8 things that mattered this week
It was a short week, but it wasn't short of things that mattered around our political economy, both here and overseas.
1. Switching from big road to big rail
The Government unveiled the details of its big switch from RONS to rails this week in its most politically risky set of moves since its formation almost six months ago.
The previous National Government focused spending from the hypothecated Land Transport Fund on its Roads of National Significance programme and had previewed several more big motorway extensions in its election campaign, including from Cambridge to Tirau, Otaki to Levin and Warkworth to Whangarei.
The hypothecated detail was important because it meant fuel excise levies and road user charges were dedicated to either building roads, maintaining roads or helping to pay for public transport operations -- but not rail infrastructure.
The Labour and Green parties were openly contemptuous of the RONS motorways before the election and one of their first agreed actions was to cancel the proposed East-West link between State Highway 1 at Penrose and State Highway 20 at Mangere. They indicated before the election they would look to use the Land Transport Fund to pay for rail infrastructure -- to effectively break the fuel levy to road spending hypothecation link -- and did not rule out increasing fuel excise or road user charges to do it. Labour did preview the prospect of a 10 cent regional fuel levy for Auckland, but did not talk up the prospect of a further nationwide increase.
The announcement by Jacinda Ardern and her transport ministers Phil Twyford, Julie Anne Genter and Shane Jones spelled out what all that meant when releasing the draft Government Policy Statement on Transport on Tuesday. And in doing so, they created a couple of large political risks for the Government.
Their announcement of the end of the RONS programme and the switch to passenger rail in the big cities was accompanied with a proposed 9-12 cent per litre increase in fuel excise levies and road user charges.
This exposed the Government's achilles heel: its plan to reduce net debt to 20 percent of GDP within five years has stopped it from using its balance sheet to borrow long term to invest in long term infrastructure. Instead, it has been forced to increase taxes on today's motorists to pay-as-you go for the infrastructure that will exist for decades to come. Debt should have been used.
This risks beingn seen as a tax increase that the Government did not get 'permission' for before the election. It's also a regressive tax increase that hurts poorer motorists more than rich ones because they pay a higher percentage of their income in fuel and often have no choice but to use their cars to travel about Auckland in particular.
Auckland drivers face a double whammy of up to 22 cents extra per litre once the 10 cents per litre regional fuel levy is taken into account, although the levy is a straight switch for a temporary transport levy on ratepayers, which means rate payers should be net no worse off from the Auckland levy. Renters will be more directly affected because they don't directly get the benefits of lower rates. The average driver will see extra fuel costs of $30 per year nationwide, the Ministry of Transport advised.
Ardern argued later in the week that National had increased the levies by 17 cents during its nine years in power and had been advised last year it would need an extra 10-20 cents to fund its new RONS motorways. Former Transport Minister and now Opposition leader Simon Bridges denied National was planning to raise the levies by that much and said he had ruled out any increase in this current term before the election.
The second risk is that regional voters see the extra fuel levies as simply taking money from the regions to pump into rail lines in Auckland, Wellington and Christchurch that they will never get to use. Ardern and Jones in particular were eager to point to $800 million in new spending on regional roads (as opposed to motorways) to improve safety, including through new rumble strips, median barriers and wider bridges. But those flagship motorway projects are popular in the likes of the Waikato, Canterbury and the Horowhenua.
This set of announcements was the biggest opening yet for Opposition attacks on tax increases and regional spending. Here's my analysis of the transport strategy from Tuesday and Thomas Coughlan's wrap-up.
3. Learning on the job
Road-testing a whole new set of ministers in public can be a dangerous exercise for any Government, especially when most of them have never been ministers before and are still adjusting to the more constrained nature of relations with bureaucrats and state owned entities.
An opposition MP can talk to anyone with little risk of being seen as a bully politically interfering with a public servant. Life gets more complicated in Government.
This week two sets of what I call 'beltway scandals' gripped the press gallery and coverage of the Government.
Broadcasting Minister Clare Curran's lapse in not immediately declaring a meeting with RNZ's Head of News Carol Hirschfeld as a proper meeting was last week's story. This week she left a voice message with RNZ Chairman Richard Griffin asking him to correct the record on the nature of the meeting for a select committee. Whether the message amounted to ministerial pressure to appear before the committee is a matter of some debate.
Curran apologised to Ardern for the initial slip and Ardern said Curran had been wrong to directly contact Griffin, but that she retained her confidence. The pain is far from over though, with demands from National MP Melissa Lee to RNZ that it hand over the voice mail. Along with Newsroom's sub-editor and photographer Lynn Grieveson, Thomas Coughlan attended yesterday's fiery meeting and filed this report.
Elsewhere, there was debate over whether Associate Environment Minister Eugenie Sage had inappropriately pressured Environmental Protection Agency CEO Allan Freeth to remove Chief Scientist Jacqueline Rowarth.
Sage initially said he had spoken to Freeth, but later said her memory had failed her and she had actually spoken to the CEO of the Ministry for the Environment. Freeth defended himself and the robustness of his relationship with the Minister in another testy select committee hearing. Shane Cowlishaw's report from the meeting gives a sense of the back and forth.
