Now I'm not going to paste the entire report here because it is rather large. However I am going to highlight a few significant excerpts that clearly show the Treasury failing to ensure the scheme was not abused.
The Auditor-General writes:
So Treasury knew about the abuse of the scheme and did nothing but prepare to dish out millions of taxpayer dollars. They effectively ensured that those making insecure investment were protected with a taxpayer funded corporate welfare scheme. In fact the scheme gave investors the opportunity to make dangerous investments, knowing that they were protected from substantial losses.From the outset, the advice from officials recognised that the decision to include finance companies in the Scheme carried significant risk. 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.During 2009, the Treasury watched some of that behaviour eventuate. Deposits with finance companies under the Scheme grew, in some instances significantly. 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% after the guarantee was put in place.From mid-2009, the Treasury was closely monitoring these changes and the individual companies that were identified as being at risk. However, it was largely doing so to prepare for potential payouts.
What makes this all the worse is that the government is all too happy to gift millions of dollars to investors, while making huge cuts in state spending adversely affecting those least able to pay. The Controller and Auditor-General sums it up by saying:Problems began to emerge as the Scheme was implemented. Some were caused by constraints when the Scheme was introduced, such as having to use contractual guarantees under the Public Finance Act 1989 rather than new legislation. Other problems had not been foreseen at the start, such as that the Crown would be liable for interest that continued to accrue on deposits after a finance company had failed and before payouts were made.Problems were to be expected for a Scheme that was put together with such haste. In my view, the Treasury should have recognised this from the outset, and established an ongoing work stream for identifying problems and providing advice on options for addressing them. This work did not begin until 2009.
Basically Lyn Provost is saying that the Treasury has failed to plan and manage our money accordingly. That failure means the Crown pays out about $2 billion to depositors, with expected recoveries less than 45%. Meanwhile those undertaking extensive risks because their money was guaranteed by the government have made billions, at our expense.The Treasury did not appreciate how important it is to “get ahead of the wave” as quickly as possible, to maintain a clear and comprehensive view of the strategic picture and start to plan and manage accordingly.
In the video below Bill English blatantly lies about Treasury knowing about South Canterbury Finance's impending failure. It's increase of deposits of 25% after being admitted to the scheme clearly did not save the Crown "around about a hundred million dollars".
