Spending cuts key to paying for earthquake, English says

Spending cuts key to paying for earthquake, English says

By Paul McBeth

March 1 (BusinessDesk) – The government will prioritise its spending on rebuilding Christchurch as the country’s second-biggest city reels from last week’s 6.3 magnitude earthquake.

Finance Minister Bill English says the government will reshuffle its priorities to make sure Christchurch is rebuilt, and will look at all options, including curbing interest free-student loans and Working for Family tax credits which it previously said wouldn’t be changed.

Prime Minister John Key had already signalled the government will cut its new spending by as much as $300 million as it deal with a high level of foreign indebtedness that’s raised the ire of ratings company Standard & Poor’s.

The government will keep its spending focus on front-line services, and income support for people on low incomes, and continue to spend on “infrastructure and productive investment.”

“The earthquake means (tighter spending) is now absolutely necessary and we need to produce definitive results from that process,” English told a media briefing in Wellington. “We won’t change that recipe significantly, but we are going to have to test the limits of it.”

Last Tuesday’s quake, which killed at least 154 people, will cost as much as $15 billion, adding to the September disaster’s $5 billion bill, and equating to about 7% of the nation’s gross domestic product. Reinsurer Validus Holdings estimates the cost of the quake to the insurance industry will be as much as $10 billion.

English said spending on major infrastructure projects, such as Auckland’s central business district rail loop, may get pushed out, though the government won’t change its general approach.

“With the infrastructure projects, you’ve got some choice about the timing, such as the CBD loop in Auckland, and a year or two can make, over a longer period of time, a significant enough difference for us,” he said. “We’ve got some fairly big commitments we’d like to maintain, such as the ultra-fast broadband.”

Canterbury will be the primary focus, and English said the government may have to lift its short-term borrowing programme to meet this, though he doesn’t want to change the long-term and short-term debt targets.

English said money raised from the sale of assets into mixed-ownership models would be a useful way to avoid turning to the financial markets for money, and could be “reasonably timed.”

He said the government would be able to fund another major disaster, but said he understood local bodies would struggle and couldn’t speak for private insurers.

(BusinessDesk)

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