The optics, as they say around the Beehive and Parliament, were not good.
Shane Cowlishaw looked at the double whammy of bad select committee meetings in this comment piece published yesterday on Newsroom Pro. Newsroom's Co-Editor Tim Murphy also looked into the Government's political management and public relations skill in this deep backgrounder on the Government's PR machine and how it's performing.
I agree with Tim that the Government has often appeared reactive and lacking in strategy in recent weeks, having had an initially strong start with the delivery of its 100 day plan.
My view is these 'beltway scandals' don't move the dial much with voters, but do screw the scrum of the media narrative for a Government.
The more substantial event this week was the Transport policy package, which will resonate more deeply for good and ill with the Government's opponents and supporters.
3. Rod Oram: 'Act sooner rather than later'
One big report that didn't get much attention this week (but should have) was one from Westpac on the potential benefits for various industries that move sooner rather than later to address climate change.
Rod Oram has written his column this week on the report and finds plenty of reasons for taking action earlier rather than later.
He found the report showed the direction of travel for five major sectors, concluding they would all benefit from beginning to adapt to climate change now rather than later.
On our long and hard journey to a low emissions economy, the electricity and forestry sectors will be the biggest winners of the five; agriculture, particularly dairy, the biggest loser; and transport and tourism in the middle.
4. Chafing at the fiscal straitjacket
Victoria University's Bryce Edwards has written a column for us today that goes into the tensions growing around the Labour-Green fiscal responsibility commitment to keep reducing Government net debt to 20 percent of GDP within five years of taking office.
He writes it’s a very strange political alignment when the trade union movement and columnist Matthew Hooton are in agreement.
But that’s what has happened over the past week, with both the Council of Trade Unions and the right-wing political commentator speaking out against the government’s continued insistence on adhering to their Budget Responsibility Rules.
Although some will write off such criticism simply because it comes from the union movement, Hooton also thinks that adherence to the conservative fiscal policy is unnecessary and will cause Labour problems. He’s written a column in today’s NZ Herald suggesting that the prime minister and her finance minister should “more confidently own Labour's commitment to higher spending and begin the process of gently stretching out the debt reduction target."
Both contenders for the Green Party co-leadership position have signalled their opposition to these rules, and a desire to drop the agreement in the future. They can clearly see that these dogmatic rules are preventing any significant deviation from the economic status quo and have read the mood of their electorate.
Newsroom's Thomas Coughlan reported this week on the views of Marama Davidson and Julie Anne Genter on the budget rules.
Both candidates opposed keeping the budget rules after the 2020 election, but Davidson and Genter confirmed, as far as they could given caucus confidentiality, that they were not supportive of the initial proposal.
“I didn’t agree with it at the time,” said Genter. “When you’ve been in opposition for a long time you don’t realise how a campaign tool might constrain you in government."
Davidson said that she did not believe the rules would help the party win votes.
“I don’t want to break caucus confidentiality, but generally I raised my concerns from the start,” Davidson said.
“I don’t, didn’t, believe that the Greens needed to spend energy appealing to the business roundtable who would never vote for us,” she said, “The arbitrary targets of reducing net core crown debt to 20 percent made no sense when we need to uphold a charter based on our values”.
This issue will continue to bubble away and intensify as the infrastructure deficit becomes clearer and the costs of inaction become even more evident.
5. Shane Jones is becoming a problem
New Zealand First's assumed next leader Shane Jones is doing his best to keep the party's name up in lights, even if his leader Winston Peters is not. The trouble for the Government is Jones' antics are becoming a political liability and distraction.
In recent weeks he has attacked a range of companies and bureaucrats to keep the fires of publicity burning around his party and himself.
Firstly, he launched into Air New Zealand over its decision to stop services from Kapiti Airport and got into a public fight with Air New Zealand's chairman and CEO. Ardern eventually had to pull him back from his attacks on the board, but Jones' intervention was widely seen as popular. Even the Opposition supported his criticisms of Air New Zealand's Kapiti decision.
Then earlier this week he had a go at The Warehouse when it appeared the big box retailer might leave Kaikohe. But that backfired when it emerged the threat of leaving was just that, and the plans were shelved because a new lease had been signed.
This week's revelation that Jones ignored the advice of Environment Ministry officials over a Regional Development Fund grant was more serious. He approved a $350,000 feasibility study for a West Coast waste-to-energy scheme, even though the Ministry had advised it would not work.
Jones then told Radio New Zealand that if he had seen the advice it would have made no difference.
"If [the Ministry for the Environment] believe that they are an authoritative source for all that kind of information, then the fact that they had one email that I have never seen, knew nothing about, suggests to me that it's just part of the Darwinistic bureaucratic debate," he said.
Then it emerged he had actually been briefed in person by his official John Doorbar on the issue, rather than having missed an email.
Jones told RNZ he had simply forgotten about the briefing.
"Obviously so busy and so many things floating around in the square head that I overlooked that one," he said.
