Treasury defends accounting practice of not booking potential SOE dividend losses from SOE sell-down until after election

Treasury has defended the accounting practices it used regarding potential dividend losses from the partial sale of four state-owned energy companies, saying it did not include these losses in the government forecasts until after the election because the policy would not be confirmed until then.

Treasury is expecting to raise NZ$5-7 billion from sales of up to 49% of shares in four SOEs and Air New Zealand over the next five years. That money would be used to pay for any new capital spending the govenrment wished to make over the next five budgets, such as the building or upgrading of new hospitals and schools, and investment in irrigation schemes.

The policy became a central issue through last year's election campaign, as the Labour Party attacked the government for not releasing forecasts of how much dividend income it would expect to lose from the companies as the government divested its ownership.

In its Pre Election Fiscal Update, Treasury noted the government's mixed-ownership policy, but said because there was insufficient information to forecast individual transactions, there were no estimates of sale proceeds, selling costs, foregone dividends or ownership changes in the forecasts.

It also noted that any new capital spending would be paid for out of the Crown's existing balance sheet, which could include sources such as increased returns from existing assets, reprioritisation of planned capital spending, as well as partial sales of SOEs.

Treasury officials came under fire from Labour Party finance spokesman David Parker in Parliament's Finance and Expenditure Committee today, as Parker repeatedly asked why forecast dividend losses were not included in the Pre Election Fiscal Update, released in October last year, but then were included in February's Budget Policy Statement.

Every time Treasury's answer was the same - that it had noted in PREFU that future new capital spending requirements would come from the Crown's balance sheet, including potential SOE share sell-downs - and that Ministers would not be confirming whether they would proceed with the mixed-ownership model policy until after the election.

As Parker repeated his line of questioning, Treasury Secretary Gabriel Makhlouf said he would be happy for the Auditor General to review the accounting practices used by Treasury surrounding the issue.