John Roughan: Send quake bill to public, Mr English

Finance Minister Bill English. Photo / Mark Mitchell

The Budget is little more than a month away and I imagine that right now speechwriters for Bill English are having a struggle to turn his stated inclinations into a coherent economic story.

There are two themes in his talk of late. One says there is no more money for him to spend this year because the economy is carrying debt at levels comparable to the cot cases of the euro zone and if we don't do something about it there is nobody to bail us out.

The other says public debt is quite low and he can safely borrow another few billion to fix Christchurch without reducing spending or raising extra tax, but thanks for the offer.

Well, he hasn't said thanks for the offer. The country's evident willingness to pay an earthquake levy has been awkward for the Government. It wants to go to the election with last year's tax cuts uncompromised by even a temporary surcharge on higher incomes to deal with the worst natural catastrophe the country has faced. In disingenuous moments - Mr English has quite a few - he tells anyone offering to pay more tax that they are quite welcome to do so, he won't send it back.

Times like these tell you taxation has a value a donation cannot match. Charities no doubt make good use of every contribution, but to the average donor it feels like a token offering to a vast unknown.

Tax, particularly when directed to a specific purpose, has a clear collective value, its use is monitored and its benefit measurable. But we are going to borrow.

The Finance Minister runs his contradictory themes by invoking two different sorts of national debt. When he is stern about general expenditure he cites the total external debt, which is horrendous and has been for as long as I can remember. But the bulk of it is private debt raised by banks and lent to companies and households.

When he says he can safely borrow billions more for Christchurch he takes refuge in government debt, now a small part of the total thanks to Ruth Richardson who trimmed social welfare and bequeathed budget surpluses to finance ministers for the next 15 years.

But the truth is, low government debt is no longer the main criterion creditors use to assess our national solvency, as Mr English explains for the purposes of his first theme. The global financial crisis has told the creditors that all debt raised through a nation's banking system can become a public liability.

It therefore becomes more important that they see borrowed money going into viable products that will earn a dollar, rather than into houses, cars and home entertainment systems.

His Budget speech will have a lot to say about that. It will also celebrate the changes forced on us by the recession. House prices are static, we are saving not spending, milk prices are high, farmers are in clover, China is growing hungrier for a rich diet, we should all be investing in better food production. But meantime, we have just had two world-class earthquakes, each big enough to register on international insurance ledgers where most of the cost will be covered. But about $3 billion will be left for the Government to find.

Bill English will add it to the national debt, arguing that borrowing shares the burden with future taxpayers who will benefit from the work.

"Share" in this context has the same meaning for future taxpayers as this Government's fear of raising the pension age.

If Mr English acknowledges the tax offer at all, it will be to parrot convenient advice that additional taxation right now would hold back the delicate economic recovery.

I am a simple man. If I can pay for what I need when I need it, I do. I am very glad of the October tax cut because I don't believe public services should need more than a third of anyone's honest earnings.

But I'm not spending the money Mr English has left to me since October and he knows I'm not. He's glad I'm saving it, even though that does not help an immediate recovery.

Saving will be another theme of his Budget. He does not want any old economic recovery, he wants one that changes the thrust of the economy from excessive public spending and household consumption to capital investments that increase the country's productivity and the range and value of its products.

Repairing the sewers of Christchurch does not quite fall into the productive category. The earthquake repair will divert a great deal of national investment no matter how it is financed but we don't need to borrow it. The better-paid have the means to pay a good portion of it and I think we should.