Labour Party leader Chris Hipkins (right) gives Prime Minister Christopher Luxon little policy to attack him over. Photo / RNZ
“What must Labour do to win the next election?” I was asked.
“Nothing,” I replied.
“The Reserve Bank is doing it for them.”
Forget the polls. There is a very reliable predictor of election results: the economy. Political scientists call it “economic voting”. Voters reward or punish Governments according to how the economy feels.
The best real-time measure does not come from Statistics New Zealand. Its numbers are three months out of date. To know what’s happening today, you need Massey University’s artificial intelligence-driven site, GDPLive. Annual GDP (Gross Domestic Product) growth was -0.214%. The economy is shrinking.
That’s despite a dairy boom. If dairy is up but GDP is down, then sectors such as construction must be deep in the red. My neighbour is a builder. He tells me many builders have no work and others have given up and gone to Australia.
This recession is not an accident. The Reserve Bank has engineered it. Just as it overshot during Covid, printing $55 billion, the bank has now overshot on tightening. GDPLive says inflation is at 2.35%, comfortably inside its target band. Wage inflation is minimal, apart from nurses and teachers striking for Aussie pay from a Kiwi economy.
The Reserve Bank has cut interest rates today, too late and probably too little.
Rate cuts take six months to flow through. That means recession and rising unemployment will persist through this calendar year.
For most New Zealanders, their house is their biggest asset. House prices are down 13% from their peak. Under Sir John Key, the “wealth effect” of rising house values helped National win re-election. Aucklanders suddenly discovered they were paper millionaires. Now we have the reverse: a poverty effect. Our houses are worth less, but rates and insurance are up.
Even dairy’s success has a political downside. Food prices in July were up 5% annually.
More rate cuts will follow and that’s good news for mortgage holders. They are the most volatile of voters. Hamilton, with the highest proportion of mortgaged households, usually votes with the election winner.
While the economy may improve next year, it will be too little, too late. Hovering over everything is Donald Trump’s tariff wrecking ball, ready to smash global trade.
To be fair, National inherited the worst set of books in half a century. But our three-year electoral cycle demands urgency. Nicola Willis had been sharply critical of the Reserve Bank in Opposition. In Government, she didn’t replace the governor.
National condemned Labour’s borrow-and-spend. Yet its own Budgets still run deficits, smaller than Labour’s would have been, but deficits nonetheless.
National blasted Labour’s ballooning civil service. In office, it has merely stopped the growth. Not one of New Zealand’s 32 departments have been abolished. The International Monetary Fund calculates that state revenue is 38% of GDP, well above the 30% level under Key. With such a bloated public sector, the economy cannot grow fast enough to deliver the prosperity voters expect.
On these numbers, Labour can sit back, let the Reserve Bank do the work, and release as little policy as possible.
Labour has lost elections when it released bold policy – remember the promise to raise the superannuation age – and won elections when it released none. In 1987, the party did not publish a full manifesto. Dame Jacinda Ardern’s victory was powered by “Jacindamania”, not by policy detail.
The danger for Labour is that its policy vacuum is being filled by its extreme partners, the Greens and Te Pāti Māori, who are issuing ridiculous tax-and-spend promises.
History shows that winning without policy can be fatal. The fourth Labour Government was destroyed by its own internal divisions. Ardern’s Government was headed for defeat until Covid rescued it.
Demographic change means we cannot keep funding health, education and welfare from tax alone. A bold Labour Party could win, and keep winning, by adopting savings-based policies.
In the Economist magazine’s recent ranking of the world’s richest countries, when adjusted for local prices, Singaporeans are the richest. We are no longer rich enough to be given a ranking.
Singapore has savings-based health and welfare. New Zealand could do the same.
Act and New Zealand First have both championed savings-based reform. Were Labour to seize that ground, it could sideline its radical partners and build a new coalition, becoming the natural party of Government.
National cannot run on its economic record and cannot attack Labour’s solutions because there are none. Voters always hold the Government responsible, so Labour is now blaming National for the cost-of-living crisis that it created.
Yet silence is only a strategy for winning, not for governing. A Labour Party that campaigned boldly for savings-based health and superannuation could not only win the next election but also secure New Zealand’s long-term prosperity.