Budgeting for the Christchurch Rebuild
It’s official – Christchurch is no longer in recovery and is now in rebuild. Driving around town, it’s not hard to miss the hive of activity that is taking place. Construction sites are starting to outnumber demolition sites. The focus is firmly on the future and the economic benefits that the rebuild promises to bring.
Although it’s been widely accepted as fact by a number of locals for some time, something else has recently become official – the rebuild is going to cost more than originally anticipated. Much more. Original estimated costs for the rebuild of around $30 billion have escalated to around $40 billion.
A number of reasons have been put forward for the increase. These include improvements in cost estimates as the extent of damage and the need for repair and replacement is reassessed.
Only some of the increase will affect the Crown’s finances. Prime Minister John Key has stated that this year’s Budget will reveal an increase in the estimated net cost of the earthquakes to the Government from $13 billion to $15 billion. Despite this increased burden, Mr Key has said this won’t affect the Government’s important goal of achieving Budget surplus in 2014/15.
The balance of the rebuild costs will fall on the private sector, mainly insurance companies.
A really positive aspect of the rebuild is that, for a significant part, it is new money that is being introduced to the economy. In that sense, the rebuild is a huge, one-off export. While there’s no doubt that any circulation of money encourages economic activity, our fortunes as a country only improve when new money comes to town.
Some of that money won’t be here to stay. Christchurch’s population is increasing as migrant workers arrive to assist with the rebuild. While a lot of those wages will be spent locally, there will be a certain amount that will be repatriated to Ireland, the Philippines, the Pacific Islands and other providers of labour.
The mood in Christchurch is mixed, and it depends on personal circumstances. There is a general sense of optimism about the renewal that rebuilding will bring. These positives include new faces in town, new hospitality offerings, the return of old favourites like the recently re-opened New Regent Street and the gondola, and innovative new structures. This is tempered by a sense of loss for the people and things that have gone, and a sense of frustration on the part of those who feel left behind as the mammoth task of reconstruction and replacement seems to grind on.
Christchurch also continues its tradition of debate. In years gone by, this was often focused on what colour the tiles in Cathedral Square should be. The earthquake rebuild has amplified this noise, as it is now the fate of the Cathedral itself that is at stake - as well as other issues such as architecture, sports facilities and the one-way system.
Regardless of the outcome of such discussion, the over-riding sense is one of opportunity. Recognition of the increased amount of capital will only increase that.
Further enquiries, please contact:
Grant Thornton New Zealand Partner, Tax and Privately Held Business
T+64 3 379 9580
M+64 21 670 330