Kiwiblog

Vernon Small at Stuff reports:

Treasury failed to stem the flow of millions of dollars into risky finance companies, including failed South Canterbury Finance, after the Government guaranteed their deposits, a report highly critical of the management of the scheme reveals.

The report, by Auditor-General Lyn Provost, reveals deposits in South Canterbury Finance jumped 25 per cent and another finance company saw more than $7million flow into its coffers as investors chased higher returns once they realised the Government was there to pick up the tab when riskier finance companies fell over.

Ms Provost says Treasury knew from the start that depositors would chase the guarantee and that that carried significant risk, but did not take sufficient steps to minimise that risk.

“We saw one example where a finance company’s deposits grew from $800,000 to $8.3 million after its deposits were guaranteed. At South Canterbury Finance Limited, the deposits grew by 25 per cent after the guarantee was put in place,” the report found.

“Once deposits with these companies were guaranteed, depositors could safely move investments to where they would get the highest return, irrespective of the risk of company failure. The finance companies also had less reason to minimise risk in their investment activity. The Crown was carrying much of this risk.”

From mid-2009, Treasury was closely monitoring these changes and the companies that were identified as being at risk.

“However, it was largely doing so to prepare for potential payouts. It did not see itself as able to interact with a finance company to attempt to moderate that behaviour, even when it could see the Crown’s potential liability increasing markedly. The view appeared to be that it was better to recover what funds it could after an institution failed, than try to influence events before a failure.”

So the criticism is that having guaranteed the deposits, Treasury should have told some finance companies to pull their heads in, presumably with an implicit threat to revoke the guarantee if they don’t.

Treasury Secretary Gabriel Makhlouf said yesterday that Treasury disagreed with the assertion that more intervention in finance companies might have reduced the fiscal risks that were an inevitable consequence of the scheme.

I suspect it would have reduced the fiscal risks. However it may have increased other risks such as reputational risks. If Treasury was acting as a sort of implicit director of a finance company and it then crashed, the company might blame Treasury for interfering and say that without the interference they would have been fine.

The Herald reports:

Treasury boss John Whitehead took World Bank and International Monetary Fund officials out for pricey dinners just a few months after State Service Commissioner Iain Rennie warned top public servants against doing just that.

Dr Whitehead’s credit card expenses were published this week and show that last month he spent $292 on dinner for three at Wellington waterfront eatery Foxglove with World Bank executive director Jim Hagan.

I’m sorry but this is almost embarrassing. I’m all for responsible use of credit cards, but running a story about spending $95/head at dinner entertaining the Executive Director of the World Bank is ridicolous.

Foxglove is a medium priced restaurant. Far from the most expensive. Should we take the World Bank Executive Director to Uncle Chang’s instead?

Or alternatively have him out for dinner, and then when you get to desserts, tell him “I’m sorry but NZ is so poor, we can’t pay for dessert”.

$95 doesn’t mean there were bottles of expensive wine drunk. $20 for an entree, $40 for a man and $15 for a dessert is $75 so  arguably they had one bottle of $60 wine. I doubt the World Bank executive Dinner is going to regale colleagues in Washington about the awesome night out in Wellington – yeah we had five courses, two bottles of port plus a couple of strippers – all for $95 – it was better than Vegas.

It is good to have scrutiny of public sector spending. In fact I support having all Government payments listed online. But I don’t regard $95/head for the Executive Director of the World Bank as inappropriate or even newsworthy.

The Herald reports Treasury recommends:

• Move work-ready people from sickness and invalid benefits on to dole.
• Make sole parents look for paid work before youngest child turns 6.
• Contract out welfare services to private companies and charities.
• Increase sick leave and parental leave to give employers incentives to help workers back to work.

This will give Sue Bradford something to scream about.

I’m hesitant over the work testing when the children are under six, but the other stuff looks pretty sound.

