Rebuilding Christchurch estimated to cost $15 billion

9:49 am on 7 March 2011

Treasury estimates the cost of repairing the damage from the September and February earthquakes will be about $15 billion.

In its latest forecasts, released on Sunday, it also assumes economic growth will be $15 billion lower from now until 2015.

Treasury says the 22 February earthquake came at a time when the economy was recovering more slowly than it predicted last December.

It had expected an earlier boost from rebuilding work in Canterbury after the 4 September quake, but this had not occurred, and as a result Treasury was already downgrading its forecast for the first three months of this year.

As well, households and companies continued to keep their wallets firmly shut. Treasury's latest estimate is that the economy did not grow at all in the three months to the end of December, after shrinking in the previous three months.

By the end of last year, if the Treasury is right, the economy grew just 0.5%.

It now expects the economic activity will also shrink in the first three months of the year, but it expects by the end of December growth to have reached 2%. But that is still well down on its earlier forecast of 3.5%.

The unemployment rate is also not expected to fall significantly over the next six months in the wake of the earthquake. Over the longer term, however, recovery work might help lower unemployment.

Treasury says any increase in economic activity brought on by rebuilding work in Christchurch will not take effect until next year and will not offset the overall loss in economic activity of about $15 billion from 2011 to 2015.

Budget deficit will climb

For the Government, that will mean $5 billion less tax over the same period. Finance Minister Bill English says that is manageable given the Government's income is about $330 billion over the five years.

Mr English warns the forecast $11 billion budget deficit for this year will climb as the Government absorbs the cost of earthquake recovery. The Government's share is likely to be about $5 billion and much of the cost will be absorbed in the May Budget.

The minister said the Government would be reluctant to change taxes to help pay for the burgeoning earthquake bill because the economy is pretty flat and the Government has made significant tax changes as part of its long-term strategy.

Treasury warns its figures are best guesses and says it will provide more up-to-date forecasts in the 19 May Budget.

It says last month's quake came at a time when the economy was recovering more slowly than predicted, and it is a line call whether the economy has fallen back into recession.