By Alex Tarrant
The Green Party is calling on the Government to invest more money in Kiwibank so that it can compete for the whole, or at least parts of, the Government’s master banking arrangement that has been Westpac’s for 21 years.
Greens co-leader Russel Norman criticised the Government for not tendering the arrangement at all since it was entered into in 1989. It would be the biggest single banking contract in the country, he said.
“The Government’s master banking contract with Westpac covers all Government departments but successive governments have run this contract as a comfortable closed shop,” Norman said.
“There hasn’t been an open tender process since David Lange was Prime Minister.
“How do we know that we are getting value for money from the Government’s favourite banker without a competitive tender process?” he said.
Twenty-one years ago
Norman raised the issue with Finance Minister Bill English earlier this month in Parliamentary written questions, asking:
- When was the last time the Government put the master banking agreement out for competitive tender?
- Can Government departments bound to the master banking agreement with Westpac seek the services of other banks for banking services outside of the master banking agreement? And,
- Which Government agencies does the master banking agreement between the Government and Westpac apply to?
English responded by saying the arrangement with Westpac only applied to government departments, not Crown Entities or SOEs. Banking services not covered by the contract were regularly tendered by the departments concerned, English said.
“In the late 1980's, Treasury undertook an open tender process to select one bank to provide the Crown's domestic banking services,” English said.
“Westpac was selected to provide these services in a deed entered into in January 1989,” he said.
"A redocumentation process was completed in the early 2000's and a new Master Agreement was signed in November 2004. Since 2005, the Crown has negotiated ongoing contractual price reductions for contract services.
“The Treasury regularly consults with key departments over pricing and service levels relating to the contract, including the possibility of conducting a future tender of the Crown's banking arrangements,” English said.
Government departments currently bound to the master arrangement were able to seek the services of other banks for services outside the arrangement, English said.
Give us 10 years, Kiwibank says
Kiwibank spokesman Bruce Thompson told interest.co.nz it would have to be 10 to 15 years before the state-owned bank would be able to compete for the whole master banking contract, as it did not currently have the capabilities to do so.
“We're not in that league yet. We’re SME – small and medium enterprise – banking,” Thompson said.
“We’re nowhere near the capability or infrastructure to do big business banking, corporate banking, or certainly not government banking, he said.
“We will get there, but it would probably be, I would think, on a ten to fifteen year time span before we get to that type of level.
At a certain point Kiwibank would be in the market to tender for the arrangement, Thompson said, adding the bank would like to do so.
“But it’s very important that a bank like Kiwibank grows at a pace that it can provide proper service, and not over reach itself,” he said.
“For example, we can’t provide banking facilities for Telecom, and the big companies like that.
“Even in the SME market, we’ve got about 15,000 customers, and that market has literally got hundreds of thousands. We will get there."
Kiwibank currently had between 700,000-750,000 customers, Thompson said.
“So we’re growing at around 2,000 a week, and always have been since we first started,” he said.
“But it’s a huge leap to get from small business to big business, from big business to corporate, and from corporate to government.
The contract would be in the billions of dollars, Thompson said,
“It would have to be [the biggest single contract in the country].”
“Don’t forget there would have to be billions of dollars in social welfare payments made each year, and each week it would be hundreds of millions. Even as a recipient bank, it’s a significant amount of money we get from Westpac for daily Department of Social Welfare payments,” Thompson said
Start a debate
Norman told interest.co.nz the Greens’ long-term objective was to get Kiwibank big enough so it could pitch for the banking contracts of large enterprises and also for large government work.
“What we’re saying is the foreign owned banks are a major drain in terms of the current account deficit – all the profits that they send back overseas,” he said.
“This is a significant issue for the New Zealand economy - it’s big bucks.
“So the question we have is ‘the government’s using one of those [banks]. It’s probably the single biggest contract in the country
“That means basically the public sector’s funding some of those profits going back to Australia.
“Can we look at getting Kiwibank, in particular, involved in this?
“We’re investigating to the extent to which divisions within government are bound by the master contract, and whether there’s scope for Kiwibank to pitch, to get involved in that,” he said.
Westpac would not comment on the issue.
Here is the initial release from the Green Party:
The Green Party revealed today that the Government has failed to run an open tender process for the Government’s banking contract with Westpac for over 21 years.
“The Government’s master banking contract with Westpac covers all Government departments but successive governments have run this contract as a comfortable closed shop,” said Green Party co-leader Dr Russel Norman today.
“There hasn’t been an open tender process since David Lange was Prime Minister.
“How do we know that we are getting value for money from the Government’s favourite banker without a competitive tender process?”
The Government’s banking requirements were contracted to Westpac in 1989 under a master banking agreement. Parliamentary Written Questions by the Green Party revealed that the Government has not run another tender process for the contract for 21 years.
“It’s time the Government ran an open tender process for its extensive banking needs,” said Dr Norman.
“National tells us that competition is important to efficiency, yet it continues with this comfortable closed shop that stifles competition in the provision of core banking services to the public sector.
“The Government can hardly tell us that Westpac is a public spirited company that would never provide anything less than the most efficient service to the Government when Westpac was found by the High Court last year to be illegally avoiding nearly a billion dollars in tax.
“Westpac’s Chief Executive is getting paid $107,500 per week so the bank doesn’t need government welfare. It should be made to compete for the Government master banking contract like any other company.
“New Zealand small businesses and NGOs would give an arm and leg for a 21 year contract with the Government. Most of them have to tender for government business annually.
“Ideally, the Government’s banker should be New Zealand owned, given the additional positive impact this would have on our balance of payments. Westpac is a foreign-owned bank that sends its profits offshore adding to our current account deficit.
“Greater investment in Kiwibank is needed to bring it up to the level where it can compete on a level footing with the likes of Westpac and could become our Government’s banker. This is a smart way to develop our economy.
“Until then, banking contracts with smaller Government entities should be opened up to competition from Kiwibank and others banks,” Dr Norman said.
The Government declined to reveal under Written Questions the value of current banking contract with Westpac citing commercial sensitivity.
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