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Earthquakes reveal silver lining


Thu, 14 Jul 2011

It will be a relief to many, and no doubt a surprise as well, that the impact of the Christchurch earthquake has been less economically damaging than feared.

Of course, the 0.8% surge in the economy during the March quarter will bring little comfort to those most affected. Businesses may have mostly survived but the other scars of human tragedy will remain.

Once the red zones have been cleared, earthquake economics dictate that replacement buildings will bring a significant growth spurt for the lagging construction industry, though the loss in wealth is real and permanent.

Statistics New Zealand’s analysis shows the commercial property damage is less than 1% of the country’s total, while the housing stock that faces demolition is only 0.3%. In addition, only a few of the 500 large businesses in Christchurch have ceased operation – a remarkable feat in itself.

Earthquake opportunities will provide many companies throughout the country with a much-needed fillip. Much of it, I suggest, will come from rebuilding the CBD using new “green” and clean-tech precepts.

New companies in this sector will be able to build a domestic base instead of prematurely heading offshore with their products. Expertise learned from using the world’s latest building and materials technologies will benefit everyone from researchers in the universities and architects through to construction companies.

I made a speech in Nelson last week along these lines, citing examples of companies in Auckland that are capable of doing this work but are being held back by the construction lull.

The private sector’s Pure Advantage initiative < > and the government’s Green Growth strategy, both launched last week, should focus on Christchurch if they are to get traction beyond the rhetoric.

One-eyed Nelsonians
Reaction to my Nelson speech may have prompted some big ideas about Christchurch among local business but it was comments about putting the port and airport into private hands that were picked up by the local newspaper.

I was quoted as saying of Nelson’s prospects for growth: "It does need to ramp some way and I think the airport's the best public asset they've got that could be increased in value through greater involvement in private enterprise."

The report  predictably contained defensive responses, including from local MP and cabinet minister Nick Smith, that while Nelson was slipping in the economic stakes its publicly owned assets should be retained.

This, of course, begs the question of why others have done so with considerable success, such as Tauranga (with its port) and Auckland (with its airport). Nearby Kapiti is getting a whole business park, courtesy of private enterprise, with the redevelopment of its privately operated airport.

Well, one answer will come in due course from the new Productivity Commission, for which we can thank Don Brash and the Act party.

Yesterday, the commission published an issues paper and council ownership was singled out as a potential inhibitor of growth and efficiency of ports in particular. (The focus is on international freight, which mainly means shipping rather than aviation.)

Although the private sector has carried out a number of inquiries into the ports sector, this is the first government commissioned one that could mean major changes ahead.

If so, laws that protect council ownership (they are termed “strategic assets”) will have to be changed to gain benefits from a reduction in the $5 billion a year freight bill.

The commission estimates a 10% reduction would also mean a 1-2% boost in trade flows, amounting to some $1.25 billion in extra revenue.

The commission should come up with figures that refute Labour’s claims that raising more taxes to retain ownership of state-owned companies will add to the country’s prosperity.

Sunny by name and nature
Nelson is not without progressive ideas. Its two councils, Nelson City and Tasman District, are planning to merge into a single unitary council – the first since the Auckland super city amalgamation – and the first voluntary move since the reforms of the 1990s.

The Local Government Commission has produced a draft report on which public submissions are being sought by August 19. This will be followed by a commission hearing and decision, with a public poll early next year.

The poll requires majority support in both districts, which is a good test of democracy and public accountability. And like the super city, which was imposed without a vote, the bigger council has five community boards under the draft proposal.

Nelson mayor Aldo Miccio, who succeeded in getting the merger proposal accepted through public petitions, says the merger will achieve significant savings through elimination of duplicated services.

Ratepayers who complain, justifiably, about rates rising faster than either people’s incomes or national wealth, will have little to worry about if they can hold the merging bodies to Mr Miccio’s promise.

Meanwhile, Nelson is driving a new nationwide “solar saver” scheme that waives resource consents fees for solar thermal heating systems and enables the average $6000 cost to be spread out in the rates’ bill.

Read more at The Solar Promise, which was launched this week.

Labour’s long hand
The tax-hike-to-save-assets platform Labour is taking into the election campaign will retain the envy vote but should fail to dislodge National’s claims that the economy is ill-prepared for new burdens and the fiscal grab is more comprehensive than feared.

Paradoxically, the beneficial effects, such as raising revenue from a wider base of capital assets, will take a long time to accrue, while the bad effects – introducing a new top personal tax rate of 39% at $150,000 – will be felt immediately.

Complexity is another weakness and typical of taxes that exempt some while taxing others. For example, compliance on taxing homes that are partly used for businesses will be costly to administer and police.

Some taxpayers seem to have been singled out for unfair treatment. For example, writes Rob Hosking, “existing income tax rules tax the capital gain of people who regularly trade in shares or property at their marginal rate, rather than at 15%. This group is not going to get a tax cut: rather, the capital gains tax will apply on top of their income tax."

I suspect, when all the detail is absorbed, Labour is looking for acceptance another election term out. In this case, it may find National picks up some of the more acceptable tradeoffs and implements them as its own.

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Earthquakes reveal silver lining
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