9. Dr RUSSEL NORMAN (Co-Leader—Green) Link to this
to the Minister of Finance
Is it fiscally responsible to increase borrowing to pay for the rebuilding of Christchurch?
Hon BILL ENGLISH (Minister of Finance) Link to this
Yes, if two important conditions are met. Firstly, the money borrowed would need to be invested in assets that increase productivity and benefit the economy. There is no doubt that investment in rebuilding Christchurch would meet that test. Secondly, there needs to be a credible plan to pay the money back, and get debt back to pre-earthquake projections, in a reasonable time. The Government will lay out its plans for achieving that in Budget 2011.
Does the Minister agree that it would be more fiscally responsible to raise a temporary levy of a couple of cents in the dollar on income to pay for the rebuild of Christchurch, rather than add more debt to the Government books, given the Minister’s statements that the Government already has a lot of debt?
The member is right, in that we have to weigh up the costs and benefits of the different options. In respect of raising a levy, there are really two reasons why we prefer not to do that. The first is that as the member and others have stressed, people are already dealing with the pressures of an increased cost of living. An extra tax, which would have to be fairly significant, would simply add to those pressures on households. Secondly, given that households are being very careful with their spending, the economic growth has been flatter than expected and an additional tax is unlikely to help the economy pick up.
Dealing with the Minister’s second argument, has he seen the most recent report from the New Zealand Institute of Economic Research, which stated: “Recent personal income tax cuts did not have much impact on overall spending.”, and is this not strong evidence that a temporary earthquake levy on higher incomes would have very little detrimental impact on spending in the economy?
At the time that we announced tax cuts, particularly in last year’s Budget, we made it clear that we did not expect that the tax package would have a significant impact on spending. That was because it was largely self-funding, so that money that stayed in people’s pockets because of income tax cuts was offset by money coming out of their pockets through increases in GST, and increases in taxes on housing.
Does he agree that his response to the cost of the Christchurch rebuild, which is on the one hand to increase borrowing and on the other hand to make some pretty savage cuts to Government spending in the upcoming Budget, is in direct contrast with the idea of sharing the burden that is embodied in the idea of a small, temporary earthquake levy?
No, I do not agree with all of those propositions. The fact is that any changes the Government makes in spending will be considered and reasonably moderate, and certainly not radical. In our view, financing the earthquake recovery by incurring debt is something we do not have a lot of choice about. As I explained earlier to the House, a lot of the costs are being incurred as we speak or will be recognised in this financial year, so we do not have much choice but to go ahead and borrow the money. What is important is to have a plan to pay it back. The member is right, in that in fairness to all New Zealanders, particularly to future generations, we should take responsibility for paying back our own debts.