Prime Minister Helen Clark says she was aware of Labour's $100,000 interest-free loan from businessman Owen Glenn before the Cabinet approved his New Year honour but it had nothing to do with it.
"The honour was made irrespective of such factors."
She said she did not correct public denials by party president Mike Williams at the time the honour was announced that Mr Glenn had made further financial donations to Labour because she had been overseas and had no knowledge of his comments.
National leader John Key said it looked "murky" when the Government spent most of last year arguing about the need for transparency in electoral donations, then its party president denied having received any donations since the election.
Mr Glenn, an expatriate businessman who made his fortune in freight, gave Labour $500,000 in open donations before the 2005 election.
But the existence of the interest-free loan made after the election was disclosed only last week and by Mr Glenn himself in a newspaper interview.
The loan has been repaid but it allowed the party to hire its own professional fundraisers last year, the year Labour repaid $800,000 to Parliament that the Auditor-General found it spent unlawfully at the election.
It has refuelled the election 2005 battle lines over Labour's spending on its pledge card and the support National received from the Exclusive Brethren. It has also left Labour open to allegations that it may have breached the Electoral Act in not disclosing other loans.
Mr Williams said Mr Glenn's loan was made under the provisions of the 1993 Electoral Act and that the forgone interest did not count as interest and did not have to be declared to the Electoral Commission - though it would be.
National deputy leader Bill English disputes this and says that interest-free loans fit the definition of donation in the old act as well as the new Electoral Finance Act 2007.
Mr Williams told Radio Live that the party had had many such loans from its own rich branches, prompting Mr English to call for an official investigation.
Mr Glenn is back in New Zealand for the opening of the Owen G Building at the Auckland University business school, towards which he has donated $7.5 million.
Helen Clark said that donations, scholarships and his success as a businessman earned him his honour.
She cited in Parliament the Herald editorial on January 1 stating that Mr Glenn "thoroughly deserves one of our highest national honours".
It had also said Mr Glenn "doubly deserves his honour because he appears to have made no secret of his contribution".
Helen Clark said that was in contrast to the "three million bucks worth of private contributors who fuelled the National Party's campaign in 2005".
Yesterday was the third day that Helen Clark was forced to face questions from the media or the Opposition over Mr Glenn.
He claimed last week she had tried to lure him back to New Zealand to be transport minister - which she denied and he later said had been said lightheartedly.
It then transpired that he was being considered as honorary consul in Monaco. He believed that Helen Clark had approved the appointment, waiting only for Foreign Minister Winston Peters' approval.
But that now looks doomed.
Helen Clark said yesterday that she had had no conversation with Mr Glenn about his becoming honorary consul in Monaco and hinted that Mr Peters would not be confirming the appointment. She said he was considering whether an appointment should be made at all.
Birthday boy plays it cool
If Owen Glenn was upset about the recent publicity he wasn't showing it last night. The expatriate businessman celebrated his 68th birthday at Soul bar on Auckland's Viaduct.
More than 100 guests sipped on bubbly and dined on nibbles in a closed off area spilling to outside tables.
Red and white balloons decorated the room and a sign on the wall read "Happy Birthday Oggy".
The hired DJ played soft rock. The dress was formal, men wore suits and the woman dresses. Glenn wore a brown jacket, red and white stripped shirt and dark trousers. He hugged guests, mingled and drank white wine.
Glenn's public relations manager told the Herald: "Sorry, we're not making any comments tonight."
There was no sign of the Prime Minister or Labour chairman Mike Williams but crooner Sir Howard Morrison made an appearance.
Glenn was embarrassed about the whole situation, Sir Howard said.
"It was a big mistake him exaggerating. He probably got carried away, probably had a savignon blanc or two, I don't know." Asked if he thought Glenn should be made New Zealand's honorary consul in Monaco Sir Howard said: "I say, 'why not'. He's a shaker and a mover."
- Alanah May Eriksen