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Another earthquake to pay for

NZ Newswire logoNZ Newswire 17/11/2016 Peter Wilson, Political Writer

The government is facing another earthquake recovery bill that's going to run into billions and soak up budget surpluses, says Peter Wilson, NZ Newswire political writer.

The Christchurch earthquake cost the government more than $17 billion, which Finance Minister Bill English says was significantly more than it had anticipated.

Prime Minister John Key says one of the things he's learned is that earthquake damage is worse than it appears to be on day one, takes longer than expected to repair and is much more expensive than initial estimates indicate.

So these two know where they're coming from, and they know their recently-balanced books are going to take a big hit.

"We are obviously going to have to invest significant sums of money in things that just a week ago we did not anticipate," English told parliament this week.

"It will take some time to get a clearer picture of the impact of the earthquake on the government's overall investment programme."

When the 2015/16 budget surplus of $1.8b was announced last month, English had sufficient confidence in his books to raise the prospect of tax cuts next year.

He might not be so confident now, because he would have to carry the cost of the earthquake at the same time as paying for all the government's other investment programmes.

"We may be able to do that because we have got a growing economy, the government's books are in good shape, and domestic and international confidence in New Zealand remains high," he said.

There's a strong political element to this as well, because the government will be thinking hard about public reaction to an offer of tax cuts while there's a big bill to cope with in Kaikoura, particularly if it has to borrow to pay it.

Earthquakes are a double whammy because they cause a vast amount of damage that has to be repaired, and at the same time wreck business activity which means less tax revenue comes in.

The Kaikoura quake will have exactly the same effect as the Christchurch quake, although on a smaller scale.

The upper South Island region, which includes Tasman, Nelson, Marlborough and the West Coast, makes up 3.5 per cent of the economy, or $8.3b in GDP.

In comparison, Canterbury's GDP at the time of the quake was $33b.

English says the impact on Canterbury's economy was less than had been expected.

"One of the biggest lessons from Christchurch is how resilient and adaptable New Zealanders and New Zealand businesses are," he said.

"Businesses whose premises were destroyed found other premises to operate from, employing their staff and meeting the needs of their customers."

It's against this background that the government on Thursday announced support measures for Kaikoura and its surrounding businesses.

The wage subsidies are designed to help businesses retain their staff in the first eight weeks of post-quake trauma.

"We don't know what the trade patterns are going to be, we literally don't know how people are going to respond," said Economic Development Minister Steven Joyce.

"We retain the flexibility to respond further if required."

On the basis of Key's experience that everything about an earthquake is generally worse than it looks, Joyce is going to need that flexibility.

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