Christchurch’s assets could be next on Govt chopping block

Two patsy questions by National MPs of Local Government Minister Nick Smith in Parliament this week (on increases in council debt and rates since the Local Government Act 2002) combined with Earthquake Recovery Minister, Gerry Brownlee’s recent overwrought criticism of Mayor Parker and Christchurch City Council suggest that Ministers are softening up the public for some unpopular intervention in funding the Christchurch rebuild.

Minister Brownlee’s irritation and impatience with the Christchurch Council creates the impression (deliberate or otherwise) that the Council is not competent, and that further Government intervention may be required.

While the City Council has come in for some deserved criticism its achievements post ‘quake are significant. It has delivered a forward looking plan for the central city in record time and it continues to competently provide a wide range of services  that people expect from their councils from libraries to wastewater (albeit at a scale reduced by the quakes).

The pressure being applied to Christchurch City Council relates to the Government’s concerns over how the council will meet the $1 billion share for the cost of rebuilding imposed on it by the Government.

One way of raising this revenue – and a way no doubt favoured by many in the current Government – is for the council to sell off assets.

Brownlee has openly stated that the Council must have a better plan than “putting up rates or borrowing a lot more money.”

While the Government denies it is pressuring the council to sell assets – “discussions” between Treasury and CERA officials and senior Council management suggest otherwise.  Then there’s the fear that Government could “do an ECan” and replace elected City councillors with Government appointed commissioners free to begin a process of asset sales.

Red Bus Ltd, Lyttelton Port Company, Orion and Christchurch airport are all assets owned by Canterbury citizens through their council. In the interests of Christchurch’s long term recovery, these strategic and revenue generating assets must not be sold.

The best prospect for Christchurch’s recovery must be to allow council to continue to prepare and consult the public on its draft annual plan and budget.  The Government should be looking at other ways of raising revenue.

An earthquake levy, of the type proposed by the Green Party, would raise $1 billion each year to contribute significantly to the earthquake bill.  An earthquake levy would assist central Government with the task of funding earthquake recovery.

Instead of looking at ways that all New Zealanders can help with the Christchurch rebuild the Government is pushing Christchurch residents – many who have just lost their homes – into a further financial crisis.

21 thoughts on “Christchurch’s assets could be next on Govt chopping block

  1. An earthquake levy, of the type proposed by the Green Party, would raise $1 billion each year to contribute significantly to the earthquake bill. An earthquake levy would assist central Government with the task of funding earthquake recovery.

    It would also drain $1B a year out of other local economies, on top of the significant rises in insurance premiums people are now facing. This would lead to job loses and hardship in other areas.

    Christchurch is funded by reinsurance payouts. If you increase the money flowing in, you’ll drive up the prices of construction, which I’m sure will make developers very happy, but won’t solve the actual problem.

    Christchurch will need to adapt and change. Here’s your chance to push for the low cost, medium density model you advocate. Perhaps they can sell off unneeded liabilities.

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  2. @Elsie 5:25 PM

    Perhaps they can sell off unneeded liabilities.

    And who is going to pay anything significant for “unneeded liabilities”? The reality is that Red Bus, Lyttelton Port, Orion Energy and Christchurch Airport all provide good returns on the capital invested in them.

    Selling them off to pay for the Christchurch rebuild is the same sort of economic lunacy that motivates the National-led Government to sell off its energy SOEs that return around 4 times the revenue in dividends than the cost of servicing their debt.

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  3. “..Wonder what cushion Brownlee’s providing for Parker to land on..”

    the soundest suggestion i have heard is that he be added to our exports to china..

    phil@whoar.

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  4. I suspect, Toad, that central government is rather concerned about possible further credit downgrades and the likely escalating costs of debt as interests rates rise.

    As well they should be.

