Government urged against using infrastructure spending to re-build Christchurch

13 March 2011

A senior economist from The University of Auckland Business School is warning the Government not to be tempted into diverting infrastructure spending from other parts of New Zealand to rebuild Christchurch.

Associate Professor Rhema Vaithianathan, the director of the Centre for Applied Research in Economics (CARE) within the Department of Economics, says evidence suggests cities and countries can experience positive long-run growth after a natural disaster, as long as a few conditions are adhered to.

"The most crucial is that there is an infrastructure injection into the country and that the city is re-built with modern technology and infrastructure," Dr Vaithianathan says.

"For New Zealand and Christchurch to come out of this stronger in the long run, we need to take this opportunity for the whole country to modernise. Simply reallocating infrastructure spending from Auckland to Christchurch is not going to have any impact on long- run growth.

"Robbing Peter to pay Paul will make us all that much worse," she says.

Physical infrastructure is crucial to long run economic growth, yet most Governments underspend on it, Dr Vaithianathan says. "Following natural disasters, taxpayers are willing to pay a levy, and Government should take this opportunity to increase taxes and use the proceeds for pump-priming our infrastructure," she says.

"The other important part of minimising the impact on economic growth is to minimise the disruption on those undergoing training. During the rebuild, children must continue to be educated and adult training maintained.

"Indeed, the rebuilding can be combined with additional training opportunities for the trades," Dr Vaithianathan says.