4 October 2011

Earthquake levy cheaper than credit downgrade

The Green Party’s earthquake levy would have cost householders considerably less than likely interest rate rises as a result of the recent credit downgrades, Green Party Co-leader Russel Norman said today.

“The credit downgrade is now likely to cost homeowners with mortgages considerably more per week than a temporary earthquake levy ever would have,” said Dr Norman.

The Minister of Finance confirmed in the House today that the weekly cost of borrowing for someone with a $300,000 home mortgage will go up by $17 per week following a modest 0.3% interest rate increase as a result of the credit downgrade.

“Someone on the average income of $51,263 per year with a home mortgage of $300,000 could pay $17 extra per week on their mortgage as a result of the downgrade. An earthquake levy would have cost an average wage-earner an additional $1 a week,” said Dr Norman.

“Thanks to decisions made by the National Government, homeowners now face increased interest costs. A levy, by comparison, looks like very cheap insurance.

“I’m sure most New Zealanders would prefer to be paying to assist Cantabrians rebuild their livelihoods rather than paying international financiers higher costs to service their debt. And we still have to pay for the rebuild but with added interest on the debt.

“This is not a smart way to run an economy. The resulting deadweight costs of higher interest rates will slow the recovery of the economy and not help Cantabrians one bit.”

Standard and Poor’s statement accompanying their credit downgrade decision directly lay responsibility for the downgrade at the Government’s feet: “The country’s fiscal position…has been weakened by Christchurch earthquake-related spending pressures...”

“An earthquake levy, of the type proposed by the Green Party, would have raised $1 billion each year to contribute significantly to the $13 billion earthquake bill,” Dr Norman said.

“In March, Finance Minister Bill English stated that he was ‘conscious of the risks of the downgrade’ in relation to borrowing to fund the Christchurch rebuild but believed he was ‘making the right considered choices to deal with those risks’.

“It’s now clear the Government’s economic choices were ill-considered. The credit downgrade could not have made that any clearer.”

Standard and Poor’s Rating Service statement. http://www.reuters.com/article/2011/09/30/markets-ratings-newzealand-idUSWNA974820110930
Link to how an earthquake levy would look:
http://www.greens.org.nz/misc-documents/how-earthquake-levy-could-look

ENDS

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