HERALD WEEKLY ISSUE 608: 21 March 2012

What was the proper figure budgeted for Air NZ?

Just how much did government budget for the Air NZ Sydney and LA flights subsidy? One report on 1 December 2010 says it was $10 million while another report on 17 February 2011 says it was $8 million. Even previous budget documents are not all that clear. In the Demo government Budget document of July 2010 under POBOC the amount listed is $5 million. However, from then on things become hazy.
Because of the high level of commercial sensitivity surrounding the mechanisms for calculating our government’s liability, Budget documents present “figures” but not “explanations.” As the public is unaware how the agreement is constructed, the public will never make any sense of the payments made to Air NZ.
This lack of transparency prevents the public from making any informed judgments as to the benefit to the country at the “end of the day.”
Budget Policy Statement/Half Year Economic and Fiscal Update issued 1 December 2011
“The Government of the Cook Islands has accepted the commercial risk such that any
losses incurred by Air New Zealand in respect to the service provided on the direct flights from Sydney to Rarotonga and Los Angeles to Rarotonga return during the term of the existing agreements shall be met by the Government of the Cook Islands. The best information available at the present time is that any loss will be as estimated at $11million.
This has been appropriated in the budget at $10.0million with the balance of $1.0million recognised above as a contingent liability. This is as per the Budget 2011/12 and will be reviewed after 6 months (January 2012).”
“Both contracts will continue to be tracked closely and if necessary an adjustment may be required to the appropriation in the event the routes do not perform as projected. It is noted that MFEM is also sourcing an independent economic analysis of both connections and underwrites over the next quarter.”
The statement issued at Friday 17 Feb 2012 at the media conference by the Finance Minister has a different set of figures.
• “At the time of the Budget we put aside $8 million for the purpose of underwriting both routes in 2011-12 and 2012-13. We now estimate these to have increased to $12.5 million in 2011-12 and $13.6 million in 2013-14.”
Also, why did government not factor fuel price increases into their calculations when they knew back in December 2010 that fuel increases would be a factor?
Statement on Friday 17 February 2012.
• “Since April 2010 the cost of aviation fuel has risen by around 35 per cent in US dollar terms. It is an external cost we are unable to control and to this end the Government cannot really contain costs. The outlook for aviation fuel is unlikely to get any better, and could possibly deteriorate further. “
Here’s what Finance Minister Brown said in his speech on the 2011/12 Budget in July 2011;
“The strength of the Australian economy is a sure sign of worthwhile investment despite global fuel price fluctuations. “
Of course our government is powerless to influence the cost of jet fuel. However, our government can make contingency plans.
The Finance Minister has at his beck and call a Ministry full of “experts” who love working with “figures” so what advice are they offering him?

Herald Issue 608 21 March
- Terms of one China Policy document should be reviewed
- Pacific Media Assistance Scheme Seeks Innovation
- Successful NZ visit by PM
- Rerekura Teaurere New Climate Change Coordinator
- News Briefs

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