Editorial: Christopher Luxon can’t let economy get lost in the coalition noise

Prime Minister Christopher Luxon and Nicola Willis speak to media at Parliament. Photo / George Heard

Editorial

EDITORIAL

It has been a tumultuous start for the new coalition, with divisive social issues like smoking legislation and Māori language usage dominating the news agenda.

Throw in the Deputy PM’s “red rag to a bull” attacks on media and it seems like much-vaunted plans for economic transformation are being lost in the noise.

But we should have some confidence that isn’t the case with new Finance Minister Nicola Willis fired up and ready to make good on a promised pre-Christmas mini-Budget.

The question of what sort of economy Willis inherits is complex and controversial. On one hand the fundamentals remain solid, international credit agencies remain sanguine about New Zealand’s outlook and it looks increasingly like we may skip a recession in this economic cycle.

On the other hand, inflation remains far too high. To get it under control, interest rates will need to stay high for at least another year- perhaps longer if latest Reserve Bank (RBNZ) forecasts prove accurate.

While easing, the cost-of-living crisis remains very much still with us while the economic pain for those with high levels of debt - including many businesses will get worse before it gets better.

Inevitably, we’re going to see a bleaker picture of the economy painted by the new Government over coming days.

From a politically pragmatic point of view, that’s what new regimes do. It might seem cynical but it would almost be reckless to not set the best possible platform for your own run at driving economic growth.

As a relatively objective benchmark, we can expect a half-year economic fiscal update (Hyefu) from Treasury in early-December. We’ll also get the latest GDP growth data (for the third quarter of the year) from Stats NZ on December 14.

Meanwhile, the various commercial bank economists have shared their takes on what the new coalition will likely mean for the country’s macro-economic outlook.

ASB chief economist Nick Tuffley described the fiscal outlook and implications for inflation as ”unclear”.

Compared to National’s original plan, there was a little less revenue generation (no foreign buyers’ tax), but that was likely to be offset by deeper spending cuts, said ANZ’s Sharon Zollner and Miles Workman.

But the final details of the coalition deal did not “appear to be a game-changer”, they said.

“On balance, the details of [the] coalition agreement announcement do not appear to call for any reassessment of our outlook for the economy, the RBNZ’s monetary policy stance or the Crown debt programme,” said Westpac chief economist Kelly Eckhold.

If the economists have been cautious ahead of Treasury’s update, it seems many in the business community are taking a more optimistic view.

Released yesterday, ANZ’s Business Outlook Survey (for November) showed top-line business confidence continues to rise in to positive territory.

Of course, the survey historically tracks higher when the National Party is in power.

Business has high hopes that reduced regulation will ease cost woes and more broadly that National will deliver on reducing inflation getting more growth into the economy.

Whether the burst of renewed optimism is sustained will a the real test for this new Government.