There’s no $11 billion ho … Oh! Look – a baby

Finance Minister Grant Robertson and Housing Minister Phil Twyford ignored Treasury advice on HNZ debt. Credit, Stuff

In a sterling effort to avoid Steven Joyce being proved correct, Housing New Zealand has borrowed off-book to keep the debt out of the Crown accounts.

Well done Henry Cooke from Stuff for holding the Government to account on this fiddle. Quote.

The Government allowed Housing New Zealand to borrow billions of dollars to build new state houses despite advice from Treasury that such debt would be expensive and risky.

In May, the Government announced it would be building 6400 new state homes over four years.

The funding for this came principally from $2.9b Housing New Zealand was allowed to borrow independently, instead of through regular Government borrowing. Just $234m of new money was allocated to the crown agency.

Documents released by Treasury on Thursday reveal the agency repeatedly warned the Government against allowing HNZ to borrow money this way in the lead-up to the Budget, suggesting instead that the money should come out of normal Crown debt.

This money would have likely come with cheaper interest rates but would vastly increase the amount of core crown debt. That would likely stop the Government achieve its key Budget Responsibility Rules target of getting core crown debt below 20 per cent of G.D.P. in five years.

The advice echoed similar words given by Treasury when the National-led Government decided to allow Housing New Zealand to borrow over $1b in the last Budget.

In a February briefing, Treasury analysts wrote that borrowing directly through the crown would save $11 million per year. This was based on a plan to borrow $1.75b instead of $2.9b. A later analysis estimated an additional $3m-$6m in annual interest costs for every $1b borrowed by Housing New Zealand.

Treasury analysts said letting independent agencies borrow money of their own accord made sense with properly independent state-owned enterprises like Solid Energy, but not bodies that delivered “essential services” and would obviously be bailed out by the Government if something went wrong like Housing New Zealand.

“This is because failure to deliver these services will be unacceptable to the public and Ministers (and rightly so), meaning that further public funding will be made available to continue service provision should it become necessary,” the analysts wrote in a February paper.

In essence, overseas credit rating agencies would not see this debt as separate from Crown debt given the agency delivered such a core service, and thus would just factor it into their decisions about New Zealand anyway.

Because of this it risked the credibility of the Government’s Budget Responsibility Rules – as it was essentially a loophole through them.

“Decentralised borrowing could undermine the fiscal management approach, weakening fiscal control, the ability to manage total levels of debt to prudent levels, the prioritisation process that the Budget applies to spending proposals and the credibility of the fiscal strategy,” the analysts wrote. […] End of quote.

There’s nothing like a good bit of creative accounting when those pesky pre-election slogans come home to roost.? Watch carefully now, which thimble is the pea under …?