$30 billion, maybe $40 billion

April 24th, 2013 at 2:00 pm by David Farrar

The Press reports:

The Canterbury recovery will cost almost $1 billion more than the value of Cyprus’ gross domestic product, almost twice Iceland’s and more than double New Zealand’s annual health spend.

And while Canterbury Recovery Minister Gerry Brownlee says the recovery’s price tag is still on the rise, looking set to surpass the latest $30b estimate, Canterbury Employers Chamber of Commerce chief executive Peter Townsend has now gone further, saying the recovery will cost $40b.

Bill English must sometimes gaze enviously at Michael Cullen’s photo, assuming he has a dart board in his office.

The last Finance Minister had a booming global economy, and his biggest problem was inventing new spending schemes to stop the surplus getting too large.

English has had not only the worst global recession since the Great Depression, but also the fiscal shock of the Christchurch Earthquake which as a percentage of the economy is one of the greatest to hit a developed economy in modern times.

The fact we are on track to achieve surplus the financial year after next is a minor miracle, after inheriting a structural deficit projection.

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15 Responses to “$30 billion, maybe $40 billion”

  1. Brad (75 comments) says:

    And yet we can all still recall National’s regular ‘tax cuts! tax cuts!’ demand of that period

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  2. metcalph (1,434 comments) says:

    I must confess. I get a burst of chest-thumping pride when I see cost comparisons of the earthquake (greater than cyprus! Twice the size of Iceland!! A third of the cost of Fukishima!!!!) like these.

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  3. Prince (109 comments) says:

    Brad…”And yet we can all still recall National’s regular ‘tax cuts! tax cuts!’ demand of that period”

    The pre-earthquake period do you mean ? Yes and we could have still had real tax cuts, if Cullen and co hadn’t pissed the surplus up against a wall.

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  4. Lloyd (125 comments) says:

    If I lived in Wellington, this would give me pause for thought.
    In Christchurch, we had a fraction of what you will endure when the biggie strikes there.
    I wonder how many of the luminaries who comment on here with varying levels of erudition and logic have their emergency kits prepared? I would go to the TAB on a bet of less than 5%.
    If nothing else, at least learn from us.

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  5. Grant Michael McKenna (1,160 comments) says:

    There is no chance of a surplus if the economy gets smashed by Labour. They get to break it- and to blame National for it.

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  6. Fentex (1,038 comments) says:

    The fact we are on track to achieve surplus the financial year after next is a minor miracle, after inheriting a structural deficit projection.

    This doesn’t make much sense to me. If NZ once had a structural problem that would cause deficits, but has now projected surpluses then surely something structural has changed, and given how significant structural work is I think we’d all have noticed it happening.

    I don’t recall a significant change to NZ’s finances that could be called a structural change in recent times, just different prioritising and budgeting. I think someone is over-stating their case, or expecting tremendous change in the next year or someone’s projections are off.

    [DPF: The structural deficit was because the increase in debt would lead to an increase in interest costs and hence the deficit would just get larger and larger.

    National made some policy decisions to cut KiwiSaver subsidies and the like to stop this scenario happening]

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  7. scrubone (3,105 comments) says:

    The last Finance Minister had a booming global economy, and his biggest problem was inventing new spending schemes to stop the surplus getting too large.

    .

    And yet we can all still recall National’s regular ‘tax cuts! tax cuts!’ demand of that period

    http://en.wikipedia.org/wiki/Facepalm

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  8. georgebolwing (998 comments) says:

    Much of that bill will be paid for by the wealthy “names” at Lloyds and other insurance underwriters. The notable exception is infrastructure assets owned by the Christchurch City Council.

    And becuase of quirks in national accounting, the rebuilding counts as an addition to GDP, while the distruction doesn’t count as a subtraction.

    And it is highly likely that the new Christchurch will be of much higher quality than the old one (the rebuild is unlikely to be “like for like” but “old for new”).

