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Stock market movements, company earnings reports and economic
data has never felt more irrelevant than in the days following last
week's Canterbury earthquake.
My daily bread and butter could not have been further from my mind
as I watched the devastation in Christchurch unfold on my
television screen and fretted about the people I know who live
there.
Even as the AMP Business show returned this week, I felt
uncomfortable counting the financial cost of the disaster when we
were still counting the human cost. How much of a hit will the
economy take? Should the Reserve Bank cut interest rates? Can the
EQC foot the bill?
But count it we must, because when the earth moved under
Cantabrians' feet, it also shook the foundations of our economic
recovery.
The turning point many thought we'd reached at the start of this
year on our road to economic recovery is no longer apparent.
And we must look at the quake in financial terms, because
there is a shortfall between the cost of the destruction and what
the EQC and insurers will cover. The government will have to
adequately fund the rebuilding of our second-largest city and the
spirit of its inhabitants.
To my mind, the Finance Minister is making the appropriate soothing
noises about central government's response.
On AMP Business this week
Bill English told me that "in the short run we're
doing whatever it takes at pretty much any cost, I think that is
the support that New Zealand wants to give to Christchurch".
Hear, hear! But the fact remains he still has to find the money to
fund it.
Borrowing with abandon
We've been talking ad nauseum over the past few years about the
country's debt levels and the need, in light of sovereign debt
problems in Europe and the threat of a credit rating downgrade at
home, to get those levels down.
The government is still borrowing around $300 million a week and
ministers had devised a plan to bring that down which, along with
other measures, was designed to get its books back into the black
by 2014.
Some say, in times like these, borrow with abandon.
Well, not quite abandon, but Shamubeel Eaqub from the
NZ Institute of Economic Research told me this
week : "We think the government has ample room to borrow more
and that should be the first route the Government should take. The
economy is already quite weak and this is not a time we would like
to see an increase in taxes."
On his projections, government debt as a percentage of GDP would
only get to around 40%.
But while the government's debt levels would still be relatively
benign, Bernard Hickey on his website interest.co.nz points out
that it is total net foreign debt - forecast to reach 90.5% by 2015
- that is the bigger concern.
"That is a Portugal/Irish/Greek/Spanish (PIGS) level of net foreign
debt. The difference for New Zealand is that most of it is debt
held by the big four Australian-owned banks. Both the banks and the
government face a ratings review for possible downgrade from
Standard and Poor's."
Too optimistic?
I asked English whether he now thought the credit rating downgrade
threat that has been hanging over our heads was now inevitable and
found his answer almost a bit quaint. "They can hardly blame us for
the earthquake... I think their view is that things probably
haven't changed much."
Well, no, they can't well blame anyone for the quake, but that
doesn't mean they won't pass judgement on its effect on the
country's finances.
I think it's optimistic to think they will believe nothing has
changed, when government spending will go up in tandem with its tax
take going down.
That's unless the government sticks to its debt-reduction timetable
by taking the knife to other projects in order to fund the
Christchurch rebuild, which the Finance Minister has alluded to and
is entirely possible.
However it happens, it has to happen.
What needs to be done in Christchurch, has to be done for the sake
of beleaguered, grieving Cantabrians.
But also for the good of a struggling economy, it has to be done
in such a way that it won't cause aftershocks of its own.
Read more of Nadine's commentary here.
How should the country pay to rebuild Christchurch? Have your say on the message board below.
Add a Comment:
Post new commentnztifosi said on 2011-06-03 @ 17:26 NZDT: Report abusive post
Just when my family was making headway financially the government chose to cut tax and put GST up. At the same time funding to the school I work at was cut resulting in an hours cut for me. Result? We are now worse off than ever before! And now we are supposed to spend, save, donate to Canterbury and every other charity as if the current situation were the working man's fault. It is the speculaters and the financiers along with the government who got us into this mess! -now they can get us out!
deltics said on 2011-05-19 @ 12:38 NZDT: Report abusive post
Saving isn't what NZ needs right now, it needs to pay off it's debt AND increase spending. Money paid into KiwiSaver doesn't reduce our current debts and doesn't circulate around or stimulate the economy! So it actually makes a lot of sense for the government to reduce the incentives to pay into KiwiSaver whilst emphasising the need to be more prudent in our spending (paying down debt) without closing our purse strings too tightly in the process.
ceejaygee said on 2011-05-15 @ 12:33 NZDT: Report abusive post
i currently pay 4% into kiwi saver i would like to pay 6% unfortunately there is no provision for that hopefully the govt have thought about that. as to the tax credit cut not a clever idea, maybe they could make it totally tax free then we could really save for our retirement then they could cut the tax credit altogether
Danthetaxpayer said on 2011-05-14 @ 19:10 NZDT: Report abusive post
I would also like to ask how is it retirement savings are even a priority when we fail so badly as a country to take care of our children? Children who are meant to be our future taxpayers helping to fund future NZ Super? Children who are often neglected, illiterate & who struggle to get the medical assistance they need due to health care shortages and whose families often have to fundraise? Why are these things not a priority?
Danthetaxpayer said on 2011-05-14 @ 19:07 NZDT: Report abusive post
I'm confused: how is it saving when most of the 1.67 odd million people with Kiwisaver are probably receiving some kind of government assistance. Assistance is for hardship and to meet basic needs - food, clothing, shelter only. If they have enough spare to put into Kiwisaver which then gets matched by more taxpayer funds earned by the hard work of others, then isn't this the horse before the cart? Further, how can it truly be savings when we are borrowing $300 million each week?