bad economics.

          • SPC

            It’s not English’s fault that the Cullen scheme was dependent on surpluses for its finance.

            Cullen apologists cannot have it both ways – “we repaid debt and did not cut taxes as much as National advocated because we knew about economic cycles and what was affordable etc” and yet Kiwi Saver was left as dependent on borrowed money as the Cullen Fund was to be financed whenever there was a recession.

            PS Actually I argued that English should have borrowed that year because it was good buying (after the crash) – even Treasury noted that point was relevant to the decision.

            Neither Labour nor its supporters should be committed to past error.

            • Colonial Viper

              Sorry, what was the past “error” in your judegement? This?

              It’s not English’s fault that the Cullen scheme was dependent on surpluses for its finance.

              Cullen did not hold a gun up to English to cancel contributions, did he?

              • SPC

                How many people taking over a job would continue an unfunded programme launched by their predecessor.

                Cullen knew that English opposed the Fund from the beginning and this is who would end up deciding whether it would continue when there were no surpluses.

                Any politician that wants to protect a programme has to ensure that it is funded and will continue to be funded – only dedicated funding ensures that across the economic cycle.

        • SPC

          A better plan would have been 4% paid by the worker, 4% by the employer – with half (2%) of the employer contribution going to the Fund to afford tax paid super. The only tax payer contribution being a $1000 start-up.

          And with all 4% paid in + employer 2% being available for a home deposit.

          A 2% rate being compulsory – still with 4% from the employer.

  5. tsmithfield 5

    “Frankly, these numbers seem far too big to me.”

    You forget about the multiplier effect of money. This means that a much smaller direct loss could equate to a very substantial loss if that money was not available to spin through the economy.

    • Marty G 5.1

      “you forget about the multiplier effect of money” . No I don’t.

      • Herodotus 5.1.1

        All the figures commented on are short term. I have read nothing should we rebuild Christchurch whatthe long tern up swing would be. The money paid out by private insurers and EQC also have a multiplier effect plus the abililty to plan a new Chch, modernise it with infrastructure (fibre etc. though I note that should Chch be totally fibre optic then analog phones should another quake occur would be usless- they require mains power to operate on from the central box in the garage).
        Why is it always a 1-3 yr out planning time table (same applies to funding for the retirees for pension, health care and housing). What are the benefit over 20-30 years? they maybe so great that the short term cost is well worth it. Samll thinking results in stagnation.

    • Colonial Viper 5.2

      Yeah the multiplier effect of money, which Key and English completely disregarded when they decided that sending train builds to China was the thing to do, instead of having those tens of millions bouncing around the South Island instead.

  6. SPC 6

    There will be a recovery in tax revenues with the rebuild.

    But first a job loss in Christchurch, then a transfer of workers (lost existing workers replaced by workers active in the rebuild), then a new equilibrium (possibly lower than before because of business restarted elsewhere – capital used to launch new business elsewhere).

    As for capital works spending – there are two separate issues, labour force use (availability) – the project management side of it and the public debt management side of it (giving foreign lenders a look at the longer term plan to use debt, a peak level and then a pay down).

    • SPC 6.1

      So there is a reason to cut road work construction in Auckland if the reason is make the workforce available for road building in Christhchurch (and operate within existing debt finance schedules as well).

  7. The quake is good news for the NACTs all round. They can use it to build support for their policies.
    125,000 jobs losses means a big inflow of unemployed into the reserve pool of labour. Many are already relocating without any instruction from WINZ. Razor Gang policies will force thousands more onto the job market. Liquifaction means a fluid supply of labour. So that’s a downward pressure on wages that no present bureaucratised union can fight.
    As for recapitalising ChCh, that will come out of the pockets of workers, both in cuts to their wages and increased exploitation, but also more taxes on that reduced income. ChCh will revert to a service centre for agriculture, tourism and museums. Other industry will migrate north and across the ditch as it has been doing for years.
    Privatising the SOEs is not about economic efficiency but extraction of monopoly rent. Privatising farm land, water, foreshore and seabed (Maori will fail to get any sort economic benefit except a small elite that buys into monopoly capitalism), the NACTs class backers will extract whatever value they can from NZs land and labor into their increasingly tax free pockets.
    All of this demonstrates the Marxist theory that as capitalism gets more crisis ridden it can only survive by more and more destruction. The growing gap between rich and poor is a surface symptom of this process. ChCh at the moment is a microcosm of how it functions.
    Years of underfunding and deregulation leads to much destruction of physical and human capital. The solution is a further destruction of both as excess housing stock is destroyed and workers thrown onto the scrap heap.
    The banksters come along and rationalise the recovery and rebuilding to suit the now restructured Canterbury and hinterland economy owned by the 21st century gentry. What about the workers?
    What has the Labour Party to offer? Labour was the party of class reconciliation in the age of national capital. The reconciliation only worked while protectionism allowed high profits to pay high wages.
    The end of the boom in the 1970 ended all that. In 1984 Labour had no choice but to switch from national to international capital. After deregulation class reconciliation became a dream. So it has no answers for workers today. As ChCh workers are liquifacted and become more class conscious and reliant, they will look to their own organisations and leaders. So welcome to the new age of labour struggles that match those of the Red Fed a century ago.

