Editorial: Substance needed

Last updated 05:00 21/09/2011

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OPINION: In formulating and releasing a policy on how to deal with the consequences of the earthquakes, the Labour Party has performed a useful service.

It has put forward ideas for discussion around some of the issues – principally those concerning residents in the residential red zone – that are uppermost in many people's minds, and has obliged the Government to come up with answers to its suggestions.

It is appropriate, after an event of such far-reaching significance, for an Opposition party to subject the Government's performance to scrutiny and put forward proposals of its own. The solutions to the many problems the area faces are not straightforward or easy and debate about them will always be productive.

That said, Labour's proposals are, at this stage, not much more than a fine-sounding wishlist. As one red-zone resident noted, the plans were "about as useful as wallpaper". This is largely driven by the party's poor showing in opinion polls.

Unless there is more substance that Labour has yet to announce, some of them would raise more problems than they would solve. It is also difficult to see how some of them could be made to work. The gaping hole in the proposals is the lack of any realistic assessment of their longer-term impact on the public finances. And while Labour's leader, Phil Goff, was scornful of the capacity of a "market solution", he appeared to be oblivious (or chose to ignore) the potentially huge, unintended consequences of ad-hoc interventionism.

A centrepiece of Labour's plan is the proposal to spend $230 million on "affordable" sections that would be sold "at cost" to 1500 red-zone homeowners. This would, Labour says, control cost inflation among private developers. Quite how the government buying sections, instead of private interests, would control any inflation in the market is not explained. Also, "at cost" suggests that Labour would subsidise the price of the sections, which means a few fortunate buyers would get sections they could not otherwise afford at the expense of taxpayers.

The most notable flaw in this proposal, however, is that it does not explain how the lucky 1500 would be chosen out of 6000 or so who can no longer remain on their land. Whether they were chosen according to some stated criteria, by a lottery or selected by some other method, a host of inequities would be bound to arise.

The Labour proposal to "persuade" insurers to start writing new policies sounds like empty rhetoric. Insurance companies are shying away from writing new policies because of the uncertainty surrounding any future liability. Insurance is based on the assessment of quantifiable risk. Uncertainty means the risk cannot be estimated.

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Until the uncertainty goes, insurance will be a difficulty. Insurance companies cannot be "persuaded" to think otherwise.

If insurance problems do continue, Labour suggests a "short-term" government intervention may be necessary. In this context, the idea of reviewing the role of the Earthquake Commission does have some merit. It seems clear, for instance, that the EQC's limits and premiums, which have not been changed in years, are no longer adequate. But because of the possible impact on public finances, intervening further in insurance would have to be carefully thought through. It is not likely to be any kind of short-term expedient.

- © Fairfax NZ News

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