1. 8 things that mattered this week

The Government launched reviews of employment law and climate change law aimed at soothing the nerves of employers and farmers respectively. It appeared to rule out a breakup of the Reserve Bank and started considering introducing a deposit insurance scheme. Better foreign ownership data showed almost 20 percent of property buyers in central Auckland in the last year were not citizens. Documents showed officials advised the Government against its decision to stop issuing new offshore oil and gas drilling licenses, saying it would actually increase emissions because coal would be used instead of gas. The economy may have slowed a bit in the March quarter as construction sector activity and confidence continues to wane. Donald Trump waged trade wars ahead of G7 meetings and his summit with Kim Jong Un.

1. Including farmers is hard to do

The Government appeared to soften its stance towards the full inclusion of farmers in its plans to get to carbon neutral by 2050.

Climate Change Minister James Shaw launched a six week public consultation on the Zero Carbon Bill that would consider setting softer targets for the methane burped by New Zealand’s cows, while reducing carbon dioxide from transport and other sectors to zero.

The consultation document proposed three possible replacements for New Zealand’s current target of a 50 percent reduction below 1990 levels by 2050.

The most ambitious of the three would reduce all emissions to net zero by 2050, which it’s estimated would require up to 10 percent of New Zealand’s land to be planted in new forestry in order to reduce and offset all greenhouse gases. The other two proposed targets would result in either no goal for reducing methane or keeping methane “stable”, though the document doesn’t say at what level methane might be stabilised.

Those two scenarios would likely result in less drastic changes to land use over the coming decades and less rapid impacts on farmers, though the document notes that big changes will be needed under any scenario. By raising the possibility of two different and parallel targets for farming and other gases, the Government is recognising arguments that have long been advanced on behalf of farmers: that methane, which makes up 43 percent of New Zealand’s emissions, isn’t as bad as carbon dioxide because it lasts for decades, not centuries, in the atmosphere. A paper from Victoria University recently proposed treating short-lived gases such as methane differently from carbon dioxide, on the basis that they disappear much quicker.

See an excellent report from Newsroom's Eloise Gibson on the consultation for a lot more.

2. Breaking up banks is hard to do

The Government put one thorny Reserve Bank issue aside and opened up another this week. Finance Minister Grant Robertson announced the terms of reference for phase two of the Government's Reserve Bank Act review.

He virtually ruled out breaking up the Reserve Bank's monetary policy and banking regulation functions, but also opened up the prospect for a deposit insurance scheme.

New Zealand is currently the only country in the OECD without any kind of deposit insurance. This means that if a bank fails depositors have no protection and the Reserve Bank could give savers 'haircuts' to help recapitalise a failing bank under its Open Bank Resolution scheme. That means savers' deposits would be cut arbitrarily by the Reserve Bank to ensure the bank could reopen.

An FMA survey three years ago showed more than half of savers still thought their deposits were guaranteed, meaning the overwhelming expectation would be that the Government would interven to protect savers. The shock of haircuts would destabilise trust in both other banks and the Government. This means the Government is effectively providing an unfunded guarantee for savers, which would be paid for by non-saving taxpayers. It is effectively another subsidy by young, poor renters of older, richer property owners.

The IMF recommended last year New Zealand adopt a deposit insurance scheme whereby savers and banks pay a levy to build up a fund that could be used to refund depositors in the event of complete collapse or haircuts.

Elsewhere, people outside the Reserve Bank have called for its prudential policy functions to be taken out of the bank and separated from monetary policy. Some have also called in the past for that to be combined with Australia's prudential regulator. Robertson said the Government currently intended not to separate out the functions, but "given the level of interest from stakeholders in this topic and the importance of it, the Review will consider submissions on the rationale for retaining prudential supervision in the Reserve Bank as part of the first round of public consultation on phase 2 of the Review."

The terms of reference also ruled out any formal combination with the Australian regulator. Although the review will look at closer cooperation with Australia. It will also look at charging banks fees to pay for the regulation of them. See this report from Thomas Coughlan on Newsroom Pro for more.

3. Growing strongly for longer is hard to do

Some early signs are emerging that economic growth slowed somewhat in the March quarter.

Statistics New Zealand reported details of the the second major component of the GDP figures yesterday, which showed a weaker than expected construction sector in the quarter.

The volume of building work put in place fell 0.9 percent in the quarter after a 1.0 percent rise in the December quarter. Economists had expected a rise of about 0.5 percent.

The first component reported last week showed that March quarter retail spending was flatter than expected, having grown 0.1 percent when 1.0 percent was expected.

Along with weaker business confidence figures last week and a slight slowdown in job advertisements growth, some early signs are emerging the economy may be running out of puff. ANZ's composite indicator of business and consumer confidence is showing a slowdown in economic growth from the three percent that most forecast and down towards two percent.

The Auckland Chamber of Commerce's survey of small business confidence in Auckland in the June quarter showed another slump in confidence to net 29 percent being pessimistic. A year ago a net 25 percent were optimistic.

