A new Government gets to shake off the baggage of blame. It can look forward more easily. But that won’t change the tough reality of this economic cycle in the short term.
We’re already heading into that storm.
What we need now, more than anything else is strong leadership, a sense that this Government will be stable and that it has a plan.
That is the immediate challenge for Christopher Luxon in the weeks ahead. This is where all that management training and experience needs to come in to play.
Any chief executive worth his salt knows how to lead an organisation through the tough stuff - smiling and talking up future growth, even while slashing and burning.
There have been slip-ups on the campaign trail and there are questions about policy in some key areas. But these things will matter less in the coming days than Luxon’s ability to project a sense of calm and confidence.
Markets need to be reassured. The world needs to know New Zealand remains open for business.
Meanwhile, policy takes time to implement, time to work its way through the system and time to make any meaningful impact out in the real economy.
Could spending cuts help the Reserve Bank slow inflation, will tax cuts make it worse? Who knows? It is a moot point for the rest of this year and well into next.
These fiscal forces are just one of many being factored into economic equations and are likely to remain secondary to big trends in areas like immigration.
Given how finely balanced the economy is right now - teetering on the edge of recession - it is crucial that the new regime can convince us it has a plan.
Confidence begets confidence and perception of the economic strength (or lack of it) can be self-fulfilling.
New Zealanders need to be convinced that the worst of the downturn is temporary, that we are rolling through a recovery that the Government has a handle on.
Ironically that involves Luxon, and his financially savvy deputy Nicola Willis, picking up where Grant Robertson left off, selling a story of economic hope.
That, as much as anything, is where Labour failed in the past three years. Embattled by internal scandal and up against global post-pandemic economic turmoil, they were unable to convince New Zealanders they could find a safe path through this.
The cost of living is a brutal thing for any government to push back against. People feel an immediate emotional response when they are hit in the back pocket.
More often than not, that emotion is anger, and the target of that anger is the Government.
The timing of this global cycle hasn’t landed well for Labour. The party must surely have hoped we’d either be further along, with more conclusive evidence that inflation was beaten and the prospect of rate cuts coming into view, or that they could have perhaps kept the economy upbeat long enough to deal with the painful policy stuff out the other side.
Whether it would have made any difference is now a moot point, but maintaining policies designed to ease the cost-of-living pain (like the petrol breaks and extra family support payments) may have just delayed the inevitable.
The cost of living isn’t about to subside in the coming weeks, unfortunately. Numbers due on Tuesday may actually show the annual rate has risen.
Economists see inflation remaining elevated - above the Reserve Bank’s upper target of 3 per cent - for most of next year. The numbers are rolling roughly in the right direction. Inflation is coming down organically as monetary policy does its job, but it is slow progress.
That means no respite from high mortgage rates either.
It also means the most painful part of the economic recovery is still ahead of us. The impact of higher rates is expected to slow the economy further and push up the unemployment rate.
That is where things will get tricky. A new tougher fiscal stance might add some momentum to the already rolling maul of tight monetary policy. But it will come late in the piece.
We shouldn’t expect a new Government and new policies to work economic miracles overnight. In fact even with a stronger-than-expected result on the night and (hopefully) quicker post-election negotiations, most of the new policy directions won’t be in place fast enough for this economic cycle.
But confidence transmits faster than policy.
If Luxon can deliver on leadership, then he has a chance to mitigate the scale of the downturn. He could buy time for inflation to fade away.
That provides him with the runway he needs to actually effect some of the transformational economic change he has promised.
