COMMENT: The Government is spending big while running a surplus, has ruled out tax changes and the economy is still growing. Yet it seems the business community still has its doubts, writes Hamish Rutherford.
On a brilliantly sunny day in March, less than six months after she became Prime Minister, Jacinda Ardern was meant to be across town with the Governor-General for a state visit.
Instead, she was walking down the steps of Parliament.
Greenpeace had erected signs calling on Ardern to join other Labour leaders who made major environmental announcements, as it presented a 45,000-signature petition calling for an end to oil exploration.
Dozens of petitions land at Parliament every year, most of them with little fanfare. For Ardern to personally receive this one was a huge statement in itself.
But her short speech revealed that a decision was looming which to some would define her Government's first term: one in which, rightly or wrongly, the regulatory landscape came to be seen as highly unpredictable.
Ardern told the small crowd that she was meant to be on her way to see Indonesian President Joko Widodo, but the oil exploration issue was vitally important. She just needed a little time.
"But we're actively considering it now."
The oil and gas industry was blindsided. Although Ardern declined to answer questions about the annual oil exploration permit offers since becoming Prime Minister, there was nothing in Labour's manifesto or the coalition agreements which concerned Cameron Madgwick, the chief executive of petroleum industry group Pepanz.
"We'd had no signal of that whatsoever," Madgwick says of Ardern's Greenpeace appearance.
"Not even a quiet phone call. It took us completely by surprise and perhaps signalled that those on the other side of the discussion in Parliament were more influential than we were."
In the days after Ardern's appearance at the Greenpeace rally, industry figures complained they were being shut out of the process.
Just over three weeks after receiving the petition, Ardern would lead a string of colleagues - including a clearly reluctant NZ First minister Shane Jones - into a Beehive press conference to announce an end to the issuing of new offshore oil permits.
While the Government honoured existing permits, the announcement represented a major change to the operating landscape for a small but strategic industry.
As well as being dominated by large multinationals, New Zealand's oil and gas business is highly important to both the electricity sector and much of the country's industry.
Global companies had been attracted to New Zealand on the basis of both an encouraging regime and the belief that the operating environment would be stable.
About 18 months on, the Government maintains that the decision was the right one because of the need to address the challenges posed by climate change, without admitting any flaw in the process.
Finance Minister Grant Robertson acknowledges "one or two" people had raised the issue with him, but not to a great extent.
Business had not seen regulatory movement like that, says Robertson, with the oil and gas decision "a specific set of circumstances on a specific sector" as the Government looked for ways to meet New Zealand's commitments to the Paris Climate Agreement, which National had signed up to.
But beyond the Taranaki-centred oil and gas sector, the decision would raise questions generally about whether changes to the operating landscape for investors could come out of left field, and if they did, whether there would be any chance to influence decisions.
Although the ban was hailed by environmental groups, advice from government officials would later claim that not only would the decision be potentially detrimental to the New Zealand economy, it could actually increase global greenhouse emissions, as users switched from NZ-made methanol to coal.
The decision was not made against official advice, because the Government had not asked for advice until some time after the decision.
A Cabinet paper would not be drawn up until months later, with the announcement in April merely a political agreement made by Coalition party leadership.
Where was New Zealand First, which even then was promoting itself as both provincial champion and the party to soften a left-wing Coalition?
Madgwick says that while governments are elected to make decisions, and those can go against the industry, the nature of this decision caused deep concerns.
"Most people that I talked to in the business community were pretty petrified that they were going to be next. That you could get regulation by fiat, and no ability to aid the understanding of decision makers about what the costs were and where they might fall. People were pretty scared about it," Madgwick says.
"You might not like the decision, but at least if it's made on a sound basis with an ability to input into decision-making. Then you can live with a lot of things."
Kirk Hope, chief executive of BusinessNZ, says the oil and gas decision had a "chilling effect" on businesses considering investment.
"What you had was industries and businesses thinking, given the nature of the decision and the process ... There was no real process around it, people were thinking, are we going to be next?'"
Hope says the decision added to existing perceptions within the business community, that the Coalition would add costs to business, slash immigration and pass disruptive labour law changes, even if in reality a number of promises had not materialised. Positive changes - such as recent tweaks to business tax - were easy to overlook.
"It's been very challenging for the Government to recreate a perception of certainty and stability given all of these things happened really in the first year [of the three-year term]."
Even now, Hope describes the Government's record in providing certainty as "patchy", pointing to the fact that it had to effectively overturn a decision of one of its own ministers to allow the expansion of a goldmine in Waihi.
Neale Jones, a former chief of staff for Labour and now a government relations consultant, maintains that the oil and gas decision "was the right one, because it showed they were serious about climate change and to give a strong signal for the future investment decisions."
