5 Oct 2011

Treasury criticised over handling of deposit guarantee

4:26 am on 5 October 2011

The Auditor-General has criticised the Treasury's handling of the Government's retail deposit guarantee which ended up with $2 billion being paid to investors in failed finance companies.

Lyn Provost says the deposit guarantee scheme overseen by the Treasury was unprecedented and achieved its aim of shoring up confidence among depositors and the public.

In a report issued on Tuesday, the Auditor-General says the Treasury could have done more to minimise the cost to the taxpayer of the collapse of finance companies covered by the guarantee.

Ms Provost notes that deposits at one finance company, which eventually collapsed, rose from $800,000 to more than $8 million after it entered the scheme.

In the case of South Canterbury Finance, deposits grew by 25% after it was accepted. The South-Island based lender was placed in receivership in August last year, costing taxpayers nearly $1.8 billion in payouts under the retail deposit guarantee scheme.

The Auditor-General says in light of the increasing liability to the Crown, a more proactive approach by the Treasury could have limited the eventual losses from the scheme.

The Labour Party set up the deposit guarantee scheme before the 2008 election.

Finance spokesperson David Cunliffe told Checkpoint that Ms Provost's criticisms are about the governance of the scheme.

Mr Cunliffe says there were some gob-smacking inadequacies in planning, governance, processing of applications and in the performance of the scheme.

The MP says he is deeply worried by the situation as New Zealanders look to the Treasury as one of the elite departments of the public service.

Treasury says it achieved its goal

The Treasury on Tuesday downplayed criticism of its handling of the retail deposit guarantee.

Treasury Secretary Gabriel Makhlouf told Checkpoint the report recognises the scheme was introduced at a time of incredible global instability.

Mr Makhlouf says the government department monitored the situation effectively and achieved its goal of shoring up confidence in the financial system.

He says the moment the Treasury set up the scheme it was carrying risks around failure and, ultimately, they were managed as best as they could.

Mr Makhlouf says better project planning and frameworks will be set up as the Auditor-General recommends.