Election 2014

Economic management the key

10:46 am on 26 October 2011

[26 October 2011]

The release this week of the pre-election economic and fiscal update has given a clear context to the political debate which will run until 25 November, the day before the election.

Despite ominous clouds in Europe and the United States, the Treasury's taken an optimistic view. It is forecasting the economy will grow on average nearly 3% a year to 2016 and that the Budget will be back in surplus by 2014-15.

As well, it's predicting that the unemployment rate will progressively fall to 4.7% in 2016.

But even with these optimistic forecasts, some other stubborn problems within the New Zealand economy are refusing to improve.

The current account deficit - the difference between what the country spends and earns overseas each year - will zoom up. That will help push the country's net indebtedness back up to nearly 78% of gross domestic product - the rough measure of annual economic output - in 2016.

The Treasury admits this is a rosy picture of the future.

It warns that there is a one-in-five chance things could be worse - much worse. In this scenario, a forecast $35 billion could be lost from the economy over the next five years, driving down the tax take and ensuring the public finances remain in deficit in both 2015 and 2016.

But Finance Minister Bill English, who is normally a cautious realist, is much more optimistic and does not accept Treasury's downside scenario.

Obviously, there is an election looming.

Mr English has used the pre-election economic and fiscal update to promote National's economic credentials, saying it proved the party had managed the economy well.

He says despite the global financial crisis and the Canterbury earthquakes, the economy had got through tough times in good shape and faced a bright future.

Mr English used the update to argue it was crucial the country stuck to National's programme of responsible financial management and policies that build a more competitive economy.

These include, among others, National's plan to partially privatise the State-owned power companies and Solid Energy.

Policies and personalities

National's selling point this election will rest on its economic management, particularly given it has had to deal with the global financial crisis and the Canterbury earthquakes.

But more specifically, its campaign will focus almost entirely on its leader, John Key.

Mr Key remains deeply popular and this has helped hold support levels for National so high. Nothing yet has appeared to put any dent in his popularity.

John Key's popularity - and by association National's big lead in the opinion polls - has prompted the Labour Party to be bolder in its policy prescription than it otherwise might have been.

Labour knows it cannot win the personality battle with Mr Key. Instead, its campaign will be focused much more heavily on policy than personality.

After years of dithering, it finally adopted a capital gains tax policy. It will also introduce a $5000 tax-free threshold as part of a move to shift the system to one which taxes wealth more, rather than earnings and investment.

While bold, it is hardly radical or left-wing. Most developed countries have similar policies. But its labour relations policy is a shift leftwards and involves more than the minor tinkering it did when last in government.

It would raise the minimum wage to $15 an hour, repeal National's 90-day trial law and ensure workers get a Monday off when Anzac and Waitangi Days fall on weekends.

As well, it proposes allowing unions to negotiate appropriate industry standards through the Workplace Commission, which would then be applied to all firms and workers in that industry. But unions would not be able to strike in support of their claims and would have to put up a strong case to argue for the standards to be introduced.

That policy has naturally drawn cries of outrage from employer groups.

Labour's savings policy is also expected to be bigger, brighter and bolder than that proposed by National.

When coming to choose between the two major parties which seek to lead, the next government voters will have a real choice. Unlike the 2008 election, when John Key sought to narrow the differences between National and Labour, this election Labour wants to widen them.

Labour leader Phil Goff knows he has just one chance at becoming the country's next prime minister and therefore he has had to be bold.

What of the minor parties?

Only the Green Party is consistently recording support above the 5% threshold.

Indeed, recent polling has it around the 10% mark, giving the Greens the prospect they could boost their numbers in Parliament and become an even greater force.

The Green Party also has the advantage that it has a clearly defined philosophy and policy prescription which sets it apart from other parties. While all the others have adopted environmental policies, none match the Greens' commitment to green politics.

And the grounding of the Rena container ship on Astrolabe Reef off the port of Tauranga earlier in October has not done the Green Party any harm - even if it has polluted the sea and beaches of the Bay of Plenty. The disaster has brought home to voters again the dangers posed to this country's fragile environment.

The Maori Party has struggled since it entered a support arrangement with the National-led Government. That led to MP Hone Harawira leaving and setting up the Mana Party.

The Maori Party might now find it difficult to hold on to its Te Tai Tonga seat and could be reduced to three MPs after the election. Its job will be to convince those who voted for it in 2008 that it made real gains out of its alliance with National.

But if the Maori Party is struggling, the ACT Party is imploding. ACT goes into the election with none of the MPs who represented it in Parliament standing as candidates.

Gaffes by its new leader Don Brash have not helped, and it will depend on former Auckland mayor John Banks winning Epsom for the party to retain its place in Parliament. But there is no guarantee of that, with recent polling suggesting that Mr Banks is well behind in Epsom.

That could change, though, if it becomes clear closer to the election that National needs ACT's support to form the next government. So ACT will desperately hope strategic voting will once again give it a political lifeline.

Another of National's support parties is also struggling to gain traction. Peter Dunne's United Future hardly registers in the opinion polls and will rely on Mr Dunne winning his Ohariu seat.

But after 27 years in the seat he faces a strong challenge from Labour list MP Charles Chauvel, who cut his majority substantially in 2008, and it appears National list MP Katrina Shanks is ignoring party instructions to campaign solely for the party vote.

That leaves two mavericks: Hone Harawira and Winston Peters.

Mr Harawira's Mana Party probably has not made the impact he would have hoped and he will have to spend most of his time consolidating his grip on Te Tai Tokerau.

In Winston Peters' case, he has a much tougher job campaigning from outside Parliament in an effort to get his New Zealand First party back into the corridors of power.

His chance may have gone - but don't rule him out.