Where did our $640 million go?

Or are Michael Wood's shareholdings really a much bigger deal?

At about the same time as the story about former cabinet minister Michael Wood’s shareholding in Auckland International Airport Ltd was emerging, the Office of the Auditor General issued a report (dated 6 June) into what was done with $640 million of public money – a matter that’s attracted less attention in the media so far.

In 2020, as part of the response to Covid-19, $640 million was ‘repurposed’ from the Provincial Growth Fund to address the economic impact of the pandemic on the regions. But the independent Auditor-General’s office has found that:

• Applications for this reset funding were inconsistently assessed.

• Applicants’ claims about the number of jobs that would be created by their proposed projects weren’t appropriately scrutinised.

• Assessments weren’t well documented.

• There was no clear reporting or regular monitoring of how well the repurposed funds were achieving objectives or delivering value for money.

• There was no evidence of planning for an evaluation of outcomes.

• There was insufficient documentary evidence.

A lot of frantic work was done to respond to Covid-19 and the economic shutdown, and not everything would have been done perfectly under such pressure. It may sound a bit like a large proportion of that $640 million could have gone down a dark whirlpool, but it wasn’t hard to find details about where these funds were being spent. I won’t be going through this funding with a fine-tooth comb, but Duncan Garner’s claim that ‘no one knows where and with whom’ the money was spent was false. He was attacking the incumbent government, not reporting facts. (Listen to his ill-informed comments on his podcast, if you can bear it, 7 mins in.)

There’s a lot of politically biased scaremongering going on under the guise of journalism. Another example was the exaggerated claim made on Newstalk ZB about Māori and Pacific patients ‘getting to the front of the surgery queue’ when ethnicity is used as a factor in prioritising waiting lists. This was critically examined on RNZ’s Mediawatch.

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Oh well, getting back to ministers’ conflicts of interest, let’s look at some principles:

The NZ Cabinet Manual states: ‘Conflicts of interest may arise between Ministers' personal interests and their public duty because of the influence and power that Ministers exercise, and the information to which they have access, both in the individual performance of their portfolio responsibilities and as members of the Executive.’

It then goes on to advise how conflicts of interest can be managed. It doesn’t lay down the law, and the existence of a conflict of interest doesn’t necessarily sound alarm bells about corruption. Transparency International defines corruption as ‘the abuse of entrusted power for private gain’. But well before there’s even a whiff of corruption, a minister’s personal financial affairs should be squeaky clean.

Michael Wood resigned as a cabinet minister on Thursday. Prime minister Chris Hipkins explained that Mr Wood had failed fully to disclose and manage conflicts of interest arising from shareholdings in a number of companies and hadn’t adequately explained why. New information came to light about shares in companies other than Auckland International Airport, which had been the initial cause of this controversy.

Given Wood’s failure to disclose assets and to explain the situation to the prime minister, the resignation was appropriate. If he hadn’t resigned, it looks like Hipkins would have sacked Wood anyway.

There’s been no suggestion, however, that Mr Wood made or sought any pecuniary gain. The transgression was a failure to disclose and manage the conflict. It looks more like carelessness than abuse of power.

By way of comparison, three Auckland councillors who own shares in Auckland International Airport were cleared to vote on the sale of the Council’s 18% shareholding, although one (Wood’s partner) abstained. The councillors had disclosed their own shares, and they don’t appear to gain or lose directly from selling (or not selling) the Council’s shares.

On its own, depending on the circumstances and how they’re handled, a conflict of interest doesn’t necessarily preclude an office-holder from carrying on in their role. Based on what we know, furthermore, Michael Wood’s failure isn’t a sign of corruption. He neither sought nor made an improper gain.

The PM rightly wants to tighten up supervision of ministers’ pecuniary interests, however, in addition to the parliamentary register to which all MPs have to submit information. On ministers’ personal interests, the Cabinet secretary and the prime minister need to be advised, especially if private interests overlap with current decisionmaking. The changes outlined by Mr Hipkins will make this clearer and more frequent.

It looks like the Cabinet Manual needs an update as well. At the moment, its guidance is rather open-ended, perhaps reflecting the fact that management of conflicts of interest – whether real or perceived – depends on circumstances.

There are some measures that can be taken:

• Declaration of assets and of any overlapping associations with family, businesses or community groups.

• Not receiving information related to declared interests.

• Recusing oneself from related discussions or decisions.

• Transferring a responsibility to another minister or to the agency concerned.

• Divestment of assets, such as shares, ‘where a conflict of interest is significant and pervasive’.

• Placement of assets in a blind trust or an arm’s-length managed fund to avoid direct oversight or influence over investment choices.

• Resignation from an organisation.

It all starts with declaration, but the Cabinet Manual doesn’t insist on divestment of shares in all cases. It’s not clear whether Michael Wood’s shareholdings represented a ‘significant and pervasive’ conflict.

So the Cabinet Manual may need to be updated to steer more towards divestment, blind trusts and/or managed funds so that no minister is holding shares personally and directly in any particular company. You never know when someone representing a company may look to influence a minister, so perhaps it’s better to be rid of shares, if directly owned, before ministerial warrants are issued.

There are, however, some conflicts of interest that have to be declared, yet can’t be cancelled out altogether. The obvious example is real estate. Whether an MP is a renter, a home-owner or a landlord potentially influences their views about policies on tenancy, housing, property investment, capital gains and related taxation matters.

Questions have been asked about Christopher Luxon’s numerous properties and to what extent he could personally gain from National’s policy of reintroducing tax deductability of interest payments on loans. Isn’t that a conflict of interests?

Should a prime minister or minister of housing have to divest of any rented homes they may own? Some people have suggested as much. I don’t think that’s necessary, but all MPs must at least declare what they own.

To take an absurd example, we surely wouldn’t say that a minister of education can’t be a parent of schoolchildren, or can’t be married to a school teacher, on the grounds of conflict of interest.

Michael Wood should have sold those shares, though, as the Cabinet Office had suggested he do so, and he’d told them that he would. He should at least have declared everything.

In a way we can be glad that so big a deal has been made out of the Wood incident, on the grounds of keeping them all honest and transparent. On the other hand, some negative reactions have been exaggerated by political motives, and others just look to me like righteous indignation.

Conflicts of interests are normal: it’s what we do about them that counts. And opposition members will be just as conflicted if/when they find themselves in office. In our Westminster-style government, there are massive conflicts of interests caused by the fact that any cabinet, chaired by the prime minister in confidential meetings, can decide to introduce and vote on legislation to give themselves powers, and get parliamentary approval for the funds to implement their will – constrained, it must be said, by fear of the next election but by little more. The courts can’t reach into what cabinet and parliament actually do, although they can examine the lawfulness executive decisionmaking in particular cases. If you have heaps of money to throw at lawyers, then you might be able to make a case.

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Speaking of elections, the National Party conference happened over the weekend, and so we’re starting to get a clearer picture of how the election will be contested. I’ve looked at some indicators pointing towards a change of government, but what pitfalls await the opposition parties? How easily could they screw this up? What desperate measures are critics on the left resorting to in order to block National from taking office? That sounds like a theme for next week. I did actually write something about the crazy pseudo-science of opinion polling, as promised last week, but got distracted by the above, and so maybe that will wait.