The Government’s inclusion of finance companies in its announced deposit insurance scheme opens the risk of Ponzi schemes receiving insurance payouts, courtesy of responsible savers, warns the New Zealand Taxpayers' Union.

Union spokesman Louis Houlbrooke says, “In October last year, we wrote to the Finance Minister warning him that he could be remembered as the Minister who signed off on deposit insurance for New Zealand’s own Bernie Madoff. The Serious Fraud Office prosecutes about one Ponzi scheme a year, and it is alarming to see that under the Government’s proposals, those Ponzi schemes would become eligible for deposit insurance.”

“In fact, Treasury has failed to provide the Minister of Finance with any advice on the implications of this scheme for fraudulent finance companies. In September last year, and again this February, we checked with the Serious Fraud Office to see if Treasury had requested any information on criminal offending in the finance sector. It turns out Treasury never asked.”

On the wider deposit insurance proposal, Mr Houlbrooke says:

“Deposit insurance in general comes with serious risks. Guaranteeing an effective bailout for collapsing banks will see those banks take greater risks with their lending. That’s exactly the kind of moral hazard that led to America’s sub-prime mortgages and the 2008 Global Financial Crisis.”

“Even under a best-case scenario, the levies paid by banks for this insurance will naturally be passed on to deposit-holders. As if term deposit rates weren’t already low enough!”

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