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  5. no body in treasury seems to notice that the infrastructure user and the ratepayer are the same person – silly to sell an essential service just to rent it back at a greater cost

    http://howdaft.blogspot.co.nz/2011/06/why-selling-infrastructure-is-stupid.html

    If private ownership is such an efficient model it needs to be asked why treasury is the most persistent bureaucracy in wellington and why after suffering their direction for the past three decades NZ is as broke as greece – blind ideologues with the emphasis on the blind – they can’t see the obvious

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  6. @Elsie 5:42 PM

    …central government is rather concerned about possible further credit downgrades and the likely escalating costs of debt as interests rates rise.

    Interest rates would have to rise to the gargantuan level they were under Muldoon’s maladministration of wage and price freezes for that to be an issue.

    I don’t see that happening anytime soon, whatever political party or parties in Parliament hold the reins of power (NZ First possibly excepted, as Peters is essentially Muldoonist, but that ain’t going to happen).

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  7. The quake and everything else has to be paid for, and regardless of the method used to garner the payment, ultimately the population of NZ has to pay. There are basically three ways to collect the capital, which can of course be combined in various proportions.

    Firstly, a tax, levy or rate imposed for a limited time. This method has the lowest overall cost and fewest people clipping the ticket. It also keeps control entirely inhouse. Secondly, borrow the capital which means that we have to repay both the principal and the compound interest for a long time, and if household mortgages are any indication, the interest payment will exceed the principle. A lot of people clip this ticket. Thirdly, we sell the family silver which means that we pay at least half the profits to rentiers in perpetuity. Even more people clip this ticket.

    Eugenie, I’d like to see you organise a full comparative cost analysis of these methods along with their anticipated time frames and then publicise them.

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  8. Tremendous article Eugenie! Christchurch has long benefited from the capital returns from the holding company which in turn has kept rates down. It is imperative, now more than ever, that having that ongoing cashflow continues. To sell the golden goose to supposedly provide short term fiscal relief is naive in the extreme.

    I trust that your view is the position of the wider Green party and any attempt by the government to extend their asset sale agenda will be staunchly challenged?

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  9. Micheala. There is another way which has been used by Governments successfully, for infrastructure, in the past. Lend the money into circulation. Remove the middlemen, the banks, and save on interest.
    A levy will also work.

    Continuing to borrow, for election bribe tax cuts to National supporters and Christchurch, is the worst of all options.

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  10. Toad says “Selling them off to pay for the Christchurch rebuild is the same sort of economic lunacy that motivates the National-led Government to sell off its energy SOEs that return around 4 times the revenue in dividends than the cost of servicing their debt.”

    Point 1. Christchurch has assets like 1000s of hectares of forestry that returned a meagre 1.4% last year, and only 1.1% the year before. And you think it a good idea for them to lose 4-5% every year on this huge asset while they are paying 6% interest on their debt.

    Point 2. If you think energy SOEs are returning 4 times debt costs (a 24% dividend) then you are delusional.

    Or perhaps deliberately misleading, like Russel. He takes a half billion dollar loan by the generators, and adds it on top of the profits they made, so he can trumpet a huge but false return that’s three times the actual profits.

    That’s like me taking out a $100,000 loan, and claiming my annual income was $100,000 greater than it really was, and that this will continue every year in the future.

    Or like the Dunedin City Council who trumpet the dividends the council owned companies pay, when the reality is the companies have to borrow every year, going further and further into debt, to pay dividends at the required level.

    I presume you know what unsustainable means.

    It’s blatantly dishonest to include the money from a half billion dollar loan as profit.

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  11. darkhorse says “NZ is as broke as greece”

    Nonsense – or should I say horsesh!t.

    New Zealand’s debt is 30% of our GDP.

    Greece’s debt is 150% of their GDP and rocketing upwards.

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  12. Photonz our nett debt – private and public is far higher than 30% of gdp that is why we suffered a credit downgrade a while back and our debt is also rocketing upwards. And foreign ownership has the same effects as foreign debt = it drains wealth from out of our economy.

    And if our finances are so relatively wonderful why is this government contemplating selling off assets when the cost of borrowing is relatively much lower.

