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Zero budget aims to reassure

This year's budget should assure credit rating agencies that a downgrade is unnecessary, Finance Minister Bill English says.

Tue, 12 Apr 2011

This year's budget should assure credit rating agencies that a downgrade is unnecessary, Finance Minister Bill English says.

This afternoon Mr English gave a pre-budget speech in Wellington where he updated the cost of the Christchurch earthquake and focussed on the long-term economic situation.

Last November Standard&Poor's revised its outlook of New Zealand's credit rating to negative from stable and Mr English told reporters he expected the May 19 budget to allay their concerns about the economy.

"My understanding is that they (agencies) are waiting to see what the budget says," he told reporters.

"We are confident that we are going to be doing enough in this budget to keep the Government on track to surplus and to, over the next three or four years, to stop the fast rise in public debt."

In his speech Mr English put the $8.5 billion cost to the Government of Christchurch's two earthquakes in context of the overall size of the economy -- New Zealand's annual GDP was $200b a year and the Government spent about $70b a year.

Far from saying that cost would rule out his predicted return to surplus in 2014-15, Mr English left it a live option.

In his speech he said earthquakes and other events did not change the Government's programme.

"They simply make the task of returning to surplus, and getting on top of the Government's debt, a little more difficult."

When questioned he said finalised numbers would be in the budget.

Mr English said the quake costs needed to be absorbed and the Government wanted to get to surplus "a bit sooner" to stop government adding to high levels of external debt.

"We're yet to see where the numbers come out, we just need to make sure that people understand these unexpected events aren't going to knock us off course."

Asked if private debt would concern agencies Mr English said household debt growth was close to zero and savings were increasing.

"They are getting that under control, it's now the Government's turn to get its debt under control."

On the quakes Mr English said the cost would be about $8.5b.

"(Treasury) laid out a range of $5b-$10b and the number's settling down somewhere around that $8.5b."

The direct cost to the Government of the two earthquakes was about $5.5 billion.

"About $3 billion of this relates to our share of local government infrastructure, roads, insurance excesses on schools and hospitals, temporary housing and land remediation agreed after the September quake, demolition costs in the CBD, ACC costs and the business support package," Mr English said.

"The remaining $2.5b will cover expected costs of decisions we have yet to make -- the biggest cost is likely to be remediation of land damage from the February quake."

Mr English said meeting the Government's share of the immediate earthquake costs would require a substantial front-loading of Crown debt in the next year or two.

"That's because we need to get the rebuild under way quickly and therefore we need the money immediately."

Earlier forecasts that estimated the Government's loss of tax revenue as a result of the earthquakes and lower economic growth could be between $3b and $5b over the next five years.

"However, the good news is that on current forecasts this loss of tax revenue is likely to be a bit less than $3b, though we still await final budget forecasts," Mr English said.

Tue, 12 Apr 2011
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Zero budget aims to reassure