Crown accounts reflect extra earthquake costs

An updated valuation of estimated Canterbury earthquake costs – including $450 million relating to the quake on 23 December 2011 – are reflected in the Government’s accounts for the eight months to 29 February.

Combined with core Crown expenses remaining significantly below forecast, and core Crown tax revenue continuing to track below forecast, the extra earthquake costs left a $5.5 billion operating deficit before gains and losses in the eight months, Finance Minister Bill English says.

“This is about $395 million higher than the $5.1 billion deficit forecast in the Pre-Election Update last year,” Mr English says. “These extra cost estimates from the earthquakes are outside our control, but it reinforces the need to remain focused on things we can influence, such as government spending.

“So we will have to remain disciplined to meet the challenging goal of getting back to surplus by 2014/15, when we can start repaying debt.”

The main reasons for the difference in the OBEGAL deficit reported for the eight months to February and the Pre Election Update forecast were costs of the 23 December earthquake and an updated actuarial valuation of the Earthquake Commission’s insurance claims liability.

The estimated cost of the earthquakes has increased by about $500 million, net of reinsurance. Of this, about $450 million related to the 23 December earthquake (around $300 million was estimated in the Budget Policy Statement and the January financial statements), and the remainder reflected an actuarial update.

“These earthquake cost estimates will continue to be updated as more information becomes available,” Mr English says. “But I’m encouraged that we’ve kept core Crown expenses $1.4 billion below forecast at $45.2 billion for the eight months to February. As we move towards the Budget in May, this discipline around spending will remain our strong focus.”