Liam Dann: Christopher Luxon could be next PM, but here's his biggest challenge

Christopher Luxon's biggest challenge could be redefining what the economics of a popular centre-right party should look like in the 2020s. Photo / Mark Mitchell

OPINION:

I have no doubt Christopher Luxon will be an effective leader for National.

The party now has someone in place who is capable of being New Zealand's next Prime Minister - whether that is 2023 or 2026.

As things stand, 2023 seems a big ask - if just because of the current shape of the MMP jigsaw.

Labour and the Greens have maintained a strong base even through an extremely difficult year for this country.

But things can change fast and it is difficult to pick what will define an election almost two years from now.

News about the pandemic and the worrying Omicron variant was mostly good last week.

Markets recovered and, for now at least, there is reason for optimism that 2022 might actually be the year of recovery we hoped 2021 would be.

If that's the case, many of the most pressing debates of the past two years may be ancient history.

What won't be is the economic aftermath and New Zealand's long-term recovery path.

Which is why Luxon's biggest challenge could be redefining what the economics of a popular centre-right party should look like in the 2020s.

Before he can do that, he needs to work out where the "centre" is now.

In economics and religion (and spin bowling, oddly) people talk about orthodoxy.

Over time the meaning of orthodoxy shifts. That's happened in a big way in economics in the past 15 years.

The Global Financial Crisis was the trigger.

Central banks were forced to deploy previously unorthodox policies - such as Quantitative Easing - to stave off economic collapse.

But that turbo-charged asset price growth (most obviously in housing) and exacerbated structural inequality.

And that has thrown the onus back on governments to play a greater role in regulating markets and addressing inequality.

For better or for worse the dominant neo-liberal framework of the 1980s and 1990s - trickle-down economics - has crumbled.

The debate is far from dead and there are still arguments to be made for neo-liberal economic principles.

Debt is a real issue to be dealt with.

Markets, for all their failings, still deliver incredible results every day.

Profit does drive innovation. Governments do often suffer from bureaucratic inefficiency.

And low taxes can encourage desirable economic behaviour, in the same way that high taxes can discourage it.

Regardless, Luxon must deal in hard political realities and when we look around the world - at Bidenomics in the US, or even the Tories in the UK, we see a more Keynesian approach to economics has taken hold.

Simon Bridges highlighted National's dilemma recently when he attacked Reserve Bank Governor Adrian Orr for policies which he said were to blame for house price rises and inflation.

"He's been focussed on a whole bunch of other things that may or may not be important, but these are not the job of the Reserve Bank, whether it's Māori issues, climate change and the like, Bridges told The Working Group podcast.

That's a line that plays fine for the Act Party but is very awkward for the leader of a mainstream party to back-up - as Luxon discovered when he was challenged on RNZ's Morning Report.

Beyond the populist issues of Māori inclusion and climate change, the implication that Orr is personally to blame for inflation and house prices neglects to consider just how orthodox his approach has been in a global context.

In fact, if anything, the RBNZ has leaned harder on inflation than its peers. It has stopped printing money earlier and started hiking interest rates sooner than any other comparable central bank in the world.

Reserve Bank Governor Adrian Orr leaned harder on inflation than many of RBNZ's peers. Photo / Mark Mitchell.

Debate on monetary policy needs to consider the counter-factual - the fiscal austerity and high levels of unemployment that inaction would have delivered.

Some economists do still see inflation-targeting as the sole job of central bankers.

But it is no longer the orthodox position.

Luxon saw that trap coming and was quick to publically soften his party's approach.

He acknowledged some concerns about "mission creep" but backed the Governor and RBNZ, pointing his criticism back towards government spending.

To be fair, Bridges' comments were off-the-cuff on a conversational podcast and he has since softened and clarified them.

But they were indicative of National's problem in the past few years.

There is a passionate group of voters that is extremely frustrated with the perceived "woke" politics of the Left.

It's a significant group to which the Act Party plays well.

Happy with 10 per cent of the vote - and thrilled with 20 per cent - David Seymour can afford to openly dismiss both te reo and climate change concerns and safely argue for austere fiscal policies.

But that doesn't provide a path back to government for National.

Political parties and their leaders need to exude confidence about their position on the political spectrum.

They need to appear comfortable in their own skin for people to trust them.

This is what National has lacked and it is Luxon's strength.

He is a conservative but he is modern and forward-looking.

He comes from a corporate world that is adept at maintaining relationships with large, often culturally divided markets.

Luxon now has an opportunity over the summer to do some deep thinking and to put together a new economic framework for centre-right economics.

It's an exciting challenge and I hope it's one he'll embrace.