Rebuilding Christchurch

Rebuilding Christchurch is a major goal of Budget 2011

Supporting those affected by the tragic earthquakes in Canterbury by rebuilding Christchurch is a major goal of Budget 2011. Christchurch is not only our second-largest city; it is also a major industrial, tourism and regional hub, and is therefore essential to the performance of the wider economy.

The Treasury estimates the damage caused by the two earthquakes is around $15 billion, which is about 8% of GDP. To put this in context, the March earthquake off the north-east coast of Japan is estimated to have caused damage equivalent to around 3% to 5% of Japan's GDP.

The direct cost that central government will face is estimated at $8.8 billion

The fiscal cost faced by central government as a result of the earthquakes remains uncertain. The Treasury's estimate of the direct impact on Crown expenses from the two earthquakes is $8.8 billion, including:

• $3.3 billion to recognise the Crown's Earthquake Commission (EQC) obligation ($1.5 billion for each event) and Accident Compensation Corporation (ACC) costs, and
• $5.5 billion for central government's costs, such as its share of local government infrastructure, roads, insurance excesses on schools and hospitals, temporary housing and other policy responses.

Budget 2011 establishes a Canterbury Earthquake Recovery Fund

The Government is establishing a Canterbury Earthquake Recovery Fundas part of Budget 2011 to account for its share of the estimated recovery costs. The Fund will ensure transparency and control over the cost of the earthquakes.

The Fund will initially be $5.5 billion, which will cover central government's costs as outlined above. It excludes the Crown's EQC obligation and ACC costs as these are funded by levies. A provision of $5.5 billion has been included in Budget 2011, with $740 million being funded from government agencies' existing budgets.

We have recognised this $5.5 billion as an expense in the Crown accounts. The eventual cost of the earthquakes will be determined as the Fund is drawn down and used, which will take several years.

Cabinet will make decisions about how the Canterbury Earthquake Recovery Fund is used. The status of the Fund (including decisions taken and funding remaining) will be disclosed at each Economic and Fiscal Update (normally published in May and December).

Since the financial costs associated with the earthquakes are one-off and largely fall in the short term, it is appropriate to let these flow through to debt. We are creating a new Canterbury Earthquake Kiwi Bond to give New Zealand residents the opportunity to assist Christchurch by investing in a new four-year maturity bond, which will be added to the existing Kiwi Bond programme. Funding generated from Canterbury Earthquake Kiwi Bonds will contribute to the Canterbury Earthquake Recovery Fund.