$7.1 billion quake aftershock

Much of the EQC's reserves are in the form of government bonds. Photo / Dean Purcell

Revised EQC estimate doubles expected damage bill and wipes out Govt's fund

by The Government's books suffered another Canterbury quake-related aftershock yesterday as the Earthquake Commission's liabilities more than doubled, dashing hopes National would go into the election with better-than-expected finances.

Finance Minister Bill English yesterday revealed the commission had increased its estimated Canterbury earthquake liability by $4 billion to $7.1 billion which will clean out its $6 billion Natural Disaster Fund and oblige the Crown to pay the excess.

Mr English indicated that with the tax take running better than forecast and non quake-related expenses less than expected, the Government would have been announcing good news before the November election - a deficit of $14 billion rather than the previously advised worst operating deficit so far of $16.7 billion.

However, yesterday's numbers put paid to that.

"Combined, these factors are likely to push the operating deficit before gains and losses up to about $18 billion - $1.3 billion higher than the Budget forecast," Mr English said.

But the effect on wider measurements of the Crown's finances is complicated by the fact that much of the EQC's reserves were in the form of government bonds which will have to be redeemed, with the resulting hole in the Crown's finances filled by issuing new bonds.

Nevertheless Mr English said the Government remained confident of posting a surplus in the 2014-15 year.

The Treasury has been asked to revise its estimates after yesterday's numbers but it appears likely the total quake bill including the Government and private sector previously put at $15 billion will be around $20 billion.

Mr English indicated further bad news might emerge as private insurers including taxpayer-backed AMI Insurance gained more clarity over their exposure.

The commission's new numbers were "an indication in general the February quake in particular caused more damage than was previously thought".

"As all the insurers work through individual assessments, that will probably become apparent, including in AMI's case."

Mr English acknowledged the extra costs "make us a bit more vulnerable today than we were before we knew this number".

With the Natural Disaster Fund wiped out, the Government will have to meet the first $1.5 billion cost of any further quakes before newly renegotiated reinsurance of $2.5 billion kicks in. Nevertheless, ratings agency Standard & Poor's said its AAA rating on the EQC was unchanged, reflecting the "almost certain" likelihood the Government "would provide timely and sufficient extraordinary support to the EQC in the event of financial stress".

The obliteration of the EQC's reserves means the Government will consider changes to the commission's framework in due course including possible increases to the fees that homeowners pay as part of their insurance premiums.

But while the Green Party yesterday renewed its calls for a "small temporary earthquake levy" as the fairest way to pay for the rebuilding of Christchurch, a spokesman for Mr English ruled that out.

Mr English said that the Earthquake Commission's updated figure included an additional $2.17 billion liability from the February 22 earthquake and an extra $1.42 billion from the June 13 earthquakes and other aftershocks.

It was at first thought that 12,000 houses would have more than $100,000 in damage, but that number was now estimated to be about 30,000 houses.

Meanwhile, the cost of repairing land damage had risen from an estimated $300 million to $600 million previously to $1.8 billion yesterday.

However, Earthquake Recovery Minister Gerry Brownlee said Cantabrians could still expect to have their damage claims settled in full.

"EQC's fund is government guaranteed to protect claimants' interests."