Labour wins big but now the real work starts
Jacinda Ardern faces the grind of leading the nation through tough times and she will come under sustained pressure and criticism. Luke Malpass looks at the implications of last night’s historic result.
Jacinda Ardern has led the Labour Party to a landslide, crushing Judith Collins and the National Party along the way, claiming a ‘‘mandate to accelerate’’.
At the time of writing, the centre-Left vote in New Zealand was edging 58 per cent. Not only was this a huge result for Labour, which looks like it may govern in its own right with 49 per cent of the vote at the time of writing, but also the Greens, which were tracking at just under 8 per cent.
‘‘Our plan is already in action and already working, but after this result we have the mandate to accelerate our response and our recovery, and tomorrow we start,’’ Ardