Cunliffe questions Govt 'failure' to monitor scheme

David Cunliffe. File photo / Martin Sykes

Finance Minister Bill English failed to ensure Treasury was looking after taxpayers' interests as it oversaw the retail deposit guarantee scheme, opposition finance spokesman David Cunliffe said yesterday in response to a critical report on the scheme.

Auditor-General Lyn Provost yesterday published her report on Treasury's performance in implementing and managing the Crown Retail Deposit Guarantee Scheme.

Although the scheme, had fulfilled its aim of maintaining confidence in the financial system, the costs had been considerable, she said.

Nine finance companies covered by the scheme had failed including South Canterbury Finance and the Crown had paid out about $2 billion.

Provost's report found Treasury did not work hard enough to protect taxpayers from risks inherent in the scheme and did nothing when some finance companies increased their borrowings while under its coverage.

"We saw one example where a finance company's deposits grew from $800,000 to $8.3 million after its deposits were guaranteed." Treasury "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".

Cunliffe said that having underwritten deposits, active intervention, management and rigorous oversight was required from Treasury to protect taxpayers' interests.

"What the report makes clear is that those systems were not in place. ... why did ministers not require that? Why were ministers not asking questions given that hundreds of millions of dollars were at stake?"

But Treasury Secretary Gabriel Makhlouf said more intervention would not have necessarily reduced the fiscal risks inherent in the scheme.

"All interventions carry a degree of risk and we don't believe that the Auditor-General's report gives sufficient weight to the risks that further interventions would have created."

A spokesman for English said the Finance Minister had no comment on the issue of Treasury's management of the scheme's risk.