  8. Tigger 8

    Succinctly put Marty, wish the MSM would start calling National on this…

  9. infused 9

    Well the Fiber to the door program is going to go…

    • SPC 9.1

      That should depend on whether the workers who would do the work are required to work in Christchurch or not. Otherwise the investment is in future economic growth and that pays for itself.

    • Lanthanide 9.2

      I still haven’t seen any real justification for it. Sure, fast internet is good, but it’s much more needed in rural areas where they’re still putting up with unreliable dial-up and expensive satellite connections.

      In all of the official press releases and announcements about the plan, the only thing I’ve ever seen them specifically mention what it would be used for is “TV over the internet” and then handwavy things about economic growth that apparently is going to spring forth from nowhere.

      Now, I guess education could be a particular sector that could really benefit from that, but you don’t have to wire up every house in the country for that, just wiring up the schools would get a lot of the benefit. I know that some schools in some cities already have WAN and MAN connections amongst themselves anyway.

      • aronwatson 9.2.1

        Never really personally saw any justification for it either Lan 🙂

        But, this is solely targeted at e-commerce sites relating to the music and movie industry.
        As we move away from dvd’s and into blueray, it may take awhile to download a 25gb movie.
        Now I think Kiwi isp’s would have trouble keeping up with there broadband plans to handle it, let alone the network. So it’s no insentive to buy a movie online when like the dial-up days, you got the message ‘Download complete in 2 days, 5 hours, and 32 minutes”, and who wants to go back there lol 😉

  10. Fisiani 10

    You write an update of 30,000 and yet still keep the headline of 125,000. Wonder why????

    • Marty G 10.1

      Because your tears sustain me

    • ghostwhowalksnz 10.2

      Tell us why Key cant make simple statements without mashing them up completly.

    • Lanthanide 10.3

      I too find the editorial accuracy/slackness of this site irritating at times.

      • Marty G 10.3.1

        Off the high horse, lanth. We’re volunteers and we can’t be on the site 24/7. As for this post, I quoted the pm and I noted that he had corrected himself. You don’t change titles or delete content on blogs, because it’s bad practice to try to pretend errors never happened. Instead, you put in updates, as I have done.

  11. Adrian 11

    I bet that the most relocation is limited to the wealthy , already in Marlborough big numbers are enrolling with one of the largest intakes in the smallest most remote school in the country that’s in the outer Sounds where a bach is a half a million. The Nat’s bullshit will last only so long as the unemployed should be limited to around Chch, and people must eventually ask, “Hey how can you blame unemployment in Auckland or Hamilton on the Chch quake?

  12. Graeme Taylor 12

    I HOPE I don’t have to help Christchurch.I hate that city.

    • RedLogix 12.1

      That’s fine GT… tell us again where is that you said you live in NZ that’s perfectly immune to natural disaster?

    • Maynard J 12.2

      And everyone in it, including those who died? Hate them too?

  13. Jenny 13

    The declared national state of emergency needs to be extended to the finance sector.

    A moratorium on mortgages in the Greater Christchurch area, for a period of three months. (renewable on review) to be declared by the government.

    To provide immediate practical financial relief, for the Christchurch municipality, local business and citizens.

    A moratorium on mortgages would:

    1# End the brutal war breaking out between landlords and tenants.

    2# Leave funds in Christchurch for families and municipalities to be able to deal better with the costs of the quake.