It draws heavily on recent reforms in Australia and Britain, which have both moved work-ready people off disability benefits on to the unemployment benefit. In Britain, the paper says, 69 per cent of previous disability beneficiaries were classified as “fit for work” and moved on to the dole.

“On the basis of the recent UK reforms, the reclassification of all sickness and invalid beneficiaries could result in more than 80,000 New Zealand beneficiaries moving on to the unemployment benefit,” it says.

The principle is very sound, and the UK has shown the potential. I do want to make the point that many who are on the Invalids Benefit are quite literally unable to work, through no fault of their own. They deserve as much support as possible. But there certainly are some on there, who are work capable.

France, Germany, Switzerland and Norway all require sole parents to look for work when their youngest children turn 3, and some countries treat sole parents the same as any other unemployed person regardless of the children’s ages.

One could lower the age from six to five, but I’d rather not go below that.

The paper says Australia’s decision to contract out job search services for the unemployed to private companies and charities in 1998 halved the cost for every job placement from A$12,000 to A$6000.

Superb.

The Herald reports:

Three non-executive directors have been appointed to the Treasury’s board, but Labour is continuing to question the reason for the board’s existence.

Treasury Secretary John Whitehead, who announced the governance board last month, said it would include private and community representatives to provide advice.

Mr Whitehead would be able to veto the board’s advice.

He said he would continue to answer to the State Services Commission and Finance Minister.

I think this is a good initiative. It may stop Treasury getting too insular, and provide some external views on how Treasury are doing.

Labour’s state services spokesman Grant Robertson said the board challenged the neutrality of the public service and public service bosses’ responsibility to ministers.

With various working groups, purchase advisers, a review of public sector advice and now a board for the Treasury, the Government was fundamentally changing the nature of the public sector, he said.

“This board looks designed to lock in place the economic thinking of the current Government.

Oh what tosh. I should remind people that Mr Whitehead was appointed to his role in 2003 under a Labour Government, and incidentally one of his former jobs was Deputy Director of the Labour Parliamentary Research Unit.

Treasury have just sent the conditions of the budget lockup. I loved this one:

In the unlikely event that the building has to be evacuated because of a fire alarm or some other emergency prior to 2.00pm, the embargo will be lifted immediately.  However please note that in such a situation it would be expected that you evacuate without delay for your own safety, rather than attempting to file from within the building.

I’ve got a wonderful visual image of media and analysts fleeing a burning Beehive while trying to file their stories.

Treasury has done a working paper on our long term fiscal issues. They construct two main fiscal scenarios – a historic trends scenario that uses historic and current settings to interact with changing demography and a sustainable debt scenario that applies a fiscal constraint on non-benefit spending so that Crown net debt stays within the medium-term fiscal target.

I should say from the start, I am a fan of keeping net debt down!

Under the historic trends scenario, net debt reaches 225% of GDP by 2050. The sustainable debt scenario has it at 20% of GDP by 2050.

I won’t go into all the facts and figures but a key message I took from it, is that if we have a high level of fiscal restraint for the next 10 – 12 years, then it becomes easier to keep net debt down over the long term. This means stuff like health spending only increasing by 3% a year.

Superannuation is a big part of the mix also. I’m going to do some dedicated posts on this issue over the next few weeks.

The Herald reports:

Treasury Secretary John Whitehead rejects the suggestion that he employs a bunch of bookish, chin-stroking, policy eggheads who sit around dreaming up economic miseries.

I’m sure sometimes they do it standing up.

The Treasury family were a diverse and well-rounded lot. The Treasury had recently employed a former Presbyterian minister and someone who featured on television talking about a nudist camp they had set up.

Oh dear – is this meant to increase confidence in the fiscal forecasting – that Treasurys employs former priests and nudists!

Still the nudist might liven up casual Fridays

The Herald reports:

Bold tax reforms and changes to the mix of monetary and fiscal policy are needed if New Zealand is to rebalance its economy and close the gap with Australia, according to the Treasury’s head.

