Newsroom Pro's 8 Things; The week's things that matter; Rod Oram's climate change column; Bryce Edwards' fiscal rules column Inbox x

8 things that mattered this week

The Government held a key cabinet meeting this week that ran over time as it scrambled to allocate funds ahead of the May 17 Budget and before Prime Minister Jacinda Ardern's CHOGM trip next week. It is also forging ahead with its climate change work.

  1. 'It's worse than I thought'

Prime Minister Jacinda Ardern tried to set reset the agenda ahead of the Budget by warning on Monday that National left behind stressed budgets right across the state sector, and in health and education in particular.

The discovery of raw sewage running down the walls of a leaky building at Middlemore Hospital is dominating the debate.

She foreshadowed a series of big reveals of under-funding examples in the lead-up to the Budget. Opposition Leader Simon Bridges said the Government was back-tracking after realising it had over-promised.

Ardern said the Government was surprised by what it had found during this budget round.

"I had to dampen down my [expectations] when I saw the state that the last government left core services like health and education," Ardern told her post-cabinet news conference.

"I always said from the beginning we thought it would be bad. We didn’t know it would be this bad, and what the public is seeing is just a snapshot," she said.

This reopened the debate about the Labour-Green commitment before the election to keep running surpluses to reduce net debt from 23 percent to 20 percent of GDP by 2022. New Green Co-Leader Marama Davidson said she would not agree again to the budget rules and Co-Leader James Shaw said the rules should be reviewed before the 2020 election.

“We settled on that 20 percent over a slightly longer time period as a bit of judgment call. 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.”

I argued the case for the Government to treat Auckland's infrastructure and housing crisis as a man-made disaster that required the same borrow and build response as the previous Government made to Christchurch's naturally-caused infrastructure and housing crisis. See my full comment piece on Newsroom Pro.

The pressure is on in Health in particular, where Treasury has identified $14 billion worth of infrastructure spending over the next 10 years and that 19 percent of hospitals were in poor or very poor condition. See Thomas Coughlan's backgrounder on the health of Health's infrastructure here on Newsroom Pro.

2. The rubber hits the climate change road

The Government announced its first major climate change decision yesterday that will have real impacts on the ground in Taranaki, albeit through a wind-down over decades rather than an abrupt shutdown.

The decision ramped up the debate over just how New Zealand will reach carbon neutrality by 2050 and reinforced just how difficult the transition (and the political compromises) will be for politicians, consumers and producers.

Ardern, Shane Jones and Megan Woods announced the Labour-New Zealand First coalition Government supported by the Green Party would stop issuing 'block offer' permits for offshore drilling.

The 57 permits already in existence would not be cancelled, meaning they can still be used to explore for oil and gas both onshore and offshore until well into the mid 2040s.

Woods made the point there were potentially 11 trillion of cubic metres of gas still in the Barque field off the Canterbury Coast for New Zealand Oil and Gas to find and extract.

Also, there will still be a block offer for new onshore drilling permits.

Ardern argued a transition over decades was needed, rather than running into a brick wall at the other end.

"Unless we make decisions today that essentially take effect in 30 or more years time we run the risk of acting too late and causing abrupt shocks to communities and our country," she said.

"I’ve seen that happen once in the 1980s and I don’t want to see it happen again."

But the Opposition was intense from Taranaki in particular, where the New Plymouth Mayor Neil Holdom described the decision as a "kick in the guts" and that he had not seen a transition plan.

"We all want a sustainable New Zealand, and that is reflected in our people, however we need a plan and we need to create some certainty because we've got 4,000 directly employed people working in the sector and about another 3,000 to 3,500 in related industries," Holdom said in a statement.

"If you consider those households and those people, they are correct that nobody's going to be losing their jobs overnight but in terms of the long-term outlook for those industries these people are going 'my career doesn't actually have a future."

Simon Bridges described the decision as a "wrecking ball" for regional New Zealand and that National would over-turn the ban once back in Government.

The oil and gas industry said the decision would increase fuel and gas costs and mean more emissions intensive heavy oil and coal would be used instead of New Zealand's lighter oil and gas. Current gas reserves are due to run out in 10 years.

Business New Zealand CEO Kirk Hope said the ban on new offshore permits might hit overseas investor sentiment.

"If a multi-billion dollar energy industry can be banned, what other industries might face the same fate? Confidence among both overseas and domestic investors may be the longer-term casualty of today’s decision," he said.

There was an urgent debate yesterday afternoon in Parliament which pitted Paula Bennett against Megan Woods. The Hansard is well worth a read for the flavour of the debate.

There will have to be many more decisions like this in the years to come, where Governments have to take long term decisions in the face of immediate pain, including around carbon taxes and costs, public transport investment and higher costs of car ownership.

By the way, check out this week's warning from Bank of England Governor Mark Carney about the need for banks and insurers to get on top of the risks of climate change. He said they needed to acknowledge the risks to avoid damaging financial stability.

