Former NSW Premier Mike Baird has told an anti-corruption hearing he would have treated Wagga Wagga's grants differently if he had known Gladys Berejiklian was in a secret relationship with Daryl Maguire.
Mr Baird appeared on Wednesday at the Independent Commission Against Corruption (ICAC) inquiry into allegations that Ms Berejiklian had a conflict of interest through the millions of dollars awarded to NSW Riverina institutions during her relationship with Mr Maguire.
ICAC also heard from Mr Baird's former director of strategy, who advised Mr Baird to oppose a $5.5 million grant for a clay target function centre at Wagga due to it not being a "wise" use of taxpayers' money.
Mr Baird told the hearing he was "incredulous" when he found out last year of Ms Berejiklian's personal involvement with Mr Maguire while she served as a minister and NSW Treasurer.
Counsel assisting ICAC Scott Robertson asked Mr Baird if it would have affected what he did as premier if he had known about the relationship at the time Ms Berejiklian was treasurer.
"Certainly I think it should have been disclosed," Mr Baird replied.
When asked why it should be disclosed, Mr Baird said it was due to "the concept of executing public function in the context of potential private interests".
"In terms of good practice, it should have been disclosed ... to myself as premier," he said.
Mr Baird said there would be "actions taken" in a hypothetical scenario where he knew about the relationship while cabinet's Expenditure Review Committee (ERC) was considering the $5.5 million grant to build the Wagga function centre.
When asked for details, Mr Baird said Ms Berejiklian would have not participated in discussions or would have been excluded from the ERC meeting.
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Mr Baird said ERC members would have had to take the relationship into account when making decisions about funding for Wagga's electorate, had they known about it at the time.
Earlier in the hearing, Mr Robertson asked Mr Baird if Ms Berejiklian attended the Expenditure Review Committee meeting on December 14, 2016 that approved the $5.5 million grant.
"Yes," Mr Baird replied.
"I take it she was there throughout the discussion and didn't declare any conflict?" Mr Robertson asked.
"That's right," Mr Baird replied.
Ms Berejiklian has denied all wrongdoing and stated she has "always acted with the highest level of integrity".
Mr Baird said the Wagga clay target function centre proposal "had merit" and he was "happy to support it" if its business case issues were overcome.
In response to questions from Ms Berejiklian's solicitor, Sophie Callan, Mr Baird said never saw Ms Berejiklian display bias in favour of Mr Maguire.
Ms Callan asked if there was concern among the Liberals about the Nationals losing the Orange byelection to the Shooters, Fishers and Farmers party in November 2016.
Mr Baird agreed the government felt a "backlash" in regional areas from council amalgamations and a proposed ban on greyhound racing and there was a need to address perceptions that they were "out of touch" with regional areas.
Prior to the December 2016 ERC meeting, Mr Baird was presented with written advice from his then director of strategy Nigel Blunden.
Mr Blunden appeared at ICAC to give evidence on Wednesday morning and said he adopted a tone of "jest" and satire" in his advice to oppose the $5.5 million clay target function centre grant for Wagga.
The advice began with a quote from the 1983 Tom Cruise film 'Risky Business' that stated "sometimes you gotta say WTF".
"It's to be known as the Maguire International Shooting Centre of Excellence ... increased tourism accounts for 97 per cent of forecast benefits (so it's suss)," Mr Blunden's advice stated.
Mr Blunden concluded his advice by stating "Oppose. Gladys and [then Minister for Sport] Ayres want it. No doubt they have done a sweatheart [sic] deal with Daryl, but this goes against all the principles of sound economic management.
"At the very least, let's target our marginal seats, not one of our safest."
Mr Blunden's advice also claimed that Mr Maguire had got "fired up" when the grant was removed from the ERC meeting agenda, so Ms Berejiklian "put it back on".
Mr Blunden told ICAC the reference to a sweetheart deal was a "flippant remark".
The ICAC hearing will resume at 9.30am tomorrow with Department of Regional NSW deputy secretary Chris Hanger due to appear as a witness.