New Zealand needs to overhaul its tax system, bringing down income tax and potentially increasing GST or imposing a land tax, Treasury Secretary John Whitehead told a business audience in Queenstown last month.

I agree.

PSA National Secretary Richard Wagstaff blogs:

A shift in the right direction

The news that Treasury is looking to save 30% of costs and increase productivity in the public sector by centralising back office services may surprise some people. …

While the PSA is concerned for the interests of individual staff caught up in the process to centralise these functions, there is sense in bringing back a whole of government approach to much of the states activities, including the back office functions.

All too often unions are seen as instinctively anti-reform, no matter what its merits, and anti anything that may save money.  I’m pleased to see the PSA take a more nuanced position on this issue.

I want to see more stories like this:

The Treasury is looking at plans to cut the Government’s administrative staff and costs by almost one third with a centralisation of back office services.

Recruiting, IT, finance and “a range of corporate services” in the public sector in offices nationwide are being earmarked for consolidation to save 30 per cent of costs and increase productivity.

We have in the public sector around 250 IT systems, 250 HR systems, 250 accounting systems etc etc. I am sure there are very significant gains to be made out there.

The recession stated in the first quarter of 2008, and Treasury is saying it thinks it may be over. Later this month we’ll get June quarter GDP which is expected to be negative, but September quarter they believe will be positive.

The iPredict market tends to agree with the price for negative GDP growth in September being just 18c, or 18%.

If this is correct, unemployment may peak at below 8%, which would be good.

As I blogged yesterday though, prospects for strong growth are weak. This will not be like the period from 1993 to 2007 where strong growth led to so much increased tax take that one could significantly increase spending every year (and reduce taxes or have a big surplus).

NZ is likely to maintain a fiscal deficit for many years, during which time restraint on state sector wages and other state spending will be important.

The NZ Herald reports sound words from the Treasury Secretary:

In a speech to government department chief executives in Wellington yesterday, Treasury Secretary Mr Whitehead said the public service needed to move out of its traditional comfort zone and take some risks to ensure it delivered services as cost-effectively as possible.

“There is a stark alternative to mobilising ourselves as public servants. If we don’t rise to the challenge and make real progress, change will occur – but it will be done to us rather than by us.”

Absolutely. To be fair some CEs have risen to teh challenge.

The Government’s edict was for better services without spending increases – and Mr Whitehead said nothing should be off the table to try to lift the productivity of the state sector.

Options included contracting out more services to the private sector, merging administrative services with other departments to lower costs and cutting projects despite the possibility of staff cuts.

I am interested in the merging of admin services.

If you add quangos to core departments, we now have 250 or so public sector CEOs. It also means we have 250 IT systems, 250 payroll systems, 250 HR systems etc etc.

I would advocate creating around a dozen sector super-ministries. One for the justice sector, one for the social services sector, one for health sector etc. You might still have different agencies within that super ministry, but they would all use the same IT, HR, payroll systems etc. And there would be just one CEO over them all who is in charge of strategy and ensuring the whole sector works together.

You see this in the UK where the Home Office is in charge of all law & order – corrections, police, courts etc etc.

In the speech, Mr Whitehead says “tough decisions” are needed. Staff numbers working in the core bureaucracy had grown by 44 per cent since 1999 – a far greater number than those affected by recent redundancies.

Mr Whitehead told the government departments more savings would be sought through the “line-by-line” reviews of spending that have become a regular part of the Budget process.

So trying to reduce costs won’t be a one off exercise, but an annual event. Excellent.

NZPA report:

The Treasury has apologised for an error that embarrassed the Government and led Labour leader Phil Goff to accuse it of hypocrisy.

Ministerial travel costs released last week showed that in the first three months of this year National ministers spent $739,000, more than double the $336,000 Labour ministers spent in the same period in 2008.

That wasn’t only wrong, it actually reversed the true situation.

