Development of Christchurch Infrastucture and its Benefits

1093 words (4 pages) Business Assignment

13th May 2020 Business Assignment Reference this

Tags: Business AssignmentsEconomicsGovernment

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Executive Summary

Infrastructure is generally understood to be a critical determinant of the health and welfare of cities and countries, benefiting businesses and individuals. Despite the ongoing efforts, the downtown area in Christchurch still requires significant upgrades and construction of existing and new infrastructure to be economically functional. Completion of such infrastructure projects is critical for rebuilding the city economy and for growth. Subsequently, changes to infrastructure will appreciate employment rates as well.  Despite the negative perception, financing the infrastructure through debt has short term benefits by creating demand and in the long term by improving productivity. Subsequently, changes to infrastructure will impact employment rates as well. Despite Christchurch being the largest city in the South Island, the lack of rapid infrastructure development and new buildings strikes a depressing overview of the town. Changing the melancholic perception held by many citizens of New Zealand should be an actively pursued ambition for the government. Reforming the imagery of Christchurch is critical for stimulating economic growth and forgetting about the disastrous events that occurred. Therefore, aspirations to finance the Christchurch rebuild must remain a top priority for the New Zealand government. However, the rehabilitation of the city should compete for budget expenditure once there are no signs of abandonment and the town can sustain economic growth.

Essay

Currently, the downtown area is a depressing part of the city that has not progressed much these last couple of years. This pessimistic outlook reflects the confidence of the citizens. The handful of new or fully repaired buildings are overshadowed by the vast quantities of buildings that have been in the same state eight years ago. Furthermore, vast space created from demolished buildings has not received reinvestment for rebuilding. Therefore, these uninvested areas have resulted in large volumes of parking lots scattered around the city. It is clear from the trivial building reconstruction that the perception for businesses and citizens is to “leave” rather than “stay”. As such, the central government must continue to grow its debt to financially prioritise the reconstruction of the city, until the town is vibrant and can adequately support itself once more.

Christchurch is the second-largest city in New Zealand and therefore a critical driver of the economy in the South Island. The completion of infrastructure projects is vital for the economic wellbeing of Christchurch, enabling businesses and individuals to produce goods and services in an efficient manner (Stupak, 2018). The increase in public capital stock will appreciate the value of products and services in the short term, while long term benefits for individuals and businesses include higher productivity and efficient resource usage. Consequently, government investments in public infrastructure will increase employment rates in the near and medium-term. With the selection of contractors to complete infrastructure projects, contractors will hire additional workers and services such as labourers and consultancies. Furthermore, the completion of these infrastructure projects will have a snowball effect on the economic activity of the town. For example, the availability of public spaces, facilities and residential dwellings will encourage more visitors into the central city while making the city more enjoyable to move around. Therefore, the more significant attraction of people will enable businesses in the area to be able to sustain long term, profit and pay corporate tax. Also, new companies will be inspired to operate, and thus, more employment opportunities will arise. Therefore, the government must continue to borrow money and investing capital into Christchurch until the city has adequate infrastructure to stimulate economic activity and ensure the longevity of businesses.

The financing for government investments has significant impacts on short and long-term horizons. Currently, the central government is utilising a debt-financed approach( borrowing and spending money) instead of a neutral debt plan (using the capital budget), for the investment of infrastructure in the city. As the central government spends borrowed funds on public support, this directly increases economic output as the government purchases goods and services from contractors (Stupak, 2018). Furthermore, the government will require contractors for the projects, employees and suppliers utilised by contractors now have additional capital and will likely purchase goods and services provided by other businesses. The successive cash flow, firstly from the government to the contractors, then to employees and suppliers results in a higher GDP increase than by original spending by the government (Stupak, 2018). Additionally, research by the International Monetary Fund (IMF) suggested that one percentage point of GDP increase in debt-financed investments will increase the GDP by 0.9% within the first year, and by 2.9% after four years. However, authors from the IMF concluded that neutral debt financing had no significant impact on economic outputs. Instead, more excellent long-term benefits from private investors not being “crowded out”. However, these long-term benefits are hard to value due to potential government changes. The government must continue to support the rehabilitation of Christchurch through debt financing for short term and midterm economic success. However, to avoid a large Debt-to-GDP ratio, the government must transition to a neutral debt approach once enough infrastructure projects are present, such that the economy of the city can prosper.

The dynamics of NZ’s shifting economy and volatile spending initiatives are now more pressing than ever. It is paramount that funding for Christchurch rebuild efforts continues to be a top priority for the New Zealand government for the restoration of the city. However, the rehabilitation of Christchurch should compete with other budget initiatives when the city and its economy is vibrant once more.

Bibliography

  • International Monetary Fund. (2014). Legacies, Clouds, Uncertaintes. (October), 75–114.
  • Stupak, J. M. (2018). Economic Impact of Infrastructure Investment.

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