Fiscal irresponsibility

In 1990, 16 hours after he took office as prime minister, National's Jim Bolger was informed by the Treasury and the Reserve Bank that the Bank of New Zealand - then Government-owned - was on the verge of insolvency.

Its failure might put at risk the entire financial system. A capital injection was required immediately, and it was no small sum: $600 million.

The outgoing Labour government, led by Mike Moore, had not disclosed the need or that the overall fiscal situation had deteriorated by a further $1.5 billion.

The 1994 Fiscal Responsibility Act was a consequence of this, with the intention of full disclosure by a sitting government of the State's financial situation before a general election - the so called pre-election update.

Had it existed in 1990, Labour could not have avoided disclosing the truth about the BNZ and the fiscal consequences of its policies. Or so it was thought.

If it is true that there may be a $1 billion "hole" needing to be filled by the new Government, and the Clark Cabinet decided not to tell anyone about it, then it is obvious Labour is back to its deceptive tricks.

The State meets all the costs of claims on ACC in the non-earners' account from people such as children, students and the elderly.

This account is in deficit by about $297 million for the current financial year, and for each of the next two years. (The potential cost of injuries is calculated and forecast over three-year periods.)

The Government only learned of it when officials were bringing new ministers up to date following their appointment, and it looks as though the shortfall will have to be borrowed rather than funded through increased levies or cuts to services.

Statements by the Prime Minister, presumably based on official advice, indicate Labour's ministers were informally told of an unspecified shortfall as early as May.

The former ACC minister, Maryan Street, has since disclosed the first she knew of the issue was on August 14 in an outline of the expected shortfall.

She was officially informed on October 22 - after the Treasury published its pre-election fiscal update on October 7 - more than two weeks before the election, and she immediately told former finance minister, Michael Cullen, and the Treasury.

But the public were not informed.

The Labour ministers said nothing and they are now saying they were under no obligation to do so; Dr Cullen said nothing; and Treasury chose not to make the information public, though in other circumstances the situation would - and should - have been included in its pre-election update.

The Labour Opposition spokesman on ACC, David Parker, now claims it was not in the fiscal update as forecasts do not include allowances for Cabinet decisions yet to be made, and the minister was advised the matter should not go to the Cabinet during the election period as it was "improper" for extra money to be authorised to make up the shortfall during the campaign.

He said they would have acted immediately after the election had Labour been able to form a government.

Although the non-earners' account is the only ACC account urgently in need of repair, the ACC Minister, Nick Smith, has said there are major challenges across all the accounts because of unpredicted increases in medical costs.

This suggests there may be an even worse unbudgeted problem facing the new administration, yet the only signal from the Clark administration before the election was a statement that there would have to be a change to the law to stop a significant increase in fees next year because of the way the corporation calculated its liabilities and levies.

Mr Parker's response to all this is indicative of an attitude of mind that is childish.

It may well be that on a strictly legal basis former ministers are not obliged to warn their replacements in a new administration of major unfunded problems, and it may be very amusing for a losing administration to chortle at the resulting political and policy fall-out, but it is entirely against the spirit of good government and the intent of the "no surprises" Fiscal Responsibility Act.

The problems should have been disclosed publicly before the election, and indeed such a refreshing disclosure of their scale might well have worked in Labour's favour in the campaign, given the fiscal crisis.

There will certainly be no political advantage to Phil Goff and his team now that the true state of affairs is in the open.



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