The Treasury had been right with the $739,000 figure for National ministers, but it said today Labour ministers spent $783,000.

So in fact less money was spent on travel in the first three months of a new Government than in the same period in the last year of the former Government.

Treasury’s deputy secretary for the state sector performance group, Peter Mersi, said he deeply regretted the error and apologised for it.

“Treasury strives to produce accurate and timely information,” he said.

“We didn’t meet our own high standards this time and I’m looking into how that happened, to ensure that such errors are unlikely to happen again.”

Treasury’s explanation of how the error occurred was: “The table also included a `total’ line which has been removed. The line was incorrect as the columns in this table cannot be accurately added because this would double count certain expenses. Because of the way these funds are appropriated, approximately 85 percent to 90 percent of VIP transport is funded from ministers’ internal and external travel which is included as a separate line. Therefore adding these figures would result in double counting.”

What I’m confused about is why Treasury is even involved in answering the question. The costs of travel are covered by Ministerial Services so I would have thought DIA would be the authoritative source of costs for Ministerial overseas travel?

I covered a while back the evisceration of a BERL report into the social costs of alcohol. This report inflated the cost by around 3000% (or $4.6b), and was being cited by the Law Commission as rationale for all sorts of law changes.

NBR reported at the end of last week that Treasury has now expressed concern about thre reliance being placed on reports such as this (which costs the taxpayer $135,000). NBR quotes Treasury Deputy Secretary Peter Bushnell:

The Berl report into the social costs of alcohol being used by the Law Commission is work that doesn’t look like it meets the “normal standards you would expect”, according to Deputy Secretary of the Treasury Dr Peter Bushnell.

There were numerous problems cited in the report by its academic reviewers, including:

“I think the points they’re making are sound about adding the costs of production into the cost of it, and not counting any benefits. In a market if you’re selling something that people are prepared to pay for, then they’ve at least got that much benefit, otherwise they wouldn’t have bought the stuff. So if you exclude the benefits then you’re clearly only looking at one side of the story.”

And as I have said previously,far too many Government reports look at costs only, and not benefits.

However, the mere fact Law Commission president Sir Geoffrey Palmer is seeking out economic advice is positive, “because in the past lawyers often assumed that economics had nothing to do with it.”

That said, the onus should be on the Law Commission to be rigorous Dr Bushnell said.

“Sir Geoffrey’s reputation is reduced [if] he’s putting weight on something that actually doesn’t stack up. So the Law Commission ought to … build in processes that give adequate QA and so on.

“What we’re saying is it’s your reputation that’s at risk here. It doesn’t reflect well on the Law Commission if it … backs [work], that doesn’t have a sound basis.”

That is a pretty undiplomatic serve. Basically saying if you use shoddy reports you’ll get a shoddy reputation.

I’m actually a fan of much of the work the Law Commission does (I like the fact they are pro-active not just reactive) but Ministers will not be as inclined to listen to them if they don’t make sure any reports they use as justification hold up to scrutiny.

Brian Fallow writes:

The Treasury has renewed its call for reform of the tax system, including the issue of capital gains from property investment.

It wants the system to have a broader base and lower rates, Treasury Secretary John Whitehead told an Institute of Directors function yesterday. “And at the risk of being chased down by an angry crowd with pitchforks and flaming torches, yes this should include consideration of moving the boundaries to tax more capital gains – for example on investment property – and shifting more of the tax base towards consumption,” he said.

Without changes to the tax system, there was a real risk that the Government’s revenue base would be unsustainable in the medium term, given growing international competition for capital and skilled labour, and an ageing population.

“A key priority has to be reducing effective marginal tax rates and increasing the rewards for effort. There is a growing view that the high mobility of our skills base means high personal income taxes are especially harmful for New Zealand’s growth and productivity,” he said.

I used to be fervently against a capital gains tax on investment property. Since the credit crisis, partly caused by rampant borrowing for property, I have started to change my mind.

