Auditor General John Ryan

The Auditor-General , John Ryan, has written to Treasury saying he still wants more accountability for how the $74.1 billion Covid Response and Recovery Fund (CRRF) is being spent.

Ryan, acknowledged that Treasury had begun to make CRRF spending decisions more accountable. But he wamnts more detail and he wants it presented in a way that the public can follow.

In his letter he warns that the fund was so big that it will have an impact on Government finances and debt for years to come.

But ACT Leader David Seymour yesterday claimed billions and billions of taxpayer dollars had been dished out under the pretence of Covid related spending.

“In reality, it is nothing but a slush fund for Labour’s ideological pet projects and has contributed to a domino effect of domestic inflation that is making Kiwis poorer,” he said.

There has been comparatively less political focus on the fund as a cause of current inflation than on the Reserve Bank’s various stimulatory policies.

In April, Infometrics Chief forecaster, Gareth Kiernan, said the New Zealand economy has become stretched to breaking point, with demand pumped to unsustainable levels by monetary and fiscal stimulus over the last two years.

“This support for the economy was implemented in the expectation of a major recession caused by Covid,” he said.

“But with supply constraints and disruptions a more persistent outcome from the pandemic, the consequences of excess demand are now becoming all too evident.

“Inflation is forecast to peak at 7.6%pa this year and to still be outside the Reserve Bank’s 1-3%pa target band at the end of 2023. “


Seymour is even more critical of how the Government used the Covid fund.

“$515 million on school lunches, $26.6 million for cameras on fishing boats and the day we went into lockdown, it announced $17.1 million from the fund for creative spaces to support participation in the arts,” he said.

“The Government has never bothered to explain how the Covid fund related to Covid; they have just treated it as their pet project slush fund.”

Last week $27 million from the fund was allocated to Auckland Transport to help purchase two electric harbour ferries.

Within the past fortnight, the Government has announced spending of $18.4 million from the fund for its Jobs for Nature programme, which aims, among other things, to provide tourism workers “with alternative employment into the lead up to New Zealand’s borders re-opening.”

New Zealand’s borders re-opened four days after the programme was announced to most major tourism countries except China and India.

At the same time, unemployment this week was reported by StatsNZ to be at a record low of 3.2 per cent.

Treasury’s latest database on how the money has been spent was published on February 11, and its 793 lines of data account for $69.1 billion of spending.

The largest single sum has been on various Ministry of Social Development programmes such as wage subsidies.

But there are also some oddities like $5.8 million to address “oversupply issues in the pork industry” or cases where the money should probably have  been more properly accounted for in a Budget vote, such as the $7.25 million addition to Radio New Zealand’s baseline funding or various amounts allocated to Ministerial offices for “servicing.”

The apparent lack of rigid management of the fund has clearly worried the Auditor General.

“I have been concerned about the accountability for spending in response to the Covid-19 pandemic,” he said in his letter to Treasury Secretary Caralee McLiesh.

“In my view, the legislative financial reporting requirements (which the Government and its agencies have complied with) are not enough to provide Parliament and the public with sufficient information about CRRF expenditure.

“My position is that greater transparency is warranted because of the scale of the funding set aside (now $74.1 billion), the extraordinary circumstances in which funding decisions are being made, and the potential implications for the Crown’s financial position (and public debt) for years to come.”

Ryan acknowledged that Treasury had begun to address many of his concerns, but he suggested that Ministers also had a responsibility to be more transparent about how the fund was being spent.

“I also accept that there are practical limitations to what further information the Treasury can currently report, and I acknowledge that the statutory responsibility for reporting on expenditure incurred and performance achieved rests with individual agencies and their respective Ministers,” he said.

The Government probably feels it can afford the largesse being bestowed by the CRRF.

Crown tax receipts for the nine months ended March 31 were reported yesterday by Treasury to be up 3.5 per cent on December’s Half Yearly Fiscal Update forecasts, while Crown expenses were on forecast.

The operating balance before gains and losses (OBEGAL) deficit of $8.1 billion was $4.1 billion better than forecast, mainly reflecting the core Crown results.

Treasury said the results of Crown entities and State-owned Enterprises were also stronger than expected.

Nevertheless, the Covid spending has been a stimulatory factor in the economy and must therefore be considered one of the reasons why inflation is now running so high.

However, Reserve Bank Governor Adrian Orr appearing before Parliament’s  Finance and Expenditure Committee, suggested that he did not expect the CRRF to have much more of an impact on inflation.

He said the fund had been incredibly effective.

It had been very significant during those unusual times and had been very effective at keeping people in the game.”

He argued that as far as monetary policy was concerned, what mattered was the rate of change in fiscal spending.

“It’s about contribution to growth; what I would call the impulse to growth what is the contribution to the total growth from various activities,” he said.

“And the fiscal impulse was strongest last year, and it is now in a position of flat to negative.

So when we are looking at monetary policy, we say, where’s the biggest impulses to change in prices coming from.

“At present, it’s not Government.

“Yes, the level of spending, the activity remains where it is but the rate of change, the impulse that matters to monetary policy is not.”

Ultimately, with the Government nearing the end of its CRFF spending, the big question may well now become the one raised by the Auditor General, and that is the size of the fund, $74.1 billion and the question of repaying the borrowing used to create the fund.