Job subsidy could be problematic

22:15, May 26 2014

In his 2013 Budget speech, Finance Minister Bill English said the Government's contribution to the Christchurch rebuild would be $15.2 billion.

Twelve months on, English said the Government would be spending $15.4 billion on Christchurch. A $200 million increase - not something that would normally be sneezed at.

But in the context of a $40b rebuild, the Government's contribution still equates to less than 40 per cent of the anticipated overall cost. With its cost-sharing partner, the Christchurch City Council, staring down the barrel of a significant funding shortfall, the Government cannot claim to have Christchurch out of the woods yet.

Among the Budget's provisions are an additional $50m funding for the Canterbury Earthquake Recovery Authority over the next two years; $13.5m over the next four years for counselling services, temporary housing and an 0800 support line; an additional $16.9m for the Greater Christchurch Education Renewal Programme and $75m towards a Christchurch housing contingency fund.

As is the case nowadays, the era of pre-budget announcements means there is little room for surprise on budget day. Nevertheless, the Government's intention to offer $3000 to up to 1000 beneficiaries around the country if they accept full-time employment in the Canterbury region is still raising eyebrows.

The region has a massive job on its hands and, it can be assumed, needs labour to get the work done. And the Government, particularly in election year, needs to show more New Zealanders are in paid employment. On paper, the concept has the potential to be a win-win for the Government and Canterbury but there are forces in play in Christchurch that could be problematic.


A fortnight before the Budget, it was reported that building firms in Christchurch were going under, despite the construction boom. Reports said at least 15 companies in Christchurch had gone into liquidation and three into receivership between January and March this year.

Two days after the Budget, there were media reports that builders in Christchurch were being told they should start looking for work elsewhere as house repair work (particularly through the Fletcher Earthquake Repair or EQR programme) would soon start to dry up.

Within this context of sporadic labour demand, questions need to be asked about any long-term merit in the Government paying newly employed former beneficiaries to move to Christchurch.

It will be interesting to see whether the flow of people to Christchurch will increase, and any impact it might have on an already tight housing market.

But viewing the Budget solely through an earthquake recovery lens does not allow us to see the complete picture for Christchurch and Canterbury. Referenced at times as the high-tech capital of New Zealand, or the Silicon Plains, Christchurch and the wider region is renowned for its contribution to the technology and innovation sectors.

Last week, the Canterbury Development Corporation released an in-depth report on the region's technology and innovation sectors.

It said the region was still challenged by a small amount of investment capital available to technology companies and other innovative industries. There will be interest in Christchurch, then in the Government's moves, outlined in the Budget, to allow loss-making start-up companies to cash out all or part of their tax losses from R&D expenditure; and allow tax deductibility for R&D "black hole" expenditure.

Black hole expenditure is a somewhat colourful term for business costs that do not qualify for tax deductions. The Government says these two changes will return an estimated $58m in tax to companies over four years.

At a local level, they are likely to help smaller, innovative companies by providing them with a useful source of funds to further research and development expenditure.

That has to be a good thing in the post-earthquake era.