Editorial: Fair fiscal winds blow Finance Minister's way

Finance Minister Grant Robertson speaking at New Zealand Herald Mood Of The Boadroom, in September. Photo / Michael Craig

EDITORIAL:

Never mind the latest poll result, the Coalition Government will head into this Christmas break feeling very happy about the way the economic narrative is starting to play out for them.

When it comes to elections, as Bill Clinton's 1992 campaign slogan famously put it, it's always: "the economy, stupid".

In the US a stable economy and low unemployment rate are inconvenient facts that will make President Donald Trump difficult for the Democrats to dislodge next year.

In New Zealand the incumbent parties also look set to benefit as sentiment turns after a year of doom, gloom and slowing GDP growth.

Consumer confidence has bounced in the last two months and even business confidence is starting to improve.

That reflects a whole range of economic trends which have moved in a positive direction independently or in spite of government policy.

Export prices for meat and dairy have soared in the past six months which, combined with a relatively lower value of the Kiwi dollar, will provide a timely boost for the rural sector in 2020.

Unemployment has stayed low and immigration has stayed higher than many expected.

Inflation is still subdued and that has allowed the Reserve Bank to cut interest rates to record low levels.

Now, for better or for worse, house prices in Auckland have started to rise again.

GDP growth is likely to have dipped to an annual rate of just 2 per cent - we'll see when data for the September quarter is released later this month.

But many economists are picking this will mark the low point in this cycle with growth slowly picking up through the next year.

House prices in Auckland have started to rise again. Photo / Ted Baghurst

In other words Finance Minister Grant Robertson looks set to have the wind behind him in the run up to the election.

Next week Robertson unveils a major package of new infrastructure spending which will likely add more momentum to the economic roll.

Ironically concerns about recession this year have ended up playing into his hands.

You'd be hard pressed to find a local economist who hasn't been calling for the Government to spend more money.

Some say cut taxes, some say boost welfare, but everyone says build more - whether that's houses, roads, rail, schools or hospitals.

This chorus of fiscally enthusiastic voices has laid the groundwork for a guilt-free spending splurge in election year.

Robertson, to his credit, says he remains committed to charting a fiscally responsible course.

Despite his new infrastructure plans, he's so far been unmoved by calls for more immediate stimulus.

Government finances are in good shape and even if core crown debt shifts from 20 per cent to 25 per cent of GDP it will still be low by comparison with our OECD peers.

But private debt levels are precarious to say the least.

We are only one natural disaster or global financial crash away from much more difficult times.

New spending needs to pay long-term economic dividends.

Spending just to stimulate the economy through what looks like an increasingly benign economic cycle shouldn't be a primary consideration.

Nor for that matter should polls and politics ... election year or not.