'The Nation'

Bill English

Interviewed by DUNCAN GARNER

DUNCAN With a recovery bill of at least four billion dollars the government has admitted the national economy will take a big hit after last weekend’s Canterbury earthquake, but long term the reconstruction work could provide a much needed boost to the region. Finance Minister, Bill English now joins me live from Wellington to explain. Good morning Mr English. Look much has been made of this long term impact in terms of GDP that it could actually be quite good for Canterbury, but I mean that may be true, but surely this a setback for the condition isn’t it?

BILL ENGLISH – Finance Minister

Well in the short term it certainly is, you’ve got businesses shut down, you’ve got people can't go to work because their job’s not there, or they're trying to get their personal circumstances sorted out. So we think over the next two or three months there will be less economic activity, but beyond that there is going to be a substantial boost in economic activity, because you'll have the4 cash coming in from the insurers. So the EQC will be selling overseas shares and bringing that cash into the country, and pumping it into the recovery effort, and private insurers will be doing the same. So we would expect over the next 12 months there will actually be a build up. It’ll be positive in Canterbury, it’ll be people and materials from all around the South Island certainly, and from the North Island. It has come at a time when a number of the larger construction projects in the South Island are starting to wind down such as Kowara Falls in Queenstown, the Stadium in Dunedin. So the capacity is there to do the work without putting too much pressure on the national economy.

DUNCAN And Treasury has this week suggested it's about four billion dollars perhaps and rising. Just what sort of hit does the Crown take on that. I mean because as you mention a lot of it of course is picked up by private insurers, EQC. What do you expect the hit to be to the Crown account?

BILL Well we haven’t put a number on that, just because this week our focus has been simply on providing the support that is necessary in the form of on counselling or ringing all the older people, or setting up the wage subsidy regime. But as we're starting to put in place a recovery plan we will be making some attempt to get a sense of what the government might be up for, and there's a couple of different ways the government will be meeting costs. That is, it's got its own infrastructure there which we have to restore, and there’ll be I think hardship, people will find themselves in real hardship, and there's any number of other possibilities around where needs may arise that are quite urgent or really must be met. Over the next week or two we'll get a better handle on that.

DUNCAN Does this have an impact coming on top of South Canterbury if you like in terms of going back into surplus. I mean you had like 2016 as a possible date of the government accounts getting back into surplus. With South Canterbury, with the earthquake do you think that now puts it back a bit?

BILL Well we simply don’t have enough information for that. So far, because we've been managing the government's books pretty tightly we've had some contingencies and some provisions to allow for the unexpected. Now of course this is on a much larger scale than we might have expected, so in the shorter term it doesn’t make much difference. But as time goes on and we get a better handle on the information about the damage to the land, the damage to the infrastructure, where costs will fall between the Crown and local government, between the Crown and individual households, it’ll take some time for all that to come out. I think the important thing here is we're not letting concern about the financial cost get in the way of being decisive, and getting a plan up and running, because as the Prime Minister said on day one, we're committed to the recovery of Canterbury. We've got Gerry Brownlee on the ground there, getting together the bones of the recovery plan, and at some stage you know we'll get to add all that up. I think the other thing to remember here is it's not just cost to the government that’s going to matter. The cost to individuals …

DUNCAN I mean there is a significant loss of income isn’t there, there's a significant loss of wealth. If you look at some of the bank economists this week suggested that in the short term three to four hundred million dollars of wealth to individuals goes out the window, right?

BILL That’s right, and in the next three or four months it's quite possible the negative effect in Canterbury could be a significant offset to the growth across the whole economy, but I think beyond that it will then pick up. So I think we've just gotta take that longer term point of view, and in the longer term, in the next 12 months there will be more jobs, there will be people getting back to their jobs, back to their homes, back to their businesses.

DUNCAN And had Treasury given you any estimate at this stage about the possible business failures, about the number of job losses potentially. Because if you look historically after the LA earthquake in 94 about 30% of small businesses failed in
California. Are you starting to work on a modelling scenario?

BILL Well we've been looking at some of those other events.

DUNCAN And what's it telling you as if from a Christchurch perspective?

BILL Well we haven’t got particular enough about it, but as you’ve indicated in LA something like 30% of the businesses didn’t get going again – what we're trying to do is actually get some hard information before we jump to conclusions, because we can end up causing quite a bit of anxiety by speculating about these things. This is a big event but it is management in the sense that we can get the data about each business eventually, and that’ll give us a better picture.

