The Auditor General (AG) recently raised serious concerns about the Treasury’s handling of the Crown Retail Deposit Guarantee Scheme.
Questions raised by the AG’s critique need urgent and focused attention.
First the history. The scheme was put in place in a matter of hours – designed and announced the same day. At the peak of the Global Financial Crisis it ensured there wasn’t a run on financial institutions. The Auditor General found that it achieved its initial goals and that the economy was stabilised.
But, appearing before the select committee, the AG revealed under questioning the extent of Treasury’s failure to effectively monitor the scheme in the early months. Risk to the taxpayer waxed unobserved by the official watchdog. The risk profile of South Canterbury Finance’s loan book, for example, grew rapidly in the early months of 2009. Within 4 months of the scheme’s introduction, South Canterbury’s deposit base had increased by 25%. Treasury failed to proactively monitor the growth in risk to the taxpayer. It did not request regular reports it was entitled to request from the Reserve Bank.
In her recent appearance before the Finance and Expenditure Select Committee (FEC), the Auditor General said she also found no evidence to suggest the Treasury had asked itself whether further intervention was necessary to protect taxpayer interests.
The scheme ultimately looks set to cost the taxpayer in excess of $1 Billion. Some of this may have been necessary to ensure New Zealand survived the financial crisis. However, without further investigation it is not clear just how much of the $1 Billion was avoidable cost to the taxpayer.
Under questioning by David Parker, FEC Committee Chair Todd McClay made it clear he wasn’t about to take a lead on holding Treasury to account.
Treasury failed to effectively monitor the growth in risk to the taxpayer. In fact, it didn’t make any provision for payouts under the scheme until June 2009. When asked whether Treasury’s practices had changed sufficient to be sure that they could ask themselves the right questions today, the Auditor General was not able to offer necessary reassurance.
The parliamentary Finance and Expenditure Committee has the job of asking Treasury the tough questions. When hundreds of millions of taxpayer dollars are at stake, thorough investigation is demanded. The people of New Zealand need to be assured Treasury has learned from any mistakes. To that end, Labour members will be drafting terms of reference for an inquiry into Treasury’s handling of the Crown Retail Deposits Guarantee scheme.
In my experience, people at Treasury have broad shoulders and will welcome rigorous inquiry.