Paul Goldsmith asked him about the apparent disregard of ministerial advice in Parliament yesterday (Hansard)
Jones replied: "During the preparation of the announcements, of which the West Coast waste project was one, it has been pointed out to me that my officials did brief me, which I have acknowledged obviously happened, but I find there's a connection between bureaucratic dross and political amnesia from time to time."
The bolding is mine. That is an extraordinary excuse for forgetting the advice of an official over a project that (it turns out) was being run by a man who had been referred to the Serious Fraud Office. Accusing officials of being bureaucratic dross to deflect from your own memory loss is poor form.
Jones is the main man doling out the $3 billion worth of Regional Development Funds over the next three years. Just today, he announced funding for six new projects. One of the Opposition's complaints is that the fund will become a kind of slush fund that is vulnerable to conflicts of interest and poor due diligence.
This latest skirmish and Jones' cavalier approach does not bode well.
7. Unleashed Trump unleashes trade war
It's getting serious now.
This morning US President Donald Trump announced he had instructed his Trade Representative to prepare an additional US$100 billion worth of tariffs on imports from China. (CNBC)
The move followed Chinese retaliation on Wednesday against Trump's announcement last weekend of tariffs on US$50 billion of imports from China.
Last month Trump sparked the latest round of action by announcing tariffs on all steel and aluminium imports. That was then whittled down to mostly imports of Chinese steel (although New Zealand has yet to get an exemption.) That triggered the exit of Gary Cohn, Trump's chief economic adviser and known as a pro-globalisation voice of reason reining in Trump's most protectionist instincts. Cohn's departure signalled Trump was becoming increasingly untethered inside the White House.
Wall Street fell sharply again this morning on the latest escalation. An initial slump earlier in the week was reversed when Trump's new economic adviser downplayed the moves as just negotiating stances.
But the latest US$100 billion round of tariffs has further unnerved international investors and traders.
New Zealand can ill afford a truly global trade war, if that is what all this trade saber rattling turns into. China's initial response was seen as somewhat cautious and indicative of pre-negotiation position taking. Many think Trump's ramblings will turn out to be just noises with little substance to the trade war talk. But unlike in areas such as tax and border controls, he does not need either Congress or the Courts to approve his executive orders.
This could get ugly and is worth following closely.
But it's not all bad. One of China's retaliations is against Californian wine exporters. They are effectively been shunted aside on the shelves of China's wine stores for more room for New Zealand's Pinot Noirs and Cabernets.
Much of China's exports will end up on markets elsewhere, potentially lowering prices. But Trump's tariffs are effectively tax increases on consumers and America's manufacturers, which could slow the US economy -- still the world's largest.
Watch this space.
8. The Bill of Rights' breaches
This is another story bubbling beneath the radar, but which is growing in importance.
Newsroom's Shane Cowlishaw reported this week that Treasury had advised the Government its Winter Energy Payment effectively discriminated against poor children and Maori because it was only available to beneficiaries.
Poor working families miss out, which means 40 percent of children classed as in poverty miss out. Maori are disproportionately effected because they are over-represented at the lower income end of working families.
This meant it breached the Bill of Rights, the Government was advised.
Shane also reported this week that a private member's bill that would bar anyone without a teaching qualification from calling themselves a teacher was also a breach of the Bill of Rights, the Attorney General had found.
The Government's moves in late February to create a mechanism for these Bill of Rights' breaches to be resolved now begins to make more sense.
This tension will also continue to bubble under the Government and the Parliament.
See Thomas Coughlan's excellent analysis of this mediation mechanism for resolving these breaches from late February for more on that. It raises some fundamental questions about the power of our executive and our lack of a proper constitution.
Ev Williams, the CEO of Medium and the co-founder of Twitter, has written an excellent summary of what might happen in the news publishing business now that its clear the advertising model has failed for online publishers.
"There is — and probably always will be — a surplus of free content. But that’s like saying there’s a surplus of free food in the dumpster behind the alley. Some of it may be perfectly good, but most of us would rather pay for something more reliable and convenient if we’re able. And many people will pay a lot for something superior," Williams wrote.
That's our thesis.
The pain continues to rain down on Facebook as it fessed up this week to 87 million users having their data harvested by Cambridge Analytica (not the 58 million initially feared). Now it has emerged both Facebook and Google worked hand in hand with a Political Action Committee backing Trump to help him win the Presidential election. (OpenSecrets.org)
Everyone focuses on Fox News when they talk about Trump's propagandists. But there is another large and growing one. It's called Sinclair Broadcasting. Here's a backgrounder from the Washington Post on how it operates.
One fun thing...
GCSB Intercepts was in good form yesterday on the Clare Curran voicemail for Richard Griffin, which was a subject of heated debate without actual information in yesterday's select committee hearing.
'Intercepted voicemail: “Hi Richard, just touching base about the select committee hearing. You don’t need to come, but you don’t need to not come either. If I were you I wouldn’t come but I’m not you so it’s up to you to not come, or not. I hope not to see you there.”
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