Shortly after the Reserve Bank announced it was lowering the official cash rate by 50 basis points, Prime Minister Christopher Luxon and Finance Minister Nicola Willis called a press conference where they congratulated themselves for the move. Of course, they had nothing to do with it, as the salient feature of an independent central bank is its independence, but their line was that they deserved credit because their government is “a good partner on monetary policy”.
It’s hard to see any evidence of this in the crown accounts: the projected deficit for this year is larger than in Labour’s last year in power. Ah, but National’s spending is sensible and moderate while Labour’s was profligate and wasteful. Also, Luxon and Willis think Labour would have spent even more if it had stayed in power.
They’re probably right, but this is very thin stuff. They’re a year into their term, there’s a wave of business failures under way and gathering speed, the surplus the coalition promised is wallowing in a sea of heavy borrowing and crushing national debt receding into the 22nd century, and they have so little to say for themselves that they’re trying to eat the Reserve Bank’s lunch.
It’s not quite true that they have no economic plan – there are other ministers doing work across a range of portfolios – but it’s now obvious that the strategy for 2024 was merely to be in government while interest rates came down, and the plan for 2025 is to just remain in government while they stay down, and hope that increased consumer and business confidence leads to more spending, higher house prices and a fall in unemployment.
The strategy for 2024 was merely to be in government while interest rates came down.
The government would have grown the economy in much the same way my dog chases planes away when they fly over her yard. But even those hopes of a robust post-recession recovery are fading. In its monetary policy statement, the Reserve Bank warned that the potential growth rate for the overall economy has declined over the past year.
Luxon clings to recent business confidence surveys like a man in quicksand clutching at clumps of grass, but as the Reserve Bank points out, those surveys have a weak relationship to actual economic outcomes.
In a recent speech, Treasury chief economist Dominick Stephens suggested genuine growth will rely on policy reform rather than cash-rate reductions. It is up to the government to act, not simply take credit on behalf of other agencies performing their roles. That’s likely to generate friction within the coalition as Act and New Zealand First advocate for economic nationalism and free market liberalism, respectively.
Delivery doubts
A few days after the government’s bizarre OCR press conference, Chris Hipkins addressed Labour’s annual conference in Christchurch. One of the policy promises in his keynote speech was to complete the rebuilding of Dunedin Hospital, which National has scaled back, blaming escalating costs.
This may have been good politics for a South Island event, but the government gleefully noted that Hipkins’ predecessor, Jacinda Ardern, promised to build the hospital when she was in opposition then failed to do so in government, while Hipkins presided over a sequence of catastrophic cost blowouts and delivery failures in his education portfolio from 2017-23.
Labour insists it’s now listening to voters – which is nonsense; at this point in the cycle it is wisely listening to its own party members and activists, trying to prevent a divisive civil war.
But listening isn’t the problem. Voters want hospitals. The real problem is that there’s no reason to believe a Hipkins restoration government would be able to build one.
The party’s signature campaign policy last year was GST off fruit and vegetables, arguably the most vapid, inane offering ever presented to the New Zealand public by a major party.
What Labour really needs is a theory of government that will allow it to formulate credible solutions to the problems facing the country and to deliver on its promises when it’s back in office.
Hollow centre
For most of the MMP era, New Zealand has cycled between moderate coalitions dominated by either National or Labour, with a centrist coalition partner – New Zealand First, United Future, the then Māori Party – attenuating the potential radical influence of Act or the Greens. Labour promised capable government, especially in the health and education sectors, along with moderate progressive change. National offered economic competence and social stability.
But Labour’s majority victory in 2020 upset that equilibrium. It delivered a much more expansive interpretation of the Treaty of Waitangi, matched with a shocking deterioration in the party’s capacity to govern.
Hipkins’ current strength is primarily a function of Luxon’s weakness.
Now we have a right-wing government that is visibly struggling to deliver economic management – outside of simply telling us that it is – while one coalition partner prosecutes a counter-reaction to Labour’s treaty revolution. We see this shift represented in the parliamentary parties and their organisation into adversarial blocs: the opposition have started releasing joint press releases, co-signed by Labour, the Greens and Te Pāti Māori, matching the three right-wing parties of the coalition.
Is this the new pattern of New Zealand politics? Will we spend the next few decades ricocheting between these left-right factions dominated by hollowed-out majority parties shuffling from election to election like zombies? It feels like an unstable system. There’s a vacuum in the centre.
National’s MPs will go into their summer break wondering who they might replace their current leader with – probably either Willis, Erica Stanford or Chris Bishop.
Labour faces the grimmer prospect of not replacing its leader because there’s no one to replace him with. Although Hipkins’ current strength is primarily a function of Luxon’s weakness, he’s still the party’s best bet to win in 2026, leading to what is likely to be another botched, shambolic three years in power.
The rest of us should contemplate what purpose the majority parties serve as we proceed into an uncertain future amid an ongoing period of national decline.
