Treasury papers released yesterday showed some serious problems for the Government with the Earthquake Commission's estimate for the February 22 earthquake put at $1.5 billion.
Also, there was a $331 million increase in the Government's expected loss from the Retail Deposit Guarantee Scheme which covered eligible depositors in failed institutions.
Finance Minister Bill English said most of the increase was attributable to a reduction in expected related party loan recoveries from the receivership of South Canterbury Finance.
"The receiver has provided updated information on South Canterbury's lending business not available previously. In addition, the expected effect of the latest Canterbury earthquake has been factored into likely recoveries." The accounts showed the Government's operating balance was boosted by unforecast gains of $5.2 billion. Of those, $3.2 billion came from equity investments in the New Zealand Superannuation Fund and ACC and $2 billion from actuarial gains on ACC and GSF liabilities.
The operating balance for the eight months ended February was a deficit of $2.5 billion, down $3.5 billion on the nearly $6 billion released in the half-year economic and fiscal update.
Craigs Investment Partners broker Chris Timms said although the gain on investments was a "paper gain", the accounts would have looked much worse without them.
"The Government can probably look forward to the improving markets helping out their accounts in the future."
In the year to March, the blue chip Dow Jones Industrial Index rose 13.5% in value and the NZX-50 rose 5%.
"Anybody who invested in the markets, and added to their stock particularly in New Zealand, Australia and the United States, had a pretty good year."
Asked about the extra costs to the guarantee scheme, Mr Timms said the Government would have expected to receive a certain amount from the sale of some of the assets covered by the scheme. However, with an economy now predicted for low growth, some of those forecasts would not be reached.
Labour Party finance spokesman David Cunliffe said it had become clear National would use the economic impact of the Christchurch earthquakes to justify "savage cuts" to public spending in the May Budget.
"National believes it has found its excuses to further its own ideological priorities and produce a zero budget that dramatically slashes services for low to middle-income Kiwis. All that will do is to drive New Zealand deeper into recession."
Labour recognised the financial impact of the quake, but there needed to be a balanced package in response, he said. New Zealand needed to borrow to smooth the cost over the time it took to complete the recovery.
New priorities were needed on roading, tax cuts to wealthy New Zealanders had to be reassessed and there had to be a plan for growing the economy and jobs, Mr Cunliffe said.
Mr English said the extra one-off costs in the accounts added to what was already shaping as a large deficit in the current financial year.
The deficit forecasts would be updated in the Budgetand would reinforce the need to consider its spending priorities and set a "credible path" back to budget surplus.
"Only then can we begin repaying our debt and building a buffer against the next economic shock. We will do that while we set about to rebuild Christchurch. The earthquake will have a significant impact on the Government's finances and the wider New Zealand economy for years to come."
