1. 8 things that mattered this week


The 8 things that mattered this week included big Government decisions on mycoplasma bovis and methamphetamine contamination of houses, the return of Heather 'H2' Simpson to oversee a major and potentially problematic health sector review, fresh criticism of New Zealand as the 'soft-underbelly' of the Five Eyes security alliance, Rob Everett's warning to banks operating at the 'edge of the law', the Law Society's mea culpa in the wake of the #metoo moment at Russell McVeagh, the frustrating weakness in business confidence and the latest turmoil around Donald Trump's trade wars and the eurozone debt crisis.

1. A cold week

Business confidence fell back again this week, despite the Government's softly, softly approach to the business community and signs globally and locally of still robust economic growth.

The Government has been frustrated since its election by an initial slump in business confidence about the economy and a lesser (but still substantial) fall in business' confidence about their own activity. The falls were understandable, given the uncertainty around the change of government. They were also predictable, given a gap typically opens up between wider business confidence and own-activity confidence during Labour governments.

Essentially, business leaders think Labour governments are poorer economic managers than National, but there's little actual difference in how confident they are about their own businesses between Labour and National (ie there's little correlation between actual performance and colour of government).

The Government hoped the slump in wider confidence and the lesser fall in own activity confidence would be temporary and it calibrated its policies to ensure it was. The Government has been very cautious about changing migration policies to avoid further weakening business confidence and would have hoped its fiscally conservative budget might win it some kudos.

Apparently not.

ANZ reported yesterday from its monthly business confidence survey that both wider confidence and own-activity confidence fell four percentage points in May from April. Own-activity net confidence was 14 percent, its lowest reading since the Government's formation in late October. Construction confidence in particular was weak again, which appears counter-intuitive given the $100 billion of infrastructure spending planned over the next 10 years and the Government's Kiwibuild aspirations. Fletcher Building's withdrawal from bidding for large commercial buildings may be a factor.

"This month the industry’s own activity measure remained downbeat at four percent and its capacity utilisation dropped sharply. Employment intentions in the industry plunged to the lowest since 2009, and investment intentions also dropped markedly," ANZ's Sharon Zollner noted.

The only silver lining was that inflation expectations remained low, meaning little change to the outlook for flat rates. ANZ's composite indicator of consumer and business confidence suggests GDP growth will dip towards two percent later this year.

The Reserve Bank published figures for lending in April yesterday afternoon which suggested the slide in business confidence is affecting borrowing by businesses at the least. Business lending growth fell to an annualised rate of 4.1 percent in April from 4.6 percent and is down from 7.3 percent a year.

Meanwhile, household lending growth ticked up to 5.9 percent from 5.8 percent the previous month. That helps explain why consumers are feeling much chirpier than business leaders. ANZ's monthly survey released today of consumer confidence found it was steady in May from April at a level slightly above its historical average.

2. An M.Bovis week

Cabinet's big decision on Monday was to decide to spend $886 million to try to become the first country in the world to eradicate mycoplasma bovis, albeit over 10 years. The plan will see a further 126,000 cattle slaughtered (just under one percent of the national herd), mostly over the next year or two. Farmers and the Opposition swung behind the plan, although major doubts remain over whether it can be done and at what cost.

The Government said a management regime would have cost $1.2 billion over 10 years and a 'do-nothing' approach would have cost $1.3 billion. Taxpayers will pay for 68 percent of the plan, which contrasts with the 50 percent paid during the PSA outbreak seven years ago.

But mass stock movements still went ahead today, which is the 'Gypsy Day' when sharemilkers move their herds to new farms. Many farmers will also in coming weeks move thousands of dairy cows to properties for winter feeding.

The mass movements will challenge a discredited stock tracking system (NAIT) that was widely credited with allowing the disease to move around unmonitored to start with. MPI acknowledged the risks, but said the only other option would be to “shut down the entire industry”.

3. The week 'H2' came back

Perhaps in a sign the ninth floor wants to more tightly control the Government's political performance on health, Helen Clark's right hand woman, Heather Simpson, was put in charge of a wide-ranging review of the health system. Health Minister David Clark announced the review, which could include a restructuring of the DHB system and a shake-up of the way primary care and hospitals are funded.

Simpson, known on the ninth floor during the Clark-Cullen government as 'H2', was involved less formally in the formation of the government, but her role as chair of the review is much more definite sign she has returned to the centre of power.

Health is a high risk area for the Government and the narrative so far around National government under-spending is anything but clean and clear. The focus on mental health raised before the election appears to have gone missing in action and the big review will incorporate that.

Simpson's operation is essentially the titular review that wraps in other reviews of mental health and Maori health. See Thomas Coughlan's report on Newsroom Pro from Wednesday for more.

Clark will no doubt be watching his phone closely for calls from 'H2'.

4. The week the moral panic over meth ended

The meth testing industry's reason for existence went up in smoke this week when the Prime Minister's Chief Science Adviser, Peter Gluckman, published a report completely debunking the current standards that saw meth levels of less than 1.5 micrograms per square metre (0.0015 milligrams) prompting landlords and Housing New Zealand to kick out tenants and spend tens of millions of dollars on unnecessary mediation.

Gluckman said exposure to contamination to levels below 15 micrograms was unlikely to cause health damage.

"Other household hazards such as mould, lead paint and asbestos pose greater health risks than third-hand methamphetamine exposure," Gluckman wrote.

