Wednesday, December 03, 2008



National's temper tantrum

National are screaming about a blowout in the ACC books which will see them another billion dollars in the red over the next few years. Naturally, they're blaming Labour, and claiming that they covered it up by deliberately not including it in the Pre-Election Fiscal Update. The problem? It's just not true. Here's the chain of events according to the Herald:

The papers show officials flagged concerns in May (this year's budget was delivered in May) and former ACC minister Maryan Street wrote to former finance minister Michael Cullen on October 22 about the shortfall.

According to the papers it said officials had originally advised that it should not have been disclosed because they were not certain of the cost.

Then there was no disclosure because no decision had been made and later because it was a decision for the incoming Government.

It is usual for Treasury to flag in pre-budget documents when they become aware of fiscal risks even if they can not be quantified.

The Herald gets it wrong in that last paragraph. The criteria for including financial risks in the PREFU or Budget are laid out in the PREFU here [PDF]. They must be "reasonably certain", have a material impact (more than $10 million), and be under active consideration by Ministers. ACC's initial communication with the Minister, saying "we may have a problem", does not meet the first criteria. While Budgets and the PREFU include unquantified risks, a glance at the details on them shows that they need to be more certain than that. It also does not meet the last; risks must be being actively considered by the Minister of Finance and other responsible Ministers. Until then, it is simply an internal departmental question.

Could it have been included in the PREFU, as National seems to be implying? No. The cutoff dates are here. The government's fiscal forecasts and risks were finalised in mid-September, and the PREFU was released on October 6. Street didn't write to Cullen until October 22, by which time the government was operating under the caretaker convention and had to defer any major fiscal decisions. After the election was announced, it was a problem for the incoming government, not the outgoing one. That incoming government turned out to be from the other party.

In short, this is simply a beat-up by a government grumpy that its not going to be able to give away so much money to its rich mates. They should get over it. Labour followed the proper process and obeyed the normal disclosure rules, and I have no doubt that National would have done exactly the same. The lesson here is that problems don't always crop up at convenient phases in the budget cycle, and National would be better learning that than throwing a childish temper tantrum whenever something goes wrong.