It was luck that two cyclones gave the new PM wall-to-wall coverage of him in gumboots, promising the Government would do whatever was needed. The “rally around the flag effect” in a disaster has given his poll rating a boost. But as Ardern found, the rallying effect wears off and often causes a hangover. No government promises can instantly repair the damage that may take years to put right.
Worse still, the cyclones revealed that after nearly six years the Government has taken no action to make New Zealand more resilient to climate change. The Minister for Climate Change, James Shaw, is yet to even have a plan for resilience.
It is another example of action not matching rhetoric.
Then, 2pm on April 5 confirmed that Hipkins is an unlucky general. The Reserve Bank, over which he has no control, announced another shock 50 basis-point rise in the official cash rate (OCR).
In three years the Reserve Bank has gone from having, relative to the size of the economy, the loosest monetary policy in the OECD, to having the toughest. In 11 rises the OCR has gone from 0.25 per cent to 5.25 per cent — the latest three rises being “shock” increases.
A far more reliable predictor of electoral success than the opinion polls is the pocket test: “do voters feel they have more money in their pocket?” Some 15,000 households are already behind in their mortgage payments. Presumably, they now owe penalties. In the general election, Labour will be devastated in the mortgage belt.
The bad luck continues. The data the bank relies on is always out of date. Then, to add to the difficulty, it takes between six months and a year for the full effect of an interest rate rise to affect the economy. The shock increases in November and February are yet to be fully felt. The latest increase will still be impacting right up to election day.
Worst still, it could be that last Wednesday’s increase was unnecessary.
Most central banks are cautious because they know these delays can cause monetary policy to overshoot. It is bad luck for the PM that caution is not something our governor can be accused of.
If the bank sticks to its course with another OCR increase in May, the bank will get its recession. Eventually, the bank will crush inflation. But by October inflation will still be over the Reserve Bank’s target and the economy will be flattened. We will have stagflation.
There is one indicator that records what is happening now in the economy, the sale of Road User Charges. The ANZ Truckometer index revealed in February that heavy truck Road User Charges were down 0.7 per cent. The economy is already flat.
The latest shock interest rate rise will tip the economy over.
Hipkins’ bad luck continues. The International Monetary Fund (IMF) has just released its forecast predicting the worst year for the global economy in over 40 years.
Before you give a sympathy vote, much of the bad luck is the result of Government’s own actions. The Reserve Bank only agreed to the inflationary $100 billion money printing programme after the Labour Government gave a taxpayer guarantee.
The Reserve Bank and the IMF have both said monetary policy needs a friend — government’s fiscal policy. Labour is recklessly running a deficit at a time of over-full employment. Borrow and spend always results in bust.
Hipkins has increased Labour’s spending. In part, the bank justified the rate increase by saying, “members viewed the risks to inflation pressure from fiscal policy as skewed to the upside ... and how Government spending is funded”. The bank has no doubt that Labour’s borrowing to spend is inflationary.
Hipkins says the cost of living is his Government’s priority. It is bad luck that it is a promise he cannot meet. His solution to increase spending just means even higher interest rates and an ongoing cost of living crisis.
As Hipkins is discovering, when things go wrong, everything goes wrong. Every other day a government MP does something foolish. In itself, no one blunder is an election decider. But cumulatively, they create the impression of a Government in crisis.
In contrast, Christopher Luxon is amazingly lucky. Unlike Hipkins, Luxon looks like a prime minister. Luxon is not the smartest politician, but nor was Ardern. It is better to be a lucky politician than a smart one. Lucky politicians win elections.
- Richard Prebble is a former leader of the Act Party and a former member of the Labour Party.
