The settlement between the Crown and Te Arawa hands ownership of the 13 lakes to the Rotorua tribe, vesting the lakebed titles in the iwi and paying about $10 million compensation. It also includes an apology.
National opposes the deal, fearing it could become a Trojan horse for similar settlements and because in a 1922 agreement Te Arawa gave control of the lakes to the Crown in exchange for an annuity of 6000 a year.
Te Arawa's $10 million-plus lakes settlement could sink with next month's election, the Rotorua-based iwi fears.
The deal between Te Arawa and the Crown includes a $10m cultural redress package and was to have been legislated before the end of the year.
But the September 17 election has crept up on the iwi.
Te Arawa people fear that if National wins the election the deal could be off. National's Maori affairs spokesman, Gerry Brownlee, has said that if his party wins it would not return the lakes to the iwi.
In December, Te Arawa and the Crown signed a deed of settlement for the return of 13 lakebeds.
The deal was hailed as a new beginning for the tribe and included an apology for breaches of the Crown's Treaty of Waitangi obligations.
Te Arawa was to set up a post-settlement governance entity to manage the settlement package on behalf of the tribe, and the Government was to introduce a bill legislating the settlement by the end of this year.
A spokeswoman for the Minister in Charge of Treaty Negotiations, Mark Burton, said significant work had gone into drafting the legislation.
She stressed that Te Arawa's governance entity was not ratified by the iwi until a fortnight ago, and Mr Burton had not signed it off until Tuesday.
The Government had "every intention" to pass the legislation when Parliament resumed following a successful election for Labour, she said.
But Rotorua's Sir Howard Morrison was disappointed that Labour had failed to finalise the settlement.
"It fills me with despair," said the entertainer.
Race relations in New Zealand were at an all-time low and National's negative statements about the settlement were out of line, said Sir Howard.
Mr Brownlee confirmed that National would not finalise the settlement in its present form.
The deal had been signed and sealed in 1922 with the Fenton Agreement, which granted the tribe cultural fishing rights and an annuity of 6000 a year, he said.
"We appreciate the annuity is no longer satisfactory, but return of the lakes is not appropriate."
Office of Treaty Settlements director Andrew Hampton confirmed that the deal was subject to legislation being passed.
Although time had run out for Labour to table the bill before the election, any new government would be obligated to introduce it, he said.
But that did not necessarily mean the bill would become law.
Te Arawa kaumatua Mike Rika was angry about the prospect of the deal crashing.
"Our people are going to be sad if this doesn't go through," he said.
"A large amount of public money has gone into settling the lakes issue. How much more money will have to be spent on this?
"Labour promised it would be dealt with before the election and they haven't done so."
Te Arawa Maori Trust Board chairman Anaru Rangiheuea said he was not in a position to comment on the lakes issue.
Board manager Roku Mihinui said ratification of the post-settlement entity group had been completed but there would be no statement from the board until after settlement.
- NZPA
Iwi fear lakes deal will sink
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