Mark Lister: I see red, I see red, I see red

Mark Lister says Prime Minister Jacinda Ardern (pictured) will be expected to deliver. Photo / NZME

COMMENT:

There hasn't been any significant reaction from financial markets to last Saturday's election.

Labour had been polling well ahead of National since the Covid-19 pandemic turned 2020 on its head, and virtually all political pundits were expecting another three years with Jacinda Ardern at the helm.

The only surprise was just how strong this victory was, with many people having expected Labour to fall just short of being able to govern alone and requiring the Greens to form a Government.

As it turns out the Greens are not needed, although Labour will probably involve them in some shape or form, if only to maintain a positive working relationship with future elections in mind.

The single-party majority will be a double-edged sword.

Being able to govern alone, without the difficulties of coalition disagreements, should theoretically make this term a much easier one for the Government. Ardern has been given a clear mandate to implement whatever changes she believes are necessary.

However, that creates extremely high expectations and leaves little room for excuses.

We didn't see any significant changes in Ardern's first term, which will have disappointed many Labour voters who were hoping for "transformation". It has been easy to point to the lack of consensus across the three coalition parties as a reason for such limited progress.

That won't be an option this time. Ardern will be expected to deliver, which could leave her in a difficult position. Her left-leaning supporters will want to see change, while many of this year's first-time Labour voters (and there are plenty of those) will be much closer to the centre and will be the same people who would've voted for John Key a decade ago.

Mark Lister is Head of Private Wealth Research at Craigs Investment Partners. Photo / Supplied

This group will have voted for the stability and continuity that Ardern and Grant Robertson offer, rather than transformation and dramatic change. Having won these voters over with her charisma and communication skills, Ardern will want to keep them onside, especially if she has her eye on a third term in office.

Trying to find the right balance between these two opposing forces could make for an interesting three years.

Unlike other elections, the 2020 campaign was dominated by the Covid-19 response and a steadying of the ship, rather than the usual debate about policy. As a result, we haven't had the same level of proposed changes to look over and consider the impacts of.

The 39 per cent top income tax rate will return, although it will only affect a very small group and won't bring in any meaningful revenue.

In terms of other potential tax changes, there is nothing on the immediate horizon, although this is something to keep an eye on in the years ahead.

Debt levels are rising rapidly, and pressure to repay this will only increase. In addition, should Ardern want to make meaningful progress on inequality, child poverty and housing affordability, tax changes of some magnitude will surely be on the cards as part of a solution.

She ruled out a capital gains tax a few years ago and has done the same regarding the Greens' wealth tax idea. However, similar initiatives (such as a land tax) under different names cannot be completely ruled out in future.

Businesses will likely see costs and regulation creep higher under Labour. Incremental changes to employment law will continue, with higher minimum wages and increasing sick leave the obvious ones.

For the housing market, Ardern has been reluctant to admit she would like to see lower house prices, and with her newfound middle New Zealand supporters, she will be even less inclined to do anything that puts most people's biggest asset at risk.

Having said that, we should expect Labour and the Greens to continue advocating for the rights of renters. Being a landlord could become slightly tougher and more expensive, as regulations increase and policymakers attempt to shift the balance of power toward tenants.

The focus on climate change will remain, and a key question will be how the Government approaches agriculture. Without NZ First in its corner, it remains to be seen whether the sector will remain insulated from the costs that other businesses will likely need to comply with.

It's hard to please everyone, and the downside of having the biggest group of people in decades vote for you is that you're almost certain to disappoint some of them.

Mark Lister is Head of Private Wealth Research at Craigs Investment Partners. This column is general in nature and should not be regarded as specific investment advice.