So long as other taxes were cut, so overall tax revenue does not increase, I think the time is right to now take a serious look at capital gains tax. And I say this as someone looking to buy an investment property.

“I know there is a lot of passionate debate on this matter, but capital gains or property taxes would be beneficial for encouraging investment in productive activity.

“A more complete capital income tax base reduces the impact of tax distortions on investment decisions, thereby improving the allocation of capital in the economy.” And greater reliance on GST – aligned with reduced income and corporate tax rates – should help strengthen incentives for savings, he said.

I don’t expect the Government to say they are in favour of a capital gains tax. But I do hope they will allow Treasury to work on proposals for how one could work, so it can be debated in the fullness of time.

The Herald reports:

Next week’s Budget is one of the most important in over a quarter of a century, says Treasury Secretary John Whitehead.

Mr Whitehead, who has been directly or indirectly associated with Budgets stretching back to the last years of the Muldoon Administration, said next Thursday’s was the most critical since Labour’s Budget to confront the economic and currency crisis in 1984.

Now Whitehead is no ideological Rogernome. In fact Whitehead is a former Deputy Director of the Labour Research Unit (when Muldoon was PM), so I think the left should listen to him when he stresses how important the budget is.

During a round of meetings with business groups, banks and media in Auckland yesterday, Mr Whitehead emphasised the importance of the Budget’s role in retaining the country’s credit rating to keep Government and business borrowing costs down.

The Standard & Poor’s rating agency already has New Zealand on a negative outlook and has said the Budget will be critical in re-rating the country.

It is worth remembering how precarious our position is. Not only will a credit downgrade cost the Government $600 million a year, it will increase credit costs to every business.

And everytime you see Labour complaining that National is saving money through a more efficient public service, remember that without these savings the Government would be facing a permament structural deficit of $10 billion a year.

Have you heard a single proposal from Labour (or the Greens) on how to cut (annual) expenditure to stop the descent into permament deficit and debt?

From the Herald:

The number of Budget bids from Government departments for extra money halved from last year, and 25 per cent of them were “savings” bids, says Treasury Secretary John Whitehead.

“That’s a significant and positive change in approach,” he told an invited audience of analysts, officials, academics and journalists at the Treasury yesterday. .

Departments need approval even for spending cuts, to ensure they are areas the Government wants cut.

25% of budget bids were bids to save money. My God. I doubt in nine years of Labour there even a single budget bid to save money, let alone 25% of all bids.

“We focus too much on new spending and not enough on the very significant base, even though polices introduced five or 15 years ago, may no longer be as effective or fit Government objectives.”

He criticised the public service “year-end spend-up”, in which departments spend any spare money they have, fearing that if they don’t, their grants will be be reduced the following year.

In the private sector, you get rewarded if you underspend your budget. In the public sector, you may get sacked if you underspend!

Unless it is just me, the Treasury website has been on strike for the last three days or so. Maybe it is Treasury’s protest against Easter shop trading laws?

A good article by Tim Hunter in the SST on how Mascot should never have been let into the deposit guarantee scheme:

Mascot was one of the smaller lenders in the sector, but not tiny. Its most recent accounts, for the year to March 2008, showed a loan book of $118 million, just over half of which (57%) was lent on property projects of various kinds. The rest of the lending was to charitable trusts for gaming machines and to commercial loans.

The lending was financed by a debenture book of $123m.

Right there, it is clear that Mascot had a problem. Its debenture liabilities were greater than its loan assets. What’s more, the imbalance was more severe in the short term. Only $53m of its loans were due for repayment within one year, while Mascot owed $71m to its debenture holders over the same period.

Before the year was up ie, by the end of this month Mascot was highly likely to hit the wall.

This is the sort of analysis you hope Treasury would have done.

Mascot’s desperate situation didn’t require much detective work. It was laid out clearly in the liquidity profile in its accounts, which showed the company would be in the red to the tune of $6.8m within the next 12 months.