But even Jones, who came to Labour from the union movement, acknowledges issues around the process of making the decision, and the lack of outside input, had consequences which he believed the Government was aware of.
"The risk that you face with a decision like that [made] very abruptly, is that you send a shock wave, because businesses start saying 'are they going to come and say my business has a death sentence?'," he says.
"I know it did ripple through the business community."
Uncertainty or difference of opinion?
Much has been made of the plunge in business confidence since the 2017 election and whether it matters in the real economy.
For National, one former Cabinet Minister concedes that business confidence was one of the most important indicators of the economy's health.
The Coalition has said it is more focused on the "real" economy, with unemployment low and economic growth remaining healthy, at least relative to other similar countries, including Australia.
But the low confidence is leading to reduced investment intentions (despite record low interest rates) and signs of a fall in demand, at a time when growth is already slowing.
Jones says this was understandable at the time, but meant other issues were not being addressed, something he believes the Coalition is now doing, from inequality and housing to climate change and online extremism.
"The previous National Government had the misfortune of coming in at the height of the global financial crisis. For them, giving businesses the confidence to invest was a key objective. It kind of became an overriding objective, at the expense of dealing with some of the pressing social, economic and environmental issues."
Robertson, who was the top-ranked minister in the recent Herald Mood of the Boardroom survey, points out that the Government does not feature highly in lists of concerns among businesspeople.
• Premium - Mood of the Boardroom: How CEOs ranked Cabinet on performance
• Mood of the Boardroom: 150 CEOs deliver their verdict on the Government
• Mood of the boardroom: How business rates the Government
• Premium - Mood of the Boardroom: The road to improvement
When it does, he suspects that part of the issue is the Government's broad policy plans, which from time to time would be unwelcome to business, no matter how clearly they were laid out.
"There are going to be issues on which we differ, but I think there's a difference between uncertainty and disagreement," Robertson says.
"In areas where we've made moves where people aren't so keen, then the uncertainty tag can get added to it."
But while the Government has broad plans for reform across a number of areas, it is less certain whether key parts of those reforms will progress before the election.
Robertson says the nature of coalition politics and the challenges of government mean there are always going to be many issues which fall outside coalition agreements, meaning negotiation will be needed.
The Finance Minister says there are only a small number of areas where policy which was announced is unable to be progressed. However, the list is growing.
Already, NZ First has won concessions on 90-day work trials and multi-employer collective agreements. This week it emerged that the Government is planning a new round of consultation on Fair Pay Agreements (FPAs), a controversial type of sector-wide employment agreement promised by Labour.
This comes more than eight months after a working group delivered its report on FPAs, opposed by business groups but strongly backed by the Council of Trade Unions.
Elsewhere, before Labour abandoned the proposals, NZ First was positioning itself to soften any plans for a capital gains tax, while Green Party co-leader James Shaw said if the coalition could not pass a CGT, it may not deserve re-election.
With NZ First's polling now precarious at below 5 per cent, there is speculation that it will increasingly use its power to block areas such as Resource Management Act (RMA) and freshwater reform.
"What we have seen in the past is that when NZ First believes its survival is at stake it becomes an unpredictable and potentially destructive force as it seeks to define itself in its traditional role as an anti-establishment party," former TVNZ political editor Richard Harman wrote on the Politik website this week.
For business, the hand of NZ First is a mixed blessing. Hope says the country is learning what it is like to have a "true coalition" for the first time, where ministers were at times announcing plans ahead of negotiations, based on what they hoped would happen rather than a Government decision.
If the final decision was positive compared to the proposals, then it was welcomed, but it was not good for the overall desire of business: certainty.
"Have these decisions been beneficial to business? Absolutely in some cases they have," Hope says.
"Will it contribute to business confidence, with ministers winding back their decisions? Not really, because it's all about certainty."
BusinessNZ has publicly argued that the structure of the Coalition is another argument for a longer election cycle, because on major issues such as climate change legislation, it would be better if negotiations took longer if that meant the final outcome was better.
A change in Government has, according to a string of lobbyists, led to an increase in demand for their services.
One says this is partly to act as "a translation service" between a progressive Government with limited experience in business, and a business sector which does not understand the Government.
But another says it is a sign that it is worth spending money on lobbyists, because doing so is now more effective.
"Lobbyists have been able to use the dynamics of the Coalition Government very effectively in the last two years," says Business Herald columnist and lobbyist Matthew Hooton, a former Beehive staffer.
"The ability to influence policy, even quite firm policy, after it's been announced, has been increased because of the dynamics of this particular Coalition Government."
Hooton predicts "grave difficulties" for the Zero Carbon Bill, water and RMA reforms and even getting agriculture introduced into the emissions trading scheme, something which is in the Labour-NZ First coalition agreement.
"Even things that have been agreed by Cabinet are not necessarily final," says Hooton.