Prime Minister John Key yesterday dismissed claims the loyalty scheme to attract New Zealanders to invest in partially privatised state assets could cost the taxpayer hundreds of millions of dollars and suggested it may even increase sale proceeds.

Mr Key this week confirmed the loyalty bonus scheme for the Mighty River Power sale this year would be used as the model for part-sales of the other power companies to be partially privatised under his Government's "mixed-ownership model".

He indicated the scheme is likely to be in the form of extra shares for investors who hold their original stakes for three years. The scheme would be available only to retail, or "mum and dad", investors.

On Monday Mr Key said the $360 million estimate of the cost of the scheme, or reduction in net proceeds across the entire programme, contained in a select committee report was "a possible number".


But yesterday, he said that figure was based on Green Party analysis which he said contained gross errors. "Even if there was a loyalty bonus across the entire programme, the cost wouldn't be anywhere near $360 million let alone the $500 million reported in the Herald," Mr Key told Parliament.

That $500 million figure was contained in advice from Treasury to Cabinet last year on the cost of "incentives to encourage domestic participation" in the partial privatisation programme.

Finance Minister Bill English said Treasury couldn't have estimated the cost of the Government's loyalty share bonus scheme "because it hasn't been decided yet". He said he didn't "have a number in my head" about the cost at this point.

"We will decide on the nature of the scheme, and there will be some cost associated with that. But bear in mind, when people are buying these shares, they will know there's a loyalty bonus and that may mean they'll pay a bit more for these shares so that they can get the bonus."

Mr Key suggested the cost of the scheme may be around $60 million to $80 million across the whole programme. Later he said he'd seen reports from sharebrokers "saying that far from being a cost, actually there may be a gain to the Crown from doing this because it encourages others to potentially pay more, namely institutions".

But Labour leader David Shearer said Mr Key was "all over the show".

"Firstly he said the loyalty scheme could cost less than half of the $1.3 billion contained in Treasury papers, then he agreed $360 million was a possible number. This morning, he claimed it could be between $60-80 million and this afternoon in Parliament he said that it might come at no cost. What is the actual figure?

"And why won't the Prime Minister just be honest with Kiwis?"