Without a substantial reversal of its fortunes, Mascot had no chance of survival. By the time it entered the government guarantee scheme on January 12, it is highly likely that Mascot was already doomed.

Not all collapses are foreseeable. But this one seemed prety obvious.

Another thing one of the criteria the Treasury could consider in awarding the guarantee was whether the people controlling the company were of good character. In this context it is interesting to note that one of Mascot’s directors, Christchurch lawyer David John Stock, was fined and censured in 2007 by the Canterbury District Law Society for serious misconduct after acting for both his long-term mistress and her unwitting husband, in a deal in which the husband signed away his interest in the family home.

He was also criticised by Justice Willy Young in 2002 for having “a credibility problem” and for repeatedly making “untrue” statements during a court dispute between rival meat companies PPCS and Richmond.

Due diligence on directors should absolutely be a requirement before taxpayers guarantee a finance company.

Treasury used to be regarded as the top performing Government agency. Their breach of the Public Finance Act over ACC, and this stuff up, is tarnishing their former reputation.

Treasury has suggested that the Government should use the tax cuts to increase the minimum repayment rate on student loans, correctly noting that there are little incentives o pay back loans faster at 0% interest.

At present, everyone earning more than $18,000 a year must contribute 10 per cent of their earnings to repaying their loan.

Treasury officials recommend new thresholds be set at 12 per cent for people earning more than $40,000 a year and 15 per cent for those on more than $60,000.

Planned income-tax cuts would offset the effect of the increases, the Treasury said.

Sounds sensible to me. It will lead to less student debt, and faster repayment times – both something student associations have complained about.

It recommends an overhaul of the repayment scheme and measures that “could include requiring students to pass a certain number of their courses or limiting the number of years students can borrow for”.

Also sensible. Good bye to life time students.

New Zealand Union of Students’ Associations co-president Sophia Blair called the Treasury suggestions ” ludicrous”.

“This would take much-needed money directly out of the pockets of struggling families,” she said.

This is ironic. I don’t recall NZUSA campaigning for tax cuts to help struggling families who earn above the average wage.

At Backbenches last night, Charles Chauvel said that Labour has left National a very good set of accounts with lots of money, and would be making sure they looked after it.

This caused some consternation in the audience and phrases like a decade of deficits emerged.

Anyway Dr Cullen has released the latest forecast from Treasury – as of Friday. So let’s see what National is being left with:

• Unemployment now to peak at 5.7% instead of 5.1%
• Nominal GDP to be $15 billion lower for 2009-2013 than in PREFU.
• The OBEGAL deficit and cash deficit to both worsen by around $1.5 per annum from 2010
• An extra $5 billion of debt up until 2013, compared to PREFU
• Real market investment to decline by 13% in 09/10
• GDP growth for 08/09 estimated t be just 0.4%
• OBEGAL deficit to hit $5 billion in 2012/13
• The cash deficit in 2012/13 to hit $9.1 billion

The nominal GDP figure puts it in perspective. The NZ economy will generate $15 billion less over five years.

The focus has to be on increasing economic growth.  Bill English is going to have a very hard time trying to get the Government out of a cycle of debt and deficit.

The Government did not use to give money to the racing industry like they now do. Before Helen appointed Winston Minister of Racing, Vote Racing was just $300,000 a year which paid for a couple of policy people in the Department of Internal Affairs.

He then introduced a number of policies that were of great benefit to the racing industry, and to companies active in the industry. I’ll take them in turn:

Aligning duty rates

The New Zealand Racing Board used to pay duty at around 18% and Winston got the rate reduced in the 2006 budget to 4% which is the rate paid by casinos. The cost of this is $33.6 million a year.

Now this policy was not opposed by Treasury. They said it was good policy, and I think National even supported this move. It did seem silly to have different rates. Having said that there is a difference between supporting a policy because you think it is a good policy, and supporting a policy because you think it will attract money from the affected industry or are in their pocket.

