Documents released by the Treasury last week show officials were concerned at being kept in the dark on the 2012 deal, which saw $11.5 million in taxpayer dollars spent on businessman Hmood Al Khalaf's private farm in Saudi Arabia.
Mr McCully has come under fire for what was dubbed the "Saudi sheep scandal" - with opposition parties saying $4 million paid to Mr Al Khalaf was a bribe to clear away Saudi ill-feeling and ensure a regional free trade deal could be signed.
Labour's export growth and trade spokesman David Parker wrote to the Auditor-General and Treasury Secretary today, asking for an investigation to be launched.
He said it was clear from last week's "document dump" that the Treasury had serious concerns about the Saudi sheep farm deal, and "much if not all" of the $11 million was wasted.
"Mr McCully deliberately misrepresented the nature of his payments to the Al-Khalaf Group so that they would not be questioned by Cabinet, the Auditor General or Treasury. His actions were deceptive," Mr Parker said.
When the documents were released, Mr McCully said Labour had misled Mr Al Khalaf about the possibility that sheep exports for slaughter could resume, meaning the Government faced a legal threat of up to $30 million.
He said the farm deal was a way to diffuse that and ensure a free trade deal could be signed and the farm would also act as a demonstration base for Kiwi agri-business.
THE SAUDI FARM - TIMELINE OF A DEAL
• In 2003 publicity around the treatment of live-sheep exports led to a voluntary moratorium.
• In 2007 the Labour Government banned the export of live animals for slaughter.
• In 2009 Agriculture Minister David Carter began negotiations with Saudi Arabia for a resumption of live-sheep exports.
• In 2010 the National Government extended the ban.
• February 2013, the Cabinet approved a proposal by Foreign Minister Murray McCully to pay $4 million to Mr Hmood Al Khalaf's business to secure it to run an agri-hub to promote New Zealand agriculture in Saudi Arabia and as a settlement of a long-running dispute over the ban on live-sheep exports, and $6 million to be paid to NZ businesses to deliver their services and help set-up the Saudi farm.
The Government also paid $1.5 million for 900 pregnant Awassi breeding ewes of Mr Al Khalaf's to be flown to the Saudi farm.
• May, 2015, after media reports on the deal, Mr McCully's office releases Cabinet papers that reveal the full cost of the deal, including the $4 million "facilitation payment" to Mr Al Khalaf. Previously, only the $6 million figure had been released.
• June, 2015, it is confirmed that lambs born on the Saudi farm suffered an extremely high death rate. The Government initially said a sand storm could be to blame, before Brownrigg Agriculture - a Hawkes Bay company that advocated on behalf of Mr Al Khalaf and later won a tender to set-up the farm - pointed to heavy rain and illnesses.
• August, 2015, Labour Export Growth and Trade spokesman David Parker writes formal complaints to the Auditor-General and Treasury Secretary, asking them to investigate whether Mr McCully and the Ministry of Foreign Affairs and Trade misled them over the scandal.
