Information released under the Official Information Act shows the Government pushed ahead with a Provincial Growth Fund project on the West Coast despite advice from Treasury that it should not.
Regional Economic Development Minister Shane Jones agreed to loan Westland Milk Products Limited $9.9 million from the Provincial Growth Fund in November but officials advised him against it, saying he should defer the decision.
Treasury advice stated: "Given that Westland Milk Products Limited ('Westland') is a private company which will substantially internalise the benefits of the proposed PGF investment, there needs to be a clear articulation of why Westland is deserving of PGF investment, over and above other competing firms."
National's spokesperson for Economic and Regional Development Paul Goldsmith said Mr Jones was "playing fast and loose with $3 billion of taxpayer money".
"The public haven't been given enough detail to know how much of a subsidy is being doled out," he said.
"This kind of loose spending is why the Government is looking at an enterprise-destroying new Capital Gains Tax."
Treasury said this may set a precedent.
"A separate, but related issue with this proposal concerns the appropriateness of loans to private companies," it said.
"We understand the reason Westland is seeking a loan from the PGF is they cannot get a loan from its bank on acceptable terms. In this case, the Crown would be acting as a lender of last resort."
At the time of the announcement in November, Mr Jones said the investment will bring benefits including up-skilling staff and attracting new manufacturing staff to the region.
"With suppliers from Karamea to the glaciers and 430 employees in Hokitika, an investment in New Zealand-owned Westland Milk Products is an investment in the economy of the whole West Coast."
The Provincial Growth Fund is set to allocate $3 billion over three years.
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