.National leaves Labour with a $20 billion bill
By Richard Harman (author)
The former Finance Minister Steven Joyce made no financial allowance for National's $20 billion defence re-equipment programme and says it was possible his Government might not have replaced the Orion maritime surveillance aircraft because of the cost.
Because of this the new Government is to review the $20 billion programme which was unveiled with much fanfare last year.
But the National Government never accurately costed it and made no provision in any of its long-term forecasts to pay for it.
No allowance was made in the capital spending forecasts of the Pre-election Economic and Fiscal Update for the procurement programme.
This has left Labour facing a multi-billion dollar hit to its budgets each year over the next 13 years if it decides to go ahead with the programme which apart from replacing the Orions calls for replacing the Hercules and 757 transport aircraft and the Navy’s frigates.
The money would come from the capital investment account which means it will not directly impact on Government operating expenses but rather its impact would be on Government borrowing.
The matter is now urgent because New Zealand’s option to purchase four P8 Poseidon maritime patrol aircraft expires next March.
Under Treasury accounting rules, purchases must be booked when the purchase is confirmed.
They are estimated to cost $2.2 billion.
The former Finance Minister, Steven Joyce, told POLITIK yesterday that the Government had hoped it might be able to stretch that book date out to 2020 or 2021 when the new aircraft would be likely to arrive.
"There is nothing in there (the budget) for the P8s yet," he said.
“We were having a debate as to when that needed to be done by.
“The Americans were keen for us to do it soon but they are not due to be delivered until 2021 – 22.
"So that would involve bringing the cost forward five or six years, so there is nothing yet in the budget documents.
“The last I heard before we left office there was discussion with the Americans about how that would be timed so suit them but also to suit us.
“Our quite strong view was that unless there was some way of funding it (the purchase) over a period of time we wouldn’t do it.
“That was an ongoing discussion when we left office.”
That means that if New Zealand wants the planes, it will have to add a capital item of $2.2 billion to the next budget which has a total new capital spending allowance of only $2 billion and Labour is already promising a substantial increase in capital expenditure, particularly in the health sector.
However, POLITIK understands that the new Government is worried the P8 situation may only be the tip of the iceberg.
That is why it wants to undertake the review.
There appears to be no precise outline of how much money is going to be needed and when to pay for the procurement programme.
Treasury alluded to this in the PREFU.
“It is expected that changes to NZ Defence Force operating and capital funding will be made over the forecast period to achieve the Defence White Paper settings," it said.
“However, the precise quantum and timing of these changes will be dependent on a range of business cases that will be considered by Cabinet in the future.
“In particular, significant asset purchases may be sought earlier than previously planned.”
That the Government is already facing a capital expenditure squeeze was evident yesterday in Parliament when Finance Minister Grant Robertson told the House that before the 2017 Budget the capital expenditure budget was over subscribed by 448 percent.
There were 13.4 billion of bids for only a $3 billion allowance. (This has been added to the original story after a clarification from Robertson's office.)
“This unmet capital spending represents the state of disrepair in our hospitals and schools, and the failure to invest in our regions. It is an infrastructure deficit that is the legacy of the previous Government,” he said.
Ironically the $2.2 billion “shock” of the P8 purchase – if it goes ahead --- dwarfs the 1990 bailout of the BNZ by the-then incoming Bolger National Government which had to stump up $640 (in today’s money) to bail the bank out.