    These sales aslo overlook (or worse fail to value) the essentially strategic nature of energy assets to the economy on society. There is no government in its right mind contemplating selling energy assets right now – they are the one class of asset that can only increase in value from this point onwards. If oil goes back to $150 the price of all substitutes follows.

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  13. Dakghorse says “Photonz our nett debt – private and public is far higher than 30% of gdp that is why we suffered a credit downgrade a while back and our debt is also rocketing upwards”

    Actually our private debt is lower than it was a few years ago – the first time it’s gone down in decade.

    darkhorse says “And foreign ownership has the same effects as foreign debt = it drains wealth from out of our economy.”

    Foregn ownership in our sharemarket is actually going down – not up. And it’s simplistic and wrong to say foregin investemnt drains wealth – most foreign investments add wealth to NZ.

    If I have a company worht say $100m that I sell to a foreigner, they may take a 5-10% profit, but 90-95% of revenue will continuse to pay NZ wages, and buy products and services in NZ. Often foreign investors expand the company, so even more is spent in NZ on wages, goods and services, than when it was NZ owned.

    And Xenophobes ALWAYS, ALWAYS, ignore the $100m that I now have to spend as I wish – most likely starting a new business in NZ, or new capital to expand existing businesses.

    Instead of one $100m business operating in NZ, we now have two.

    That’s a massive gain for NZ.

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  14. And what is more phonz they usually load the beast up with debt, flick off a portion to mug kiwi investors and repatriate the cash from that and then skim the cream until it falls over. (YELLOW any one?) We are a nation of naive mugs not xenophobes.

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  15. What the dishonest Nats are doing with christchurch is using a natural disaster to ram through their unpopular policys.

    PhotoNzs National party supplied spin , like most of his posts is a load of cherry picked rubbish.

    The Nats want to transfer assetts and wealth to the rich.

    Its that simple.

    Fair and logical soloutions like a earthquake levey will never get a look in while we are ruled by the rich for the rich.

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  16. Maybe they could take up the idea of allowing a ‘Daktory’ to open & all the profit will go out of the hands of the gangs & go directly to the Earthquake recovery ?
    It is estimated that regulated cannabis sales, could be worth over a billion a year.. instead of spending it to prosecute people, under the current B-S regime. Just a thought..
    Kia-ora

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  17. The Government has been very slow to pay it’s $3.8bn debt to EQC. According to the Treasury’s Debt Management Office it took the Government 12 months to buy back the $1.5bn of Government Bonds needed to cover the Natural Disaster Fund’s liabilities from the September quake and a year on from the Feb 22nd quake only one-fifth the remaining $2.5bn worth of bonds held by EQC have been redeemed.

    The Auditor Generals report to the Finance and Expenditure Select Committee on the Canterbury Earthquake Recovery Fund identifies the sources of the $5.5bn and what it is to be spent on. Only $4.8bn was “new” funds and only $780m was allocated to assisiting Christchurch City Council rbuild damaged infrastructure. The recent Bollard speech stated that the rebuild will boost the economy by $10bn over the next ten years. That includes GST of nearly $1.5bn. A nice little earner for the Government.

    When the easily remediabl redzoned land is rezoned for town houses and apartments the can flick the land onto property developers for a tidl profit.

    In September the NZTA Board was instructed to work out how to fund the $750m road repairs (SCIRT estimate) without impacting on funding for the RoNS. Their solution was to recommend to Cabinet that NZTA contributions be capped at $50m poer year for six years and that the Government dip into the CERF to fund the other 40% of the Crown share of road repair costs. Christchurch ratepayers own cars and use services by provided by trucks and pay the $100m each year in RUCs and petrol taxes. Another nice little earner for the Government.

    Is this whole debate an attempt by the Government to deflect attention from it’s failure to address the issues identified by the Auditor Gneral regarding responsibility and accountability for allocating the $3.3bn of contingency funds included in the $5.5bn CERF?

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