AMI shock to Government's fiscal position further evidence of need for a levy

The $500 million underwriting of AMI Insurance will put the Government’s books under even greater pressure making the need for an earthquake levy more compelling, Green Party Co-leader Russel Norman said today.

“The Green Party supports the Government’s move to underwrite AMI Insurance to give certainty to policyholders, especially those in Christchurch needing to rebuild their homes and livelihoods,” said Dr Norman.

“Giving ourselves the option of a preferential shareholding in AMI is the most prudent way to bail out the company and will ensure the interests of taxpayers are best protected.

“However, John Key’s Government can no longer continue to keep borrowing indefinitely to pay for the mounting cost of rebuilding Christchurch.

“We have to have to be prepared for more bad news from the Christchurch earthquake, so the Government needs to design a fiscally and economically resilient response. Putting it all on the credit card isn’t really a plan and will simply leave us less able to deal with future shocks,” said Dr Norman.

The Green Party has proposed a temporary levy on income as a way to pay for the cost of rebuilding Christchurch. The small levy would fall on those most able to pay for it and raise over $1 billion of additional revenue each year it remained in place.

“Our plan to raise a temporary levy lessens the risk of a credit downgrade,” said Dr Norman.

The Government confirmed through an answer to a Written Question yesterday that the credit agencies will be reviewing New Zealand’s sovereign credit rating after the May 19 Budget when there would be more information of the effects of the earthquake on the Government’s finances.

“A credit rating downgrade would add significant deadweight costs right across our economy — the last thing a fragile economy needs right now.

“The other part of the Government’s approach is to cut public sector spending at a time of weak economic activity, which carries the risk of sending the economy back into recession.

“A temporary levy avoids both these risks as it spreads the cost of funding the rebuild of Christchurch fairly throughout the economy,” said Dr Norman.


More information on the Green Party’s levy proposal:
http://www.greens.org.nz/sites/default/files/how_an_earthquake_levy_could_look_green_party_research_1.pdf