Finance Minister Grant Robertson leaves this year's Budget briefing lockup with the plans for the Cost of Living Payment under his arm.

The ghosts of the Government’s great cost-of-living-allowance great giveaway came back to haunt the Beehive yesterday.

The problem now is that non-one knows how many ghosts there are or where they might be found.

In the typically dry and cautious phraseology of the Auditor General, “it was not intended that the payment would be made to people who had died.”

He was responding to a letter from National’s Finance spokesperson, Nicola Willis, and he did so not only by replying to her but also by sending a longer letter to the Commissioner of Inland Revenue, Peter Mersi, who was charged with administering the scheme.

On 11 April 2022, Cabinet agreed on a scheme that was designed to deliver the Cost of living payment as swiftly and easily as possible.

The main eligibility criteria for people to receive the payment were that they were over 18 and had a net income of less than $70,000 in the 2021/22 tax year, and were both a New Zealand tax resident and present in New Zealand.

It was thought that 2.1 million people might be eligible for the payment.

“The new Cost of Living Payments will help kiwis through the peak of the global inflation storm, providing an extra $116 per month for August, September and October, helping with household bills, filling up the car, the weekly grocery shop and heating throughout winter,” said the prime Minister, Jacinda Ardern, when announcing the scheme.

“The new payment also sits alongside the Government’s Winter Energy Payment, and, together, these payments will support 81% of New Zealanders aged 18 and over with their bills this year.”

It was the Government’s answer to inflation and was supposed to be one of the highlights of this year’s Budget.

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“We are well aware that this is only a contribution to the increased costs that people are facing, but it is a targeted way we can support people through this challenging period while not excessively exacerbating inflation,” said Finance Minister Grant Robertson, in his Budget speech.

After Cabinet had agreed to the payment, with Ministers presumably congratulating themselves on finding a centrepiece for what would otherwise have been a hum-drum Budget, came a series of decisions that led to the problems that were to follow.

“Cabinet also agreed that payments would be non-recoverable unless Inland Revenue determined the information on which payment was based was fraudulent or wilfully misleading,” said the Auditor General, John Ryan, in his letter to Mersi.

“The April Cabinet paper about the scheme did not include the risks in relying on Inland Revenue’s information to establish whether people met the criteria.

“However, Inland Revenue had earlier advised the Ministers of Revenue and Finance that its information might not be up to date, that it could not verify whether someone was living at the New Zealand address recorded in Inland Revenue’s system and that there was a risk that some people might receive the payment which should not.

“We understand that due to the speed at which the legislation was developed, a Regulatory Impact Assessment was not completed.”

 Inland revenue said it would determine eligibility for the payment based on information it did hold; tax assessment, employment income, bank account details, date of birth, tax residency status, incarceration status and date of death information.

“We asked Inland Revenue about the sources of data that it is using to assess eligibility,” said Ryan’s letter.

“Inland Revenue told us that it does not have a perfect dataset for any single criterion, but that it carried out its responsibilities based on the best information currently available to it.”

Critically, IRD decided that “present in New Zealand” would be determined by a taxpayer’s mailing address.

Inland Revenue holds information about tax residency (which does not indicate that a person is present at any particular point in time), which is either self-assessed and declared by the taxpayer or results from a tax audit.

To determine Whether a person has died, “some information is derived from data matching. Inland Revenue receives a weekly data match from the Department of Internal Affairs of people who have died. Inland Revenue may also be advised by a family member, estate executor, or tax agent that a person has died, in which case Inland Revenue will validate that information.”

Ryan was particularly concerned about how IRD decided whether someone was presently in New Zealand.

“The use of the physical address field as a proxy for being “present in New Zealand” was problematic,” he said.

“It is not clear to me that using this field is good evidence to determine that someone is present in New Zealand, regardless of which meaning is used.

“For any number of reasons, a person might not be at that address, and there is little way of being sure the person was in New Zealand and eligible for the payment.”

Ryan said IRD told the Minister of Revenue (David Parker) and Robertson that they could not verify whether someone was living at the address in the IRD database, but that information was not included as a “risk” in the Cab8inet paper.

Then comes the problem.

No one knows who or how many people got the payment who were not eligible to receive it.

“I am concerned that the Government does not know how significant the scale of payments to ineligible people is,” said Ryan.

“The Minister of Revenue has been quoted by media as saying that it could be around 1% of payments.

“Inland Revenue told my staff that it is doing some work to improve the accuracy of future payments but does not know, and may never know, how many ineligible people might have received the payment.

“This is, in my view, unacceptable.”

By the usual standard of Auditor-General admonitions, that is about as tough as it gets.

It was clearly difficult for the Prime Minister at her weekly press conference yesterday to defend the way the payment had been distributed.

“When you are working on a payment that goes or is expected to go to roughly 2.1 million eligible New Zealanders, there is no way to design a system that will be absolutely perfect,” she said.

“But we prioritised in these tough times getting payment to the New Zealanders who needed it the most.

“And we stand by that while we continue to do everything we can to make improvements as we go.”

That was ultimately her only defence that it was better to get the money out and accept a few mistakes than to have not made the payment.

Would any payment have been perfect? I would argue no,” she said.

“But the most important thing to do was to support New Zealanders when they needed it most. And we’ve done that.”

The Auditor General had a pre-emptive response to that.

“In my view, good stewardship of public money required greater care when designing and implementing the COLP – ensuring that the criteria were clear and that the data used by Inland Revenue was adequate,” he said.

He concluded that speed and expediency had been prioritised over certainty and accuracy.

The Opposition will have a field day with this.