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Labour blames English for blowout in SCF costs


Tuesday 5th April 2011

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A spike in the cost of the Retail Deposit Guarantee Scheme due to the collapse of South Canterbury Finance was avoidable, Labour says.

Labour's finance spokesman David Cunliffe has called for Finance Minister Bill English to resign over what he described as a scandal of epic proportions.

Treasury yesterday released the Government accounts for the eight months to February which showed the deficit $1.7 billion higher than forecast at $9.2 billion.

That was put down to the Christchurch earthquake and a $331 million increase in the Government's expected loss from the scheme, put in place during the global financial crisis and extended until December 31 this year.

"Most of this is attributable to a reduction in expected related party loan recoveries from the receivership of South Canterbury Finance (SCF)," English said.

"The receiver has provided updated information on South Canterbury's lending business not available previously."

The Government expected a net loss from the scheme of around $1.2b, compared with earlier estimates of around $900m, he said.

The significant extra one-off costs would add to what was already shaping as a large deficit in the current financial year.

Cunliffe said the Government was foreshadowing a budget with no new money and cuts to services when it was responsible for losing money.

"The Government could have placed South Canterbury Finance into statutory management in 2009, it could have traded through, it could've accepted one of a number of recapitalisation offers in 2010," he told Radio New Zealand.

"The Government for some unknown reason decided to plough ahead with a receivership which has left assets rotting away on the vine and has resulted in a $1.2b -- all but $100m from SCF -- loss to the public... it's a scandal of epic proportions."

Cunliffe said he had seen an offer that agreed to take on bad debt if the Government underwrote SCF to $500m but English told Radio New Zealand the Government would have made a deal if there had been an attractive offer.

"The key feature of any of the offers that officials saw was that the Government would have to pick up any subsequent losses and the people putting in the money would get quite favourable terms to get profits for years without putting much equity in."

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