Accelerated depreciation for bloodstock

In the 2006 budget, Winston also proposed accelerating the depreciation period for purchases by New Zealand taxpayers of stallions that have not previously been used for breeding in New Zealand at a cost of up to $1.5 million per annum.

Treasury also supported this.

Further depreciation for bloodstock

Winston then tried to get accelerated depreciation extended to shuttle stallions in 2007. Treasury said:

Treasury does not support funding for this initiative, as it is low priority and represents low value for money. The depreciation rate for shuttle stallions is already concessionary relative to their economic life, and approving the request would represent an even greater concession. Furthermore, the depreciation rate for shuttle stallions should be lower than that for stallions not previously used in New Zealand, as the latter have a higher risk profile. Approving the request may also increase the risk of tax avoidance and set a precedent for wider extensions.

Further, there is also a risk that approving the request could increase the risk of these assets being used in tax avoidance schemes. In the 1980s there were significant tax avoidance schemes incorporating inflated values for bloodstock, which took advantage of the accelerated write-down rates available. In addition, approving the request may set a precedent for further extensions to the new depreciation rules.

But Dr Cullen ignored his officials to keep Winston happy so he could deliver to his funders. The cost for this was an extra $1.5 million a year also.

Racecourse Facilities

In the 2007 budget, Winston started to really deliver directly for his funders. He got Helen and Michael to agree to $1 million a year for the establishment of a contestable fund to enhance workplace safety and to raise the quality of facilities at racecourses.

You might wonder why we do not have a Vote Skiing to raise the quality of facilities on ski fields and improve skifield safety?

Again the officials were not convinced. Treasury showed they were not against all spending – they supported the accelerated depreciation and the reduction in duty. Treasury said:

Treasury does not support funding for this initiative, as it is low priority and represents questionable value for money. In particular, it is unclear as to the extent of under-maintenance of racing facilities and why clubs cannot raise sufficient revenue for improvements on their own, e.g. through increased entry fees, sponsorship and community fund-raising.

There is little information provided beyond the anecdotal about the extent of under-maintenance of racing facilities and why racing clubs cannot raise sufficient revenue for improvements on their own, e.g. through increased entry fees, sponsorship or community fund-raising. This makes it difficult to gauge the potential value for money of the proposed contestable fund

But once again Michael and Helen gave Winston his baubles.

Race Money

Then came the most outrageous policy for his benefactors. The Government would stump up millions of dollars every year to be used as prize money in races or to quote the proposal “the establishment of a fund to promote feature horse and greyhound racing carnivals and to increase stake money in feature races”.

And again Treasury tried their best to stop Winston looting taxpayer money to pay back his financial backers. But again Michael and Helen agreed to back Winston and gave him $3 million a year.

Treasury does not support funding for this initiative, as it is low priority and represents questionable value for money. In particular, there is insufficient supporting information around why and to what extent racing clubs are unable to generate sufficient revenue through traditional sources, or the extent to which feature race stakes need to be bolstered to increase the racing industry’s profile and encourage greater investment. There would also be potential precedent implications across other industries from creating such a fund.

So how much does this all total up to? Well over a three year electoral cycle it is $121.8 million.

That’s what you call a good return on investment for $250,000 or so of donations.

Personally I think Winston sold himself too cheap.

Roar Prawn blogs:

The money markets are chattering over the Mexican stand off with the Big Banks who have, in an unprecedented move joined forces to talk turkey with Treasury, over the deposit guarantee scheme. The Banks want some changes. Treasury is staring them down. The banks are staying firm – they want changes to clauses they think could give non banking institutions an advantage.

Could get interesting.

The PREFU is far worse than anyone could imagine. Thank God St Ruth and National changed the law in 1994 to force the Government to open the books up before an election – otherwise it would be a repeat of the last time a Labour Government left office – a fiscal mess for the incoming Government.