    So while it was a great human tragedy, I would be careful before saying it was an economic tragedy.

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  9. Jack5 (5,157 comments) says:

    We are repeatedly told the billions of dollars coming into NZ from international re-insurers is helping to insulate the country from world financial problems, dampening our chronic balance-of-payments deficits, and generally boosting the NZ economy.

    Now our financial leaders are brilliant because the quake has knocked hell out of the national economy and they have managed to keep it on course.

    What is the truth?

    And why do our politicians and bankers focus solely on the GDP and ignore the balance-of-payments deficits? Are they con men?

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  10. KevinH (1,236 comments) says:

    Clark and Cullen rode a debt fuelled wave that crashed onto the rocks cutting the New Zealand economy to pieces. English had to play the role of a medic, he had to placate the howlers and wipe away the blood to see how bad the damage was. Fortunately the damage was superficial, a few band aids here and there and she’ll be right mate.
    Just when English thought he had the cure he got a massive kick in the ass from Christchurch which he is still recovering from, however he knows that the fundamentals are right and on course and with a bit of time and prudent spending she’ll be right, mate.

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  11. Alan Johnstone (1,087 comments) says:

    “The last Finance Minister had a booming global economy”

    Seriously ? People are still thinking this? For the avoidance of doubt, there was no booming global economy in the late 90s / 00’s.

    It was a chimera of a boom, manufactured with toxic debt and asset bubbles. The GFC was an inevitable consequence.

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  12. slijmbal (1,236 comments) says:

    “Much of that bill will be paid for by the wealthy “names” at Lloyds and other insurance underwriters. The notable exception is infrastructure assets owned by the Christchurch City Council.”

    I think Berkshire Hathaway took a bath on that – shame as I own shares in Mr Buffett

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  13. SPC (5,775 comments) says:

    Oh give it a rest, the fiscal management of English is nothing miraculous

    1. we did not have a banking crisis.
    2. we had low public debt when the global recession hit.
    3. our exports were unaffected and in fact prices have been good for them on the global market.
    4. exporters had a better exchange rate return for the Oz market than for over a decade.
    5. we now focus on the still growing markets in Asia, not Europe.
    6. even then we are dependent on the insurance pay out for our growth forecasts.

    No action to get houses built post finance company and property developer bankruptcy, no action on banks returning to 90% plus value loans to property investors, the continued lack of a CGT in the residential property and farmland market, the lack of an energy plan to deal with the impact of the smelter closing, the lack of a long term plan for ballooning health and aged care cost, no realistic return to saving into the Cullen plan or any alternative long term tax paid super affordability plan. So much left for a an incoming government to do – let alone the usual, child poverty and the poor state of private rental accommodation.

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  14. pq (728 comments) says:

    oh dear, lets catch up shall we.
    In the early days the Canterbury recovery was costed at 2 billion dollars. I estimated then and now that it will take the Gross National product 80 billion.
    laugh and derise here, I will come back to you.
    Christchurch is dead , you are wasting your money

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  15. UpandComer (537 comments) says:

    @ SPC.

    Name one external crisis with causation lying outside of the govt’s fiscal policy that Cullen had to deal with.

    Bill has had to fill a hole in ACC, bail out South Canterbury Finance, Deal with Christchurch, twice, and now deal with the drought, the net effect on his numbers being negative billions. He’s still managed to pay off much more debt then Labour, and in all of those areas you are discussing has made progress. No bad CGT, but still policies changing the rental market, an energy plan that has meant low price increases, and also I don’t know what you’re on about given the Smelter closing is a recent event, and will be dealt with if that arises, health has been managed so well it’s a non-issue, as you say, there has been no banking crisis. Bill has managed things very well, making prudent and appropriate changes without massive structural changes and we have had all those benefits you discuss. I imagine the Chinese would rather work with National who are business friendly, then Labour who are union friendly, and National has helped exporters in the terms you put – Labour would help them by lowering the dollar, which would take away the advantages you site.

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