3. An old, dirty and dangerous fleet

The other climate change news that didn't get a lot of attention this week was a speech by Associate Transport Minister Julie Anne Genter on improving the safety and emissions intensity of our very problematic vehicle fleet.

She 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, particularly in recent years.

These Ministry of Transport charts show the long-running improvement in emissions intensity per kilometre traveled because of better engine technology stalled since 2012, in part because of a surge of imports of diesel utes that are more than 12 years old.

Newsroom's Thomas Coughlan, who focuses on transport, infrastructure, local government and health for us in the Press Gallery, was at the conference and wrote 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 reported 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.

4. A tale of two Presidents

This week Donald Trump excelled himself in all the wrong ways and reinforced the bizarre situation we're in now where an increasingly authoritarian President of a Communist-run dictatorship looked more admirable and sensible than the US President.

Xi Jingping gave a speech this week downplaying the risks of a trade war and pledging to keep opening up the Chinese economy, including by reducing car import tariffs. It's worth challenging that narrative given many western companies struggle to work inside China and Chinese firms and its government openly pursue a China Inc approach to everything (just ask Fonterra).

China has actually played a double game of protecting its own firms at home and using the World Trade Organisation's (WTO) rules to access markets overseas. This Foreign Affairs journal piece on whether letting China into the WTO was a mistake is worth a read on that.

But President Xi's soothing words stood in stark contrast to Trump's threat of tariffs on another US$100 billion worth of Chinese imports.

Trump then appeared to undercut his own threats by tweeting that would always be good personal friends with President Xi. That's alright then...

Trump also flopped and flipped all over the place on Syria and the TPP.

He first warned Russian and Syrian air defence operators of missile strikes by US forces, which may not have pleased his military planners. Then this morning he said America might not strike Syria, perhaps hoping that would make the generals like him again. We now live in a world where radar operators for ground to air missiles should also keep an eye on Donald Trump's twitter feed.

Trump then said this morning he wanted America to rejoin the Trans Pacific Partnership. (New York Times)

Oy vey...make up your mind man...

America rejoining the TPP would be difficult for others to stomach now, as Stephen Jacobi pointed out this morning, particularly around the re-introduction of intellectual property and investor state dispute settlement clauses designed by US corporates.

"To put them back in is like trying to put the genie back in the bottle. In particular, New Zealand would find it quite difficult to change tack and re-insert all those elements," Jacobi said this morning on TVNZ.

5. A strategic challenge

The other foreign affairs story to come out of left field was the revelation that Vanuatu was in talks with China about allowing the super power to build a permanent naval base in Vanuatu, which is at the marine crossroads of the Pacific between America and Australia.

Vanuatu and China quickly (and unconvincingly) denied the report by the Sydney Morning Herald, but it reopened the old questions about which side New Zealand might have to choose if things got ugly, and how comfortable we are with an increasingly authoritarian and expansive super power (that is also Australasia's largest trading partner) setting up a base on our doorstep.

Jacinda Ardern said she was opposed to militarisation of the Pacific. Simon Bridges compared any base to Singapore's plans to set up an air training base in New Zealand.

Interestingly, Australia is taking a much more robust approach to China's use of soft power and its own shortcomings which may now be costing it with China. The Australian Financial Review reported this week that China had stopped issuing travel visas to some Australian ministers and diplomats.

Meanwhile, have a look at this Sydney Morning Herald piece on the monuments China has built in Vanuatu.

6. 'Labour is lost in pragmatism'

Victoria University's Bryce Edwards has written a column for Newsroom Pro this week on the debate over the Labour-led Government's commitment to its budget responsibility rules.

Edwards argues the Finance Minister and his colleagues have become so immersed in pragmatic electoral calculations they’ve lost touch with the shift away from orthodox economics.

See Bryce's full column here on Newsroom Pro.

7. Rod Oram: Agriculture's big challenge

Rod Oram has addressed the topical issue this week of climate change by looking at New Zealand agriculture's willingness and ability to adjust.

He spoke to Johan Rockström, one of the world’s leading earth scientists, who visited New Zealand in the past week to talk about climate change.

“As a scientist I’ve never had so much reason to be nervous; and as a scientist I’ve never had so much reason to be hopeful," Rockström said.

He entrusted a particular task to us: agriculture and food production globally present the greatest climate change challenge of all. Their big adverse effects on the ecosystem are compounded by associated impacts through deforestation, agricultural monocultures, biodiversity loss and the declining health of soils and water.

All up agriculture broadly defined is the largest single source of greenhouse gases globally, says Rockström, who founded and leads the Stockholm Resilience Centre. But their technological and economic pathways to sustainability are far less clear than those for energy, transport and the built environment. There are agricultural examples but we need much more innovation and ways to scale them up.

Rockström believes New Zealand has a leading role to play globally in this agricultural transformation. On one hand, agriculture emissions are 49 percent of our total emissions, by far the highest proportion for a developed economy. On the other, our farmers and the scientists and businesses that support them, are among the most innovative in the world.

See Rod's full column here first on Newsroom Pro.

8. This morning's political links

These are available in the morning subscriber email.