Russel Norman

Paying to rebuild Christchurch: A small temporary earthquake levy

by Russel Norman

While the horror of Christchurch’s second earthquake continues to unfold, those of us not immediately involved in the recovery can begin to plan for the rebuilding of a city and the livelihoods of those who live there.

The question that immediately comes to mind is how are we going to pay for the recovery and reconstruction?

The Earthquake Commission (EQC) and private insurance will cover most of the cost to private property. Everything else—the hospitals, the roads, the rail, the sewerage—will likely be borne by central government. More borrowing by central government is being contemplated.

As a practical, principled response to the Christchurch earthquake, the Green Party is putting forward for discussion the idea of a small temporary earthquake levy on all income earners over $48,000.

The levy would work like the one being introduced in Australia to pay the A$7.2 billion fix-it bill after their floods.

To make it fair, the levy would fall on those most able to pay it. Those earning between $48,000 and $70,000 a year could pay up to an additional one per cent income tax, while those earning over $70,000 could pay up to an additional two per cent income tax to help pay for the reconstruction of Christchurch. (People earning less than $48,000 and all those living in the Christchurch region would be exempt from paying the levy.)

A levy at those levels would raise an additional $921 $457 million per year and be directly tagged for disaster relief and reconstruction. The levy could last for a defined time period such as a year, or end with the reconstruction of Christchurch, whatever comes first.

Here are a number of different levy scenarios with estimates of the amounts they raise:

Total tax revenue collected Additional revenue collected $m (difference)
Scenario 1 228.62
Scenario 2 374.99
Scenario 3 457.24
  Levy amount per week
Taxable income Scenario 1 Scenario 2 Scenario 3
$50,000 $0.19 $0.38 $0.38
$55,000 $0.67 $1.35 $1.35
$60,000 $1.15 $2.31 $2.31
$65,000 $1.63 $3.27 $3.27
$70,000 $2.12 $4.23 $4.23
$75,000 $2.60 $5.67 $6.15
$80,000 $4.04 $7.11 $8.08
$85,000 $5.00 $8.56 $10.00
$90,000 $5.96 $10.00 $11.92
$100,000 $7.88 $12.88 $15.77

Scenario 1: A levy of 0.5% applied to an individual’s income between $48,001-$70000 and a levy of 1.0% applied to an individual’s taxable income greater than $70,001.

Scenario 2: A levy of 1% applied to an individual’s income between $48,001-$70000 and a levy of 1.5% applied to an individual’s taxable income greater than $70,001.

Scenario 3: A levy of 1% applied to an individual’s income between $48,001-$70000 and a levy of 2% applied to an individual’s taxable income greater than $70,001.

EDIT: These figures have been updated by the Parliamentary Library and are based on a progressive tax. The original tables were calculated as a flat rate over the entire income rather than just the income above $48,000

There are those who argue against such a levy. Australia’s flood levy has been attacked by the Right who argue that further government cutbacks are the best way to find the necessary funds to pay for their flood damage. And a new, albeit tiny, tax raise for upper-income earners goes against the Key Government’s current pathway towards a flat tax structure. And of course we have already paid into the EQC kitty over many years.

However, we don’t believe these arguments against a small temporary levy are convincing. The public sector is already being cut and further cutbacks won’t help the jobs situation. A tax rise may go against National Party ideology but it is only temporary for a national emergency situation. And the size of the damage bill appears to be greater than current reserves and re-insurance.

With this small temporary earthquake levy we don’t wish to politicise the argument. We don’t wish to re-litigate the argument around National’s tax changes, nor do we think the Right should use the opportunity to promote their agenda of asset sales to pay for the damage. We need a pragmatic response to the situation we’re in. We can return to the arguments about tax rates and privatisation later.

A small temporary earthquake levy does appear to offer a fair way for all of us to do our bit to contribute to Christchurch’s recovery without adding to Government debt. We welcome your feedback.

EDIT: these are the old tables.

Income band Scenario 1 ($M) Scenario 2 ($M) Scenario 3 ($M)
$48,000-70,000 (@0.5%) $118 (@1.0%) $236 (@1.0%) $236
$70,000+ (@1.0%) $343 (@1.5%) $514 (@2.0%) $685
Total yearly revenue $461 $750 $921

The additional tax to pay for individuals would look like:

Income (pa) Scenario 1 ($/week) Scenario 2 ($/week) Scenario 3 ($/week)
$50,000 $4.80 $9.61 $9.61
$60,000 $5.77 $11.54 $11.54
$70,000 $13.46 $20.19 $26.92
$80,000 $15.38 $23.08 $30.77

Published in Environment & Resource Management by Russel Norman on Fri, February 25th, 2011   

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