    3# The immediate easing of living costs would keep many productive families who otherwise would leave the city. Many of these people will be vital to the rebuilding of the city’s infrastructure.

    4# Not cost the government anything, as this revenue stream is untaxed.

    I expect the banksters would immediately threaten punitive actions against the rest of the economy, if their profit stream were to dip by as much as 15%. (Christchurch being 15% of New Zealand’s economy).

    An investment strike, or lobby of the IMf for a national credit down grade, could be some of the actions the banksters would threaten.

    Both of these actions could be countered, an appeal to the IMF and the UN to overrule a credit downgrade, stating the nature of the emergency and the need for extraordinary measures to deal with it.

    And at the local level, retaliatory actions against any bank that threatens an investment strike. (The same sort of punishments proscribed against strikes in the ERA could be implemented against the bankers, ie. arrest, confiscation of property, daily fines for as long as the strike continues)

    Due to the nature and the scale of this disaster, can anyone suggest why this shouldn’t be done?

  14. Afewknowthetruth 14

    The article makes the false assumption that loss of GDP is a bad thing.

    GDP is a false measure of economic activity and simply records money flows. It records how quickly we are destroying ourselves via consumption of non-renewable resources and destruction of the environment. GDP effectively is a mesure of how quickly we turn fossil fuels into waste. GDP is no measure at all of the well-being of a nation. Every time GDP goes up the quality of life goes down and the oil and envronmental catastrophes get closer.

    It follows that the lower the GDP the better off we will be in the long run.

    I’m sure that’s too hard for most people, who have been subjected to the bansters’ and economists’ propaganda for decades and actually believe it.

    • Colonial Viper 14.1

      GDP doesn’t “simply record money flows” it records the total value of products and services produced in an economy.

      It follows that the lower the GDP the better off we will be in the long run.

      Yeah, no it doesn’t, unless your idea of being “better off in the long run” is forcing hundreds of thousands of people on to the breadline, causing the Government to default on its financial responsibilities (including paying its own public servants), and having such a withdraw of services from the community that it returns to every man and woman for themselves.

      AKA the Great Depression.

      • Robert Atack 14.1.1

        >forcing hundreds of thousands of people on to the breadline, causing the Government to default on its financial responsibilities (including paying its own public servants), and having such a withdraw of services from the community that it returns to every man and woman for themselves.<
        Yes … that is a great description of what it is going to be like after the oil tankers do not deliver the energy all the above is dependent on.

        captcha – disadvantage, IE where you place yourself if you believe the rebuild/BAU crap all politicians spout.

        • Afewknowthetruth

          Yes Robert. Most people do not recognise that we are in ‘The Long Emergency’ now and are headed straight into the Second Great Depression, with financial collapse and massive unemployment AS A DIRECT CONSEQUENCE of business as usual policies, even if the oil tankers continue to arrive.

          And if the oil tankers stop coming it will all be over in a month.

      • Afewknowthetruth 14.1.2

        ‘ it records the total value of products and services produced in an economy’

        It is a physical impossibility to ‘produce\’ services. Services are a form of consumption of energy – the energy in food and oil. And since most of the energy in food is delivered courtesy of oil, even someone delivering letters on a bicycle is still using up oil.

        Most of the NZ economy is consumption, not production. Only trees and grass (and the oceans) produce anything. And the way the system has been set up even the trees and grass are dependent on huge inputs of oil and fertiliser to produce.

        The way the system works, if someone crashes their car and gets its fixed, that is called productivity in the service sector. If the panel beater is twice as busy because twice as many cars get smashed that is twice as much productivity in the service sector.

        The entire system is screwed, I’m afraid. Has been from its inception. That’s why we are in such deep shit.

        As I said, the truth is too hard for most people.

        • Colonial Viper

          Oh get over yourself.

          No one is voting for your peasant based agrarian future vision, from a practical standpoint nor from a standpoint of masochism.

          • Afewknowthetruth

            You are quite right. Nobody will vote for sanity, which is why collapse is inevitable.

  15. Kevyn Miller 15

    According to Treasury the earthquake is responsible for only $5bn of the $15bn reduction in forecast GDP growth but they are vague about th earthquake’s impact on tax revenue. However I would expect the earthquake’s impact on tax revenue to follow Treasury’s summary of the overall economic impact: “The earthquake will have a negative impact on economic activity in 2011, but a
    positive impact from 2012 as the rebuilding gets underway.”

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