2 October 2011

Govt bungling adds cost of earthquake levy to mortgages

The Government’s decision not to introduce an earthquake levy to pay for the rebuild of Christchurch means we will be paying at least the cost of the levy in increased mortgage payments, Green Party Co-leader Russel Norman said today.

“The National Government’s decision not to introduce an earthquake levy is one of the factors that led to the double credit downgrade of New Zealand by ratings agencies on Friday.

Standard and Poor’s pointed to the fact that New Zealand’s ‘fiscal settings have been weakened by earthquake-related spending pressures' as one of the reasons for the downgrade.

“The credit downgrade will result in an increase in the interest charged on home mortgages. A conservative estimate is an 0.1% to 0.3% increase, though the Prime Minister has previously estimated the cost of a credit downgrade at an increase of 1% to 2%.

“The remarkable thing is that the increase in interest charged on home mortgages will end up costing home owners at least the same as the cost of the earthquake levy, and probably more.

“The big difference being that an interest rate increase due to a credit downgrade is simply a deadweight cost on the economy, whereas an earthquake levy actually pays for the Christchurch rebuild.

A ten-to-thirty point (0.1% to 0.3%) increase in mortgage rates will cost homeowners with a $300,000 mortgage at the current floating interest rate an additional $4.19–$12.62 a week. A temporary levy on income at the levels earlier proposed by the Green Party would cost an additional $0.58 a week for those earning $50,000 per annum, $3.45 a week for those earning $60,000 per annum, $6.33 a week for those earning $70,000 per annum, and $12.08 a week for those earning $80,000 per annum. The Green Earthquake Levy would raise around $1 billion per year.

“If John Key’s estimate of the cost of the downgrade is accurate, at 1% to 2% increase in mortgage costs, then the cost on home mortgages will be ten times higher. Fortunately Key is probably wrong, again.

“The Government’s mismanagement of the economy will now result in more money flowing offshore rather than going towards helping Cantabrians rebuild their livelihoods. This is exactly what we warned the Government about back in March but they dismissed the risk of a downgrade.

“On top of this the Government has chosen to borrow to pay for the rebuild so the Government itself will face higher interest cost on the money it is borrowing. So the taxpayer is punished twice for the Government’s stupidity.

“Thanks to National’s economic incompetence, our money is now going to foreign financiers rather than helping our own people in need.

“I’m sure New Zealanders would prefer to be paying a small earthquake levy to directly help with the rebuilding of Christchurch rather than higher mortgage payments to overseas creditors.”
Standard and Poor’s Rating Service statement. http://www.reuters.com/article/2011/09/30/markets-ratings-newzealand-idUSWNA974820110930
Prime Minister estimates cost of credit downgrade at 1% to 2%. http://tvnz.co.nz/content/2755701/2683454/article.html

Link to how an earthquake levy would look:
http://www.greens.org.nz/misc-documents/how-earthquake-levy-could-look

________________________________________

© Scoop Media