The full GDP figures are due on June 21 and the other components, including manufacturing, services and exports, could boost the number.

For example, new vehicle sales reported this week for May showed record high sales of commercial vehicles, including double cab utes. There were almost twice as many Ford Rangers sold as Toyota Hiluxes.

4. Cutting emissions is hard to do

Energy Minister Megan Woods released documents showing the Government has not officially decided through a cabinet process to stop issuing new offshore drilling permits for oil and gas, and that MBIE advised against the move on the grounds it was likely to increase net emissions as coal was substituted for gas.

The revelations are likely to make the decision even less popular in Taranaki and spark a useful debate about unintended consequences of apparently obvious moves to reduce emissions.

The decision also wasn't formally made by Cabinet. It was an agreement between party leaders, and may have been a trade-off between the Greens wanting to stop drilling and New Zealand First needing Green support for its 'waka jumping' legislation.

5. Agreeing on fair pay is hard to do

Days after another weak business confidence survey, the Government moved again to reassure employers about its plans for industry-wide employment agreements. It ruled out strike action during negotiation of the agreements and included both business leaders and unions in the group creating them.

Workplace Relations Minister Iain Lees-Galloway also presented Former National Prime Minister Jim Bolger at a news conference in the Beehive as the leader of a working group to design these 'Fair Pay Agreements' to apply right across and industry or sector once a particular threshold of support is met.

"Industrial action is not permitted as part of bargaining over a Fair Pay Agreement," was the key element of the Terms of Reference released yesterday with the make-up of the working group, which includes BusinessNZ CEO Kirk Hope and Hospitality NZ CEO Vicki Lee.

National MP Scott Simpson said the agreements would take New Zealand back to the days of constant strikes of the 1970s, and took a swipe at Bolger in the process.

"Jim was actually the Minister of Labour back in the 1970s, so I guess he's particularly well-placed to lead an initiative that will take us back there," Simpson said.

National pledged to scrap the system if it was re-elected. See Bryce Edwards' analysis yesterday of the political implications. Bolger's appointment angered both the left and the right.

6. Cutting migration is hard to do

Immigration Minister Iain Lees-Galloway announced early on Saturday changes to work rights for international students that were softer than proposed by Labour before the election.

He announced the removal of the requirement for post-study work visas to be sponsored by a particular employer, which would remove some of the risks of migrant exploitation, but also make it easier for graduates to get a job. He also announced a one year post-study work visa for below degree level courses and a three-year post-study work visa for degree level 7 or above qualifications.

Students studying at sub-degree level courses will also be eligible for post-study work rights as long as their studies last two years.

Labour had promised to remove the ability to work for international students in low-level courses, except where the work is approved as part of their study, and remove the ability to get a work visa without a job for those who have completed study below university level.

The changes announced over the weekend mean sub-degree level students can still work during their courses, and can work after their courses if they study for two years. Both are significant softenings of the policy.

7. Measuring foreign buyers is hard to do

Statistics New Zealand has taken over the measurement and reporting of foreign buying of properties from Land Information New Zealand.

Yesterday Statistics New Zealand reported that 8.0 percent of buyers across New Zealand were either not citizens or held only temporary visas, while 19 percent of buyers in the old Auckland City Council area (now known as the Waitemata local board) were not citizens. See chart above. Across Auckland, the percentage of foreign buyers was 7.3 percent, while it was 9.7 percent in the Queenstown Lakes District.

The figures are significantly higher than LINZ's figures, which focused on tax residency rather than whether buyers were citizens.

Economic Development Minister David Parker said the figures vindicated the Government's looming ban on foreign buyers of residential properties.

"I think it's clear that these statistics back up our decision to ban overseas buyers of existing New Zealand homes. We've no doubt that buyers are having an affect on New Zealand housing market," Clark told RNZ.

"How significant that price is no one really knows but in those suburbs where there's an 18 percent participation by foreign buyers buying that number of houses it must be having a significant effect I would have thought."

8. Changing Trump's mind is hard to do

US President Donald Trump forged ahead this week with his plans to try to break up NAFTA and to impose tariffs on imports of steel and aluminium from Canada, Europe and Mexico.

Mexico announced retaliatory tariffs and Canada's Prime Minister Justin Trudeau expressed frustration with Trump's intransigence and isolationism.

It emerged Trump had asked Trudeau why Canada had burned down the White House in 1814. Canada did not exist as a nation until 1867. As a colony, its residents were part of British-led forces that clashed with America during the war of 1812-14 and set fire to the White House. ( New York Times ).

Trump will have to be on his toes in the coming week. He is scheduled to meet G7 leaders this weekend in Quebec. They are expected to berate him over the various trade wars sparked by Trump. Trump will then meet North Korea's Kim Jong Un on Tuesday to discuss the potential denuclearisation of the Korean peninsular and the end of the Korean war.

These are nervous times.