The Secretary of the Treasury, John Whitehead, did a presentation before we got the books. The room was silent as he wound out the bad news. The problem isn’t our financial markets – they are much better structured than in the US. It is the flow on effects of lower GDP growth and increased spending. So we don’t have a crisis, but we do have a very bleak fiscal situation.

The Crown accounts are going into deficit, and will remain in deficit until 2018 – yes – a decade of deficits on the medium term projections. The deficit is forecast to be $31 million this year and up to $3.2 billion in 2012/13 – returning to surplus only in 2017/18. This is the OBEGAL excluding Super Fund Revenue.

Dr Cullen and Helen Clark are going to be very red faced over debt. Do you recall how they attacked National’s plan to borrow 2% more of GDP for infrastructure as an economic calamity and reckless as it would push debt up to 22% of GDP – 2% in excess of Dr Cullen’s ceiling of 20%

Debt is forecast to peak at 30.1%!!! It will be 24.3% by 2012/13 and 30.1% by 2018/19. After wailing about how the world would end if debt went to 22% of GDP, Dr Cullen is leaving NZ with a forecast rise to 30%.

The cash deficit next year is now forecast to be $6 billion and over five years a cash deficit of 31.7 billion.

Incidentally PREFU was done around five weeks ago so doesn’t take account of the very latest in the US such as the bailout. They do not expect this to change PREFU significantly but it does increase the risk of a sharp slowdown.

Treasury are forecasting close to 0% annual GDP growth until June 2009.

Some changes to the annual predictions are

• KiwiSaver costs up $280m by 2012
• Tax take down 900m
• Benefit costs 500m up
• Early Childhood Education Costs up 200m
• Debt servicing up 500m

The annual contingency for extra spending is $1.75 b per annum plus 2% inflation. But most of this is already allocated and for the next four years only $500 to $600 million a year is available for genuine new spending.

So what to do? Well the Treasury Secretary says if one can manage an average real GDP growth of 3%, then the long-term debt (2022/23) will reduce by 10%.

This for me is what the election must now be about. The status quo in terms of economic growth is not acceptable – a decade of deficits must not happen. So voters should ask which party will have the best policies and best people to boost economic growth.

I have previously given Dr Cullen pretty high marks for his fiscal management. Those marks were seriously downgraded today as he leaves us with ten years of deficits forecast and a 50% forecast increase in debt as a percentage of GDP.

There will be some focus on National’s response and their tax plans and infrastructure plans. The tax plans will be credible if they are largely fiscally neutral with reductions elsewhere in expenditure. And a lower tax economy will lead to higher economic growth – which is what it is all about.

The infrastructure plans will add 2% of GDP to gross debt – a small amount now compared to the 10% extra on these projections. The rationale is unchanged for them though – if they will add to economic growth by increasing productivity, then that is a good return on investment. Not all infrastructure investments will lead to higher economic growth, so the focus should be on the quality of the investment.

Bill English is about to inherit what may be the toughest job in New Zealand – turning around a projected ten years of deficits and 50% increase in gross debt as a percentage of GDP.

Hidden in the depths of detail in the budget documents are the true costs of the train set Dr Cullen purchased. It is projected to be $1.47 billion by 2012.

So how did Toll get the deal of a lifetime?

Simple. Dr Cullen got Mike Williams to buy it, rather than the Treasury!

Treasury you see were too tough in negotiating rail access prices with Toll, so OnTrack were given the job to negotiate the purchase of the trains. Yes, he deliberately sent in the “weaker” team. Toll must regard their $25,000 donation to Labour last year as their best ever investment.

Now who is a Director of On Track? Labour Party President Mike Williams. So what role did Mike “confused” Williams have in buying the trains? Is there not a conflict of interest in being Labour’s chief fundraiser who accepted a donation from Toll and also being on the board buying the trains off Toll?