Ron Mark works out how to bend accounting rules to buy planes
By Richard Harman (author)
Defence Minister Ron Mark yesterday suggested he has found a way around Treasury accounting rules which will make it easier to fund the purchase of military equipment like the replacement maritime surveillance`aircraft.
Under Treasury’s accrual accounting rules, the whole cost of a military purchase must be booked when Cabinet agrees to make the purchase even though the payments for the purchase are spread over several years.
Mark gave several hints during an appearance before Parliament’s Foreign Affairs, Defence and Trade Committee yesterday that he would be recommending a purchase of Boeing P8 Poseidon aircraft (possibly four) in a paper he was submitting to a Cabinet Committee the week after next.
“I am confident now that the recommendation I will take to Cabinet committee stacks up, that it is robust, it’s justifiable and I’m in the stage where I am consulting with people,” he said.
“So my closing comment, not being able to pre-judge what the Cabinet committee or Cabinet might decide, because that is for me to put the case down, I would simply say, put your cellphones in flight mode, put your tray up, buckle in, hold on, it’s coming.”
Mark revealed that the previous Government had not prepared any Cabinet papers on the potential purchase of the aircraft.
POLITIK revealed last November that the National Government had also made no provision in its Pre Election Fiscal and Economic Update for any expenditure on the aircraft this year.
It has been estimated that four P8 aircraft, needed to replace the 52-year-old P3 Orions will cost $2.2 billion.
The PREFU, however, showed that National had budgeted for a total Defence capital spend in 2018 of only $700 million and $500 million for the two following years.
The National Finance Minister told POLITIK that the Government was hoping that the United States manufacturers of the aircraft would allow the bill for the aircraft to be submitted in parts spread over several years.
It was widely acknowledged that getting that agreement would be difficult if not impossible.
But Mark suggested yesterday that a way had been found around the Treasury accounting convention, and that could be applied not only to the P8s but other aircraft and ships that are called for in the $20 billion Defence capability plan.
"I am very happy with where we have got to in this budget.
" I am looking forward to the next two because I know what is coming down the line.
“And I’m very comfortable with the conversations I have with the Prime Minister, the Minister of Finance and the Deputy Prime Minister, about how we are going to address some of these big ticket items which might actually, as the Minister of Finance has said, require a change in convention as to how we account for these things.”
Mark has called in former NZ Post CEO and frequent Government troubleshooter, Sir Brian Roche to review the Ministry of Defence’s procurement process.
As a consequence, he said he was confident that by the end of the year he would have the $20 billion capability plan which would be there for the current and future Governments.
Though National had proposed that the plan be for the next 30 years; Mark suggested it could be stretched out to 35.
“Then it is about how we manage that flow of cash,” he said.
“And I’m having these conversations with the Minister of Finance, and you must all be aware that this coalition Government does not accept carte blanche the natural convention in how the finances should be managed for this nation.
“I think it is quite bizarre that the day we commit to procuring a replacement for the P3, if it is the P8, that all of that money is upfronted although we don't actually spend it for five years.
“So there are issues around that.
“All will say to you is just watch us because these things will be managed pragmatically.”
The Minister also revealed that one extra cost that the purchase of the planes would incur was that Five Squadron who will operate them would have to move from Whenuapai to Ohakea which would involve some infrastructure costs.
Mark has also reviewed National's Defence White Paper from 2016, and a Defence Policy Statement will be produced by the end of this month.
He said this would focus on community, nation and the world and he made a particular point about the need for Defence policy to embrace climate change which he said was already having an influence on conditions faced by naval vessels in the Southern Ocean.
But whether the coalition Government would proceed to buying the P8s has been closely watched by New Zealand's traditional defence partners, particularly the Australians, and an announcement --- probably in July --- that the purchase will go ahead will get a good reception.