Newsroom Pro's 8 Things: 8 Things: Inside Air NZ's divorce from Virgin; NZ's dirty and dangerous car fleet; Shaw wants Budget rules review

The news that matters this morning

Budget battle begins - The contest over who sets the narrative around the May 17 Budget was joined in earnest yesterday by Opposition Leader Simon Bridges.

Responding to Prime Minister Jacinda Ardern's Monday dampening of expectations and blaming of National for infrastructure deficits, Bridges accused the Government of being in crisis mode. He said Labour had been caught out over-promising and was now trying to dial back those promises because it had discovered the tight budget Steven Joyce warned about before the election.

He said the Government was about to play politics by drip-feeding examples of infrastructure problems.

"I mean it seems to me that effectively what you will have is officialdom out there in our schools and our hospitals looking for doors that don't shut properly - I mean this is ridiculous," Bridges told reporters in Parliament.

Xi's calming voice - There was some good news late yesterday in the China vs America trade war. Chinese President Xi Jingping announced in a speech he would further open up the Chinese economy and lower tariffs on car imports in a way seen as conciliatory to America. Stocks rose on Wall St in response. (New York Times).

Trump incandescent - US President Donald Trump cancelled a planned trip to Latin America overnight, ostensibly to focus on America's response to Syria's suspected chemical weapons attack on its own people. (New York Times) But investigations into Trump have escalated too, and he is reported to be fuming and ranting inside the White House in the worst way of his presidency after his personal lawyer was raided. Bob Mueller is also investigating a US$150,000 donation by a Ukrainian steel magnate to Trump's foundation for a 20 minute speech Trump gave by video link to a conference in Kiev in September 2015. Is it a wisp from a weapon? (New York Times)

Firings - There is also renewed talk overnight that Trump is about to fire Mueller (Reuters) and Trump's Homeland Security adviser Tom Bossert resigned at the request of new National Security Adviser John Bolton (Reuters).

2. When culture ate strategy for lunch

The big news in the last week for the aviation industry and for New Zealand's most successful state controlled enterprise was the surprise split of Air New Zealand's alliance with Virgin Australia.

So why did it happen and what does it say about Air New Zealand?

Newsroom's new Business Editor is Nikki Mandow. She is Auckland-based and works half for Newsroom and half for BusinessDesk. Nikki has taken a deep dive into what went led to the divorce.

Management guru Peter Drucker is reputed to have said that 'Culture eats strategy for lunch' when talking about what makes companies and mergers or takeovers successful.

Nikki found a deep clash of cultures between Air New Zealand and Virgin, particularly once Air New Zealand CEO Christopher Luxon and Virgin CEO Michael Borghetti got in the same room together. Luxon tried to oust Borghetti in March 2016 and it went downhill from there.

Nikki also discovered a few fun things about Air New Zealand. It turns out it is Australia's most trusted company and an advertising campaign featuring a goose named Dave has been a huge success.

See the full story in Nikki's first weekly column for Newsroom Pro published here
this morning. It will not be published on the open Newsroom site until tomorrow morning.

By the way, it will pay to keep an eye on Christopher Luxon. He is reputed around Wellington to have an eye for politics in the long run and the National leadership in particular. Also, by the way, John Key is on the board of Air New Zealand.

3. Where dirty and dangerous cars go to die

Building a Climate Change Commission and setting a range of policies to transition towards being carbon neutral by 2050 will be one of the Government's biggest tasks this year.

Climate Change Minister James Shaw is a key player, but so is Associate Transport Minister Julie Anne Genter. She spoke on Monday at a conference about road safety and highlighted the role of our aged and dirty fleet of mostly Japanese imports in both our awful death and serious injury rate on the roads and our poor emissions record.

Newsroom's Thomas Coughlan, who focuses on transport, infrastructure, local government and health for us in the Press Gallery, was at the conference and has written a detailed piece on our car fleet and what policies Genter might pursue to freshen it up.

Some of the facts are stunning. The average age of our fleet is over 14 years, nearly twice as old as Britain's fleet. One in five cars (including my 1998 Honda Odyssey) is over 20 years old. For every 100 crashes an extra 2.2 people are expected to be killed or seriously injured in a 1996 vehicle than had they been driving a 2005 vehicle.