Housing Minister Phil Twyford announced 240 Housing New Zealand properties that had been emptied because of meth contamination fears would be occupied again. He announced public consultations later this year on new meth standards and apologised to more than 130 tenants evicted under the previous policy. Housing NZ CEO Andrew McKenzie announced Housing NZ would immediately move its trigger level for decontamination to above 15 micrograms.

Twyford said on RNZ this morning there would be a major review of Housing NZ activities during the "whole sorry chapter. He would not rule in or out the prospect of compensation for evicted tenants.

"If this government wanted to compensate for every mistake the former government made, we'd go broke tomorrow," he said.

The report shocked and angered the meth testing and real estate industries, who questioned the science behind the report and suggested it was politically motivated.

The New Zealand Drug Foundation said the response from estate agents and meth testers was coordinated by an Australian Public Relations firm called Clout PR.

5. Five Eyes' 'soft underbelly'

This week both the National and Labour parties were challenged by academics and consultants linked to New Zealand's Five Eyes security alliance partners to reassure them New Zealand had not become the 'soft underbelly' for China's ambitions.

It began on Monday when it emerged a former CIA analyst suggested to a US Congressional hearing that New Zealand's status within the Five Eyes security alliance should be reconsidered because of China's connections to members of the Government and the Opposition. The analyst made the comments in a hearing before the US-China Economic and Security Review Commission on April 5 ( transcript here - see page 122 )

The analyst, Peter Mattis, said China's connections were close enough to New Zealand's political core that America had to consider what actions New Zealand was taking to minimise the risks to Five Eyes. Mattis said New Zealand had denied it had any problems and had not taken any actions to launch an inquiry, as Australia had done. He said New Zealand's Five Eyes partners needed "to have a discussion about whether or not New Zealand can remain given this problem with the political core."

"It needs to be put in those terms so that New Zealand's Government understands that the consequences are substantial for not thinking through and addressing some of the problems that they face," he said.

However, Mattis was less than impressive in an interview with RNZ's Guyon Espiner . Mattis admitted his information had come from the media and research from academic Anne-Marie Brady, rather than specific new knowledge.

Then on Wednesday it emerged Canada's Security Intelligence Service published a report from a conference workshop of academics and officials where New Zealand's status as a Five Eyes partner with Britain, Canada, America and Australia was questioned because it was seen by China as the 'soft underbelly' in the alliance.

"New Zealand is valuable to China, as well as to other states such as Russia, as a soft underbelly through which to access Five Eyes intelligence," the report said, adding our port facilities and proximity to the Beidou2 satellite system in the South Pacific and Antarctic made it valuable.

A whole section of the report (pages 71 to 82) is a well written and pithy summary of the situation and the views of Canada's security and academic establishment on New Zealand's stance. It carries a disclaimer that it does not represent the official views of Canada's Government, but it's a clear and public expression on a Canadian Government website.

Prime Minister Jacinda Ardern dismissed the report out of hand, saying none of New Zealand's Five Eyes partners had raised it with her.

"I take my steer on these matters from official channels, not opinions expressed at a workshop," Ardern said.

6. Banks at the 'edge of the law'

This was a nervous week for banks and insurers.

They watched as first the Reserve Bank published its half-yearly Financial Stability Report and then they heard the first comments from Governor Adrian Orr and FMA CEO Rob Everett about their joint inquisition into bank and insurer behaviour to see if it matched the revelations coming out of the Hayne Royal Commission in Australia.

They said they hadn't found evidence yet to justify an Australian-style inquiry, but Everett noted the banks had been skirting close to the edge of the law and needed to be better. He also wondered if the banking industry's own disputes procedures were so unsatisfactory that complainants were giving up.

Elsewhere, Orr said he was worried that if he released the LVR restrictions banks would increase lending sharply, and not in a healthy way. Orr described his "angst" around the prospects banks would unleash a new wave of lending if the restrictions were released.

"That's why we are just sitting there. I think part of this bank conduct review will be an interesting time to talk about their lending horizons," he said.

Orr also said mycoplasma bovis was a wake up call for bankers and dairy farmers, some of whom were still too indebted. See Lynn Grieveson's reports on Newsroom Pro.

7. There is a problem. We are sorry'

Three months after Newsroom's investigation into sexual abuse of interns at Russell McVeagh, the Law Society published survey results showing almost a third of women lawyers had experienced sexual harassment in the workplace.

Law Society President Kathryn Beck told members in an email the Society would establish a commission to eliminate bullying and harassment from the workplace.

"I’m sorry to the members of our profession that we’ve been surprised and caught out by these results and that we haven’t provided the cultural leadership and advocacy that our profession so obviously needs," Beck said.

Russell McVeagh did not report the abuse or the subsequent resignations to the Law Society and has suffered no sanctions by the Society, which was blindsided by the incidents revealed by Newsroom.

8. Trade war and summit back on

The ever-surprising Donald Trump wrong-footed everyone again this week when he announced his summit with Kim Jong Un was back on and that tariffs on European, Mexican and Canadian steel and aluminium imports were back on too. He also announced new tariffs on Chinese technology to America, which China said it would fight.

In other moves that roiled global markets, Italy's head of state rejected the euro-sceptic finance minister proposed by the Five Star-Northern League coalition that won recent elections. Just briefly, European bond markets freaked out at the prospect of fresh elections that would turn into an Italian referendum on leaving the euro-zone. Things settled down after the new Government proposed a different finance minister.

Trump also met with Kim Kardashian in the oval office to talk about prison reform...