Government’s Debt Response to Earthquake Bill Fiscally Irresponsible

The Government’s economic response to the Christchurch earthquake is fiscally irresponsible and will result in massive cuts to social spending and a blow-out in government debt, the Green Party said today.

Prime Minister John Key said in Parliament today that the Government would use spending cuts in the upcoming Budget and increased borrowing to fund the earthquake rebuild, rather than introduce a small temporary levy as proposed by the Green Party.

“Unnecessarily going into so much extra debt is irresponsible,” said Green Party Co-Leader Russel Norman.

“Increased Government borrowing will cost taxpayers over $250 million a year in additional interest costs. It will also put pressure on interest rates so all New Zealanders with a mortgage will pay more too.

The New Zealand Institute of Economic Research (NZIER) has found that recent personal income tax cuts had little impact on overall spending because the income gains accrued mainly to higher income households, who have a lower propensity to consume Their findings provide strong evidence that a temporary levy on higher incomes is unlikely to have a detrimental impact on the economic recovery.

“John Key has rejected the levy proposal on weak economic grounds. A temporary levy on higher incomes is unlikely to dampen demand in the economy,” said Dr Norman.

“In fact, the risk to the economy is far greater if the Government simply borrows to pay for the rebuild. Increased Government borrowing will lead to higher interest rates which slow activity.

“New Zealanders have indicated they are prepared to fund a levy as the fairest way to share the costs of the earthquake. Ignoring this option in favour of more debt is bad economic management.

“Savage cuts to Government spending will see the most vulnerable bear the bulk of the cost of the rebuild, and such cuts are likely to be permanent. A temporary levy on higher incomes would protect the most vulnerable from the recession rather than force them to bear the costs of rebuilding Christchurch.

“The fairest, most compassionate approach to funding the rebuild would be a temporary levy. New Zealanders want it, but instead we will have thrust upon us a black budget and massive public debt,” said Dr Norman More information on the Green Party’s levy proposal:

http://www.greens.org.nz/sites/default/files/how_an_earthquake_levy_could_look_green_party_research_1.pdf

ENDS

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