Quake repair estimate revised to $8.5 billion

Finance Minister Bill English. Photo / Getty Images

Finance Minister Bill English says the new estimate of what the Canterbury earthquakes will cost the Government is $8.5 billion, down from early figures of up to $15 billion.

He also said Treasury had revised its forecast of lost tax revenue from the earthquake and lower growth to $3 billion over five years.

The earlier estimate ranged between $3 billion and $5 billion over five years.

Speaking to the Wellington Employers' Chamber of Commerce, Mr English sought to downplay the effect of the earthquake on the Government's programme, comparing the $8.5 billion with the $70 billion it spends each year and New Zealand's $200 billion GDP.

However he hinted he might have to push back the date for a return to surplus to 2015-16, as projected in last year's Budget.

In February this year he and Prime Minister John Key brought the projection forward to 2014-15 but that was the week before the second earthquake.

"The earthquakes do not fundamentally change our economic situation or the Government's programme," he said. "They simply make the task of returning to surplus a little more difficult."

Mr English indicated the latest estimate could change but it is what the Government will use for the May 19 Budget.

The $8.5 billion cost to Government is comprised of three elements including $3 billion of known direct costs such as repairs to schools and hospitals, local government infrastructure and roads; and at least $3 billion to the Earthquake Commission for damage to residential property.

He said the remaining $2.5 billion should cover costs of decisions yet to be made - "the biggest cost is likely to be land remediation of damage from the February quake".

The direct costs of $5.5 billion would be fully provided for in the Budget on May 19.

Mr English said businesses in Christchurch were on a "recovery path".

Last week Paymark, which processes all eftpos transactions, noted that weekly sales had been down only 3 per cent on last year's level, compared with 31 per cent down immediately after the quake.

Paymark estimated that transactions nationwide were down about 1 per cent in February and March.

Mr English said Treasury had already estimated the direct impact of the quake would be to lower GDP by about 1.5 per cent in the year to June 2011.

Revenue Minister Peter Dunne yesterday announced changes to tax rules to help Christchurch businesses that will take effect from September 4.

The changes include:

* Deferral by Inland Revenue of recovery of depreciation until 2015-16 when the proceeds of a destroyed asset exceed the tax book value of the asset. This applies only within the Christchurch earthquake zone.

* The timing of the deemed sale of a destroyed asset changed from the time of destruction to when the insurance proceeds can be reasonably estimated. This is not limited to Christchurch.

* Expanding the rule allowing a generic write-off for any loss on buildings that are destroyed by an event beyond the owner's control to include relatively undamaged buildings that had to be destroyed because of damage to land underneath or to neighbouring buildings. This is not limited to Christchurch.