The Canterbury Earthquakes
Economic and fiscal impact
The impact of the earthquake on 22 February 2011, following on from the earthquake on 4 September 2010, has been large in human and economic terms. As a result of the February earthquake, the Treasury estimates that GDP growth will be around 1.5% lower in the 2011 calendar year than it would have been otherwise. The negative impact on GDP is concentrated in the first half of 2011, owing to the disruption to firms and households in the aftermath of the earthquake. This impact will be offset as the reconstruction commences, resulting in higher growth from 2012.
Beyond the human and economic dimension, the Canterbury earthquakes will have an estimated cost to the Government of $8.8 billion. Figure 7 shows the impact of the Canterbury earthquakes on the Government's core Crown expenses (which exclude the Earthquake Commission (EQC) and the Accident Compensation Corporation (ACC)). The Budget Economic and Fiscal Update explains the economic and fiscal impacts of the Canterbury earthquakes in detail.
- Figure 7 – Forecast impact of earthquake on core Crown accounts
- Source: The Treasury
Interaction with the fiscal strategy
Financially, New Zealand is well covered for natural disasters by international standards - through EQC, private reinsurance and the Government's own finances and ability to borrow. Because the financial costs associated with the earthquakes are one-off and largely occur in the short term, it is appropriate to let the costs to the Government flow through to debt initially and to continue with our fiscal strategy to address medium-term economic challenges. This approach allows the burden to be borne and repaid over time, just as the benefits of rebuilding Christchurch will be permanent. Debt will therefore peak earlier and at a higher level than if we had not been hit with the earthquakes.
Given the costs associated with the Canterbury earthquakes will flow through to debt, we are ensuring these costs are transparent by setting up a Canterbury Earthquake Recovery Fund. The Fund is a means of tracking expenses, and it has been included in the Crown accounts from this year. Funding generated from the Canterbury Earthquake Kiwi Bond will contribute to the Canterbury Earthquake Recovery Fund. The Fund will be wound up in several years time, once the costs of the earthquakes are clear.