Most astonishingly, used car importers appear to be using a loophole designed for classic car enthusiasts to bring in diesel utes such as the Toyota Hilux and Toyota Landcruiser that are more than 20 years old. As Top Gear fans know, the Toyota Hilux lasts forever. After the nuclear holocaust, all that will be left will be cockroaches and Toyota Hiluxes. Barry Crump died, but his Hilux didn't.

This particular fact stunned and appalled me. A BERL report for MTA found 4,083 cars built between 1992 and 1997 were imported last year. Over half of them were diesels that don't meet today's minimum emissions or frontal impact standards. For those optimists for electric imports, there were just 2,922 pure electric vehicles were imported last year.

Thomas reports that Genter suggested the Government was looking at ways to lower the fleet's age to improve emissions and safety, but was not specific. The problem for the Government is there are no easy ways to improve the fleet's age without making used cars more expensive, which would hurt many of the Government's natural supporters and be regressive, adding to the potential pain of extra fuel excises.

They could include lifting mandatory emissions and safety standards to exclude all those 1995 Hilux diesel imports, or taxing imports by age, weight and engine size. Part of the problem is that would encourage people to hold onto their old cars for even longer so a potentially expensive scrappage incentive would also be needed. There are some gnarly public policy issues at play here that will keep the Ministry of Transport and the car industry busy for years, and could throw up some political land mines for the Government to negotiate.

See Thomas' full article here on Newsroom Pro, where it was published first yesterday.

4. The strange case of Vanuatu's Chinese base

There was a flurry of activity yesterday around Parliament after the Sydney Morning Herald reported China was in discussions with Vanuatu about setting up a military base there.

It's worth remembering that Vanuatu is in the Coral Sea at a very strategic point in the Pacific between America and Australia. Americans who trained in New Zealand in early 1942 were sent to fight brutal battles with the Japanese on Guadalcanal, which is in the Solomon Islands just north of Vanuatu.

Prime Minister Jacinda Ardern was asked about the report. She said she hadn't been briefed, but commented generally that she was opposed to the militarisation of the Pacific.

"There hasn’t been confirmation from either party that I can see, but I am happy to share that general principle: New Zealand is opposed to militarisation in the Pacific," Ardern told reporters.

I traveled to Vanuatu a couple of years ago and noticed a fair amount of Chinese construction activity around. Last year China donated equipment to the Vanuatu Parliament, including 52 mobile phones for its 52 Parlimentarians, as reported here. It is also paying for a wharf extension on Vanuatu's biggest island of Espiritu Santo.

Vanuatu's Foreign Minister denied yesterday afternoon there were discussions going on, RNZ reported.

Opposition Leader Simon Bridges was more sanguine about the idea of a base, putting it on a "spectrum of things." He referred to Singapore's proposal to set up a permanent air force base in New Zealand as an example.

"To see infrastructure investment by other countries, through a variety of investment vehicles, is not uncommon. That's not necessarily a wrong," Bridges said.

"But when you're talking military, and these sorts of things, you'd want to think it through pretty carefully."

5. James Shaw wants Budget rules review

The debate over the Labour-Green Budget Responsibility Rules pact agreed before the election is heating up.

New Co-Leader Marama Davidson and fellow candidate Julie Anne Genter have already expressed their frustration over the rules, which they say they would oppose being agreed again before the 2020 election. (See Thomas Coughlan's story from last week.)

Now James Shaw has joined the debate, telling reporters in Parliament yesterday the rules should be reviewed before the election, including the one committing the Government to reduce net debt to 20 percent of GDP within five years of taking office. That was two years slower than National's debt track.

“We settled on that 20 percent over a slightly longer time period as a bit of a judgment call," Shaw said.

“But given what we now know, later in the term we might want to review that," he said.

“It would be silly to have a set of rules that lasted through all times, based on a set of economic conditions that change over time. We will be wanting to review them closer to the election time.”

6. Coming up...

Financial markets and economists will get their first taste of the Reserve Bank under new Governor Adrian Orr when Assistant Governor John McDermott delivers a speech titled "Inflation targeting in New Zealand: an experience in evolution" on Thursday at midday.

I can't wait.

7. One fun thing...

Facebook CEO Mark Zuckerberg is appearing before a Congressional committee this morning. The picture below (via Getty) is what happened when he sat down below.

The Twitterati couldn't help but make a few jokes, including this one from Alistair McConnell:

"When you log in to Facebook without closing down your privacy settings."

8. This morning's political links

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