Mike Hosking: Why John Key's dream run is coming to an end - rising unemployment

John Key at the East Asia Summit in Kuala Lumpur. He is winning on the world stage but he should be worrying about domestic issues. Photo / Getty Images

I think I might have bad news for the Government.

It has had a dream run and a poll this week showed things were steady as she goes.

At this point of the election cycle the numbers don't move around a lot.

Poor old TV3 was trying to beat up the John Key line over protecting rapists and murderers, and seemed confounded by the fact that the Labour Party was up in arms about it, yet somehow this wasn't reflected in their latest poll.

The disconnect between the media and the real world is one of life's great mysteries,.

The media, especially the political media, follows in microscopic detail every utterance and nuance, and seems continually amazed that very little if any of it makes it outside the beltway and into the daily subconscious.

But let us look to the latter part of next year and indeed into 2017 election year, and here's what will matter, what will shift polls and potentially shift the Government out of office.

Jobs.

A couple of fascinating things are happening to our economy. Firstly, large numbers of people are arriving in the country.

This week, for the first time in decades, more people arrived from Australia than left for it. We've had booming migration generally for a couple of years now.

This is a direct reflection of the simple truth that New Zealand has been on a roll.

We're attractive, we have prospects and people see that and want a part of it.

The so-called experts misread a lot of this trend.

Initially they failed to see net gains breaking the 60,000-plus barrier. Once they saw it, they forecast it to be over by now. Now they're saying it won't be for some time.

What makes this part of the whole scenario interesting is that generally it is accepted that more people is good for the economy.

With more people, the tax base grows. More people do more things, make more things, sell more things, pay more tax and spend more money.

The Americans are having a similar debate. In states that were hit hard by the global financial crisis, such as Ohio and Michigan, they are looking at the ramifications of issuing local visas to entice people to set up shop.

But for some reason the equation isn't working here.

Treasury and the Reserve Bank are forecasting unemployment to rise.

If the Government enters election year with the forecast unemployment numbers, then it has major trouble.

The forecast seems universally to be 6 per cent-plus.

Anything with a six in it is a major. Why?

Because it used to be 4 per cent.

For all the growth and success and rock star headlines, you have to have something tangible to show for that. A rising unemployment rate isn't a good look.

If things continue the way they appear to be going, then we'll be getting spanked by other countries.

Australia is trending down, Britain has the lowest unemployment rate in eight years and America's rate is in the 5 per cent area. We're dragging the chain.

The Government will say "look at the participation rate", or the number of people actively in the market looking for work.

In good times, that number rises as people fancy their chances. In tough times, people give up.

So there is an argument that says although the "headline" number -- the 6-plus per cent -- doesn't look flash, the actual number of people in work is still higher than it has been. But here's the trouble with that.

That's the fine detail, and in an election year the fine detail rarely sees the light of day.

The headline is the 6 per cent.

The rate is driven by a twofold issue -- the migration boom along with a slowing economy.

By late next year, growth is forecast to be above 2 per cent and something similar in election year. Not bad by historic standards, not even bad by global standards.

But the forecasters have Australia back over 3 per cent by then, and it's widely accepted that you need at least 3 per cent plus to soak up those new job-market entrants. Given we don't have that number, your jobless rate sits at a level that spells trouble in election year.

All of this -- if it comes to pass -- should be making the Government nervous. Nothing shifts a vote like uncertainty, and personal uncertainty at that.

This government has won three terms based on solid economic management and the very strong argument that life is good and why would you want to mess with it?

People might want to mess with it if their job is in trouble. They might want to mess with it if they see your competitors with better job numbers than us. Or they might want to mess with it if the news is full of redundancy and closure and layoff stories.

That's the stuff that troubles people and it troubles governments.

There is still 18 months to go until the election, which is forever in the politics game.

But the warning signs are there. I guess the upside is the Government has time to do something about it.

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