A place for subsidies?

Large-scale taxpayer subsidising of home insulation would seem an unlikely policy for a right-of-centre political party.

But that is what pragmatic National did and, by and large, Prime Minister John Key and his colleagues will be pleased with the outcome.

In the first seven and a-half months of the scheme, 27,000 houses were retrofitted with insulation, about 3500 of these with subsidised heating and another 3000 with heating alone.

The ambitious aim of reaching 188,500 homes over four years at a $347 million cost is on target.

That target is about 20% of the 900,000 houses said to have inadequate insulation.

Through the scheme, people will be saving money, less heat will be disappearing through ceilings and floors and homes will be more comfortable and healthier.

Because residential use accounts for 33% of electricity use and 13% of energy consumption, a dent can be made in national power use.

The need for extra generation is postponed, greenhouse gas emissions are reduced and pressure on health services is trimmed.

Extra jobs have been created and economic stimulus provided.

It has been argued the scheme would be "captured" by the middle class, with those most in need missing out.

These critics are correct to some degree, because the poor often lack sufficient money or motivation to take part.

But all those wider benefits still apply for every home insulated, whatever the financial wherewithal of the homeowner.

Anyway, statistics from the Energy Efficiency Conservation Authority (EECA) show a higher number of "lower income" homes being fitted, about three for every two "general income" houses.

Rental properties are also eligible, and the weighting towards houses with "low income" tenants is more than three to one.

Those with community services cards receive much higher subsidies (60% rather than 33%), and that support can sometimes be topped through local schemes.

A serious issue has, however, arisen from the low quality of some of the installing, a disconcerting example of the standards of some New Zealand workmanship.

Of 570 houses checked in the first round of audits, EECA found problems with 359.

Although half the matters were minor, like missing labels or product information, 17 were fire risks (most commonly heat sources like down lights and extractor fans covered by insulation).

Many other homes had deficiencies such as gaps in the insulation.

EECA has stepped up its random checks from 5% to 10% of installations.

It has been withholding subsidy payments and imposing auditing costs on installers who fail standards, and it has introduced a three strikes and "you're out" policy to ban repeat offenders from the scheme.

As of last week, no installer had received the full three strikes.

Retrofit numbers in Otago total about 1500 so far, close to 5% of the national total, and EECA reports no marked regional differences in the quality of the work and the proportion of problems found.

The insulation subsidies, at up to $1300 towards the cost of insulation in pre-2000 homes, are a hefty helping hand that has created its own problems.

Reports have emerged from Auckland that non-approved heating and insulation businesses are being forced to lay off staff as the select subsidised firms - only 60 across the country - retain healthy margins while undercutting prices using the taxpayer subsidies.

Compounding difficulties is a perception that EECA approval was being seen as a "badge of quality".

As any free-market advocate worthy of that label predicts, subsidies cause distortions and unintended consequences, and this has occurred.

At least, the scheme has been well enough set up to avoid the quality and safety debacle that has taken place in Australia.

Dodgy work and and a badly thought-out scheme there have been blamed for about 90 fires and the electrocution of four installers.

The home insulation scheme shows that subsidies, even allowing for a drain on the taxpayers, can have a useful place.

But governments should be warned and wary when a cause as worthy as home insulation, and one introduced with relative care and skill, throws up various difficulties.

It is all too easy for both Labour and National to see this type of Government "action" as the way to be seen to be solving problems and dealing with issues.