Christchurch earthquake slams Budget

19:01, Mar 21 2011

The Christchurch earthquake is set to plunge a knife through the next Budget as the Government flags widespread cuts after warning "everything changed" the day the earth shook.

Prime Minister John Key says the Government will seek to deliver a Budget that makes no provision for new spending – a level of austerity unmatched since the early 1990s and the infamous "mother of all Budgets".

Mr Key gave an assurance yesterday that there would be no repeat of the 1991 benefit cuts and promised pensions were safe.

But he said the February 22 earthquake had forced ministers back to the drawing board as the hit on the Government ballooned to $10 billion, which will drive up borrowing. The need to trim spending meant some programmes would be axed, spending on others trimmed and only health and education could expect a rise on their 2010 budgets. Even that increase – between $600 million and $800m – will be funded by spending cuts elsewhere.

The Government has already slashed $4b from some programmes over the past two years in order to free up money for other spending.

Cuts to Working for Families payments for high-income earners have already been singled out as likely, saving as much as $250m depending on where the cuts kick in. The Government has also not ruled out changes to KiwiSaver or the student loans scheme.


It is understood government departments are also under the gun to identify future capital spending projects that could either be chopped or trimmed.

Treasury's December update identified $223b of assets on the Government's books that were projected to grow by $32.9b over the next five years. That was seen as softening the public up for a few partial asset sales, but given the mood of austerity the Government will look for savings there too.

Mr Key kicked off the political year promising to rein in new spending to just $800m a year as focus groups told National that debt was looming as an election- issue. As a measure of just how tough it would be to peg new spending at that rate, health, education and welfare spending grew by more than $7b in the past two years. That compares with the 1990 to 1993 period, when spending on health, education and welfare grew by just $900m.

Asked when the Government had decided to peg back the rate of new spending, Mr Key replied: "Without being facetious, 12.51pm on the 22nd of February. The reality is, New Zealand changed at that point and the Government can't close its eyes to that."

The International Monetary Fund warned yesterday it expected New Zealand's Budget deficit to blow out to 9 per cent of gross domestic product or $18b this year. It said Working for Families, interest-free student loans and KiwiSaver subsidies should be targeted. IMF mission chief Ray Brooks said the Government should also consider a land tax and broader capital gains tax.

But Mr Key ruled out both, and also reiterated his opposition to an earthquake levy, which could threaten the recovery in the rest of the country. "While we're very supportive of Christchurch and we want to see Christchurch rebuilt, we can't do that at the cost of grinding Auckland to a halt or delivering an infrastructure timebomb in Auckland or Wellington or other parts of the country."

The Dominion Post