DUNCAN Could it be that the government bill actually goes into the billions just on the government bill alone going forward, because you’ve seen this week 100 state houses gone, there's probably increased welfare payments, potentially ACC payments, right across the board payments could be going up. Are you budgeting for that now, there could be more than billion dollars just from the Crown account?

BILL Look I wouldn’t want to put a number on it yet Duncan, I mean one category left out there is a number of schools that probably won’t reopen because of the severity of the damage. Another big factor will be the costs of the local government owned infrastructure that isn’t insured. Some it's insured, some of it isn’t, and there's a formula for allocating those costs.

DUNCAN Are you saying schools will actually close and have to be completely relocated down there, and how many schools are you talking about?

BILL Well look I wouldn’t go into the detail there because I don’t have the detail, but as you pointed out there's a number of factors that are of government infrastructure where we've got a bill just like everybody else and we'll have to get on and incur it. We do have tight economic circumstances, the government is working hard to get back to surplus, and I think this whole event simply emphasises the need for us to manage very carefully with the taxpayers’ dollar and have a clear sense of priority about where we're putting it, because if there are large government costs out of this there is no doubt that that will put some pressure on the rest of our spending.

DUNCAN So do you think there’ll have to be cuts in other areas of government spending because of the shock that you’ve faced here and also again South Canterbury?

BILL Well look all I'm saying is that we've got a track to surplus over five or six years, the people who lend us money from overseas can see our total overseas debt rising, we want to achieve two things here. One is to meet the real and proper costs of the recovery of Canterbury…

DUNCAN Does that mean you have to cut back in other areas though Mr English. I mean as you're going into next year’s budget, election year budget, clearly money that you thought you had, you haven’t got now?

BILL Well I think what it means is that if anyone had an idea that we could let up on tight management of the government's finances, then this event means that we can't.

DUNCAN Okay, just in terms of looking at the locals down there, you’ve announced that wage subsidy package this week which runs out in effectively three, three and a half weeks’ time, are you looking at extending that, because if you look at the pictures and some of the anecdotal stories coming out in Christchurch, this is going to go on for months and months and months, and the month wage subsidy package might not be enough?

BILL At the time we made the announcement, we said that after four weeks they'd be able to reapply, so we imagine that the scheme will still be in place. Over the next three or four weeks, I think we're going to see a significant part of Christchurch get back to normal, people who will be back in their homes, kids back at school, back at their jobs, but we are going to have a significant group where there's quite complicated issues about recovery.

DUNCAN And you're happy to keep rolling that wage subsidy over to those businesses, so those people aren’t out of pocket? Well they’ll still be out of pocket to a sense.

BILL So far we've said that after four weeks they can reapply for what is effectively another four week period. Let's just give ourselves a week or two to get a handle on the size4 of who isn’t back to normal, and what support they need. I think the government's indicated pretty strongly we want to be there beside them.

DUNCAN And what about those people losing their jobs, are the Welfare Minister Paula Bennett and yourself working on an area that can keep people in work. You saw the New World in Kaiapoi this week, 83, or 86 jobs gone. How do you keep people in those jobs that might potentially lose them next week or the week after.

BILL Well the Minister of Social Welfare is getting on to that. In the first week the focus has been on just providing immediate welfare support, and now we need to look at just how the employment situation is going to roll out, because we'll have people who are currently in jobs, as I said on other construction sights, who will no doubt come to Christchurch. We've got something like a thousand people on the unemployment benefit in Christchurch, who've indicated they’ve got construction related skills, so there's an opportunity there.

DUNCAN So capacity’s not a problem. Do you think people will have to come down from Auckland, from Wellington, up from perhaps Dunedin or Invercargill. Is capacity an issue in Christchurch?

BILL Look I think there's enough capacity in the South Island for everything to get up and going, you know there's enough cash there to get started. The first insurance payments by EQC will be paid next week. There's probably enough skills there to get started, and that gives us a bit of time over the next couple of months to see what bottlenecks there are going to be. It may be that the bottlenecks are more to do with materials than labour, just getting enough materials into the South Island is going to be quite a challenge.

DUNCAN Alright Finance Minister, Bill English, thank you for your time this morning.

ENDS

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