Opinion: Asset sales millions flowing towards Christchurch

You do not have to burrow too deeply into the annual government accounts to uncover the untold story of last week's Budget.

It is a story which raises questions about National's exploitation, for not altogether noble reasons, of the billions of dollars scheduled to flow from its partial privatisation programme into a Government-controlled infrastructure development fund.

It is a story which National - to its credit - has not tried to hide. It is also a story which has largely passed the public by.

The place to start is page 33 of the Budget document updating economic and fiscal forecasts. It is here the Treasury has produced a table outlining the latest projected costs faced by the Crown for Christchurch's recovery from the 2010 and 2011 earthquakes. That bill has ballooned by a further $2 billion to an estimated total of more than $15 billion. The Treasury has also revised its estimate of the overall level of investment, public and private, that will be needed for the rebuilding of Christchurch from the $30 billion in last December's Budget update to $40 billion.

Some of the cost will be met by operational spending which is largely funded by tax revenue. However, a fair chunk of the bill will be paid by cash set aside for funding capital works - cash which will be derived from the proceeds of National's partial asset sales.

With the sale of shares in Mighty River Power having raised about $1.7 billion, the Government has now placed some $2.1 billion into the the so-called Future Investment Fund. Close to $90 million of this has been allocated to health sector projects, while schools have so far got about $84 million of their promised $1 billion. Irrigation projects have soaked up another $80 million.

However, more than $900 million of the $2.1 billion cash stash has been allocated to the rebuilding of Christchurch. That includes some $426 million for the redevelopment of Christchurch and Burwood hospitals.

It may come as something of a surprise that this money is being drawn from the proceeds of asset sales to fund the replacement of essential infrastructure in Christchurch.

It begs the question of whether National is conveniently dipping into the fund simply to avoid paying the earthquake bill by (horror of horrors) borrowing money or by (even greater horror of horrors) raising taxes or further slicing of Government spending.

Given National's tight rein on operational spending is already having a contractionary impact on the economy, further spending cuts or tax rises are not really an option.

National is only slightly less averse to borrowing, if only because the twin combination of the earthquake-related damage and softening the impact of the global financial crisis on New Zealanders has already forced it to go into the red.

But National can delve into the Future Investment Fund with relative alacrity because someone in National's senior ranks had the wherewithal to write into the fine print of the policy covering the fund's establishment that possible projects could include ''infrastructure recovery from natural disasters''.

For that was not the impression John Key gave of how the fund would operate when he unveiled it at a rally in Auckland which opened National's 2011 election campaign.

Mr Key portrayed the pot of money as an instrument with which to ''modernise'' existing assets and thus transform the economy - rather than merely using it to plug gaps in the the existing infrastructure. It was all wrapped together with National's slogan of ''Building a Better Future''. The first priority would be education, with $1 billion being set aside to accelerate National's school building programme, alongside the development of ultrafast broadband. There was no mention of Christchurch or earthquakes.

Mr Key was instead promoting the fund as an answer to trenchant criticism during preceding months of National's partial privatisation agenda.

National was never going to succeed in stifling that opposition. The intention was to dilute and disperse it by stipulating that all the cash raised from the phased sell-offs of minority shareholdings in a clutch of state-owned enterprises would be devoted to building new schools, hospitals and other such projects.

National would thus be able to to parry criticism that the sell-offs were purely ideologically-driven and instead argue they were motivated by a desire to benefit the common good.

National's opponents might well now ask whether the fund is being used in quite the fashion Mr Key said it would be, or whether it has become an exercise in shonky accounting which effectively has the ulterior motive of helping National to achieve Budget surplus within the next two years.

The fiscally virtuous thing for National to have done would have been to divert money from asset sales straight into debt reduction. If National wanted to continue to spend money on the capital side of the ledger, it should either raise taxes, cut spending or borrow. The Future Investment Fund is helping National to avoid all three unwelcome outcomes.

It is tempting to accuse National of pulling the wool over voters' eyes. But Mr Key and Bill English have been utterly transparent about what they are doing. And they also know the fine detail of how Budget accounting works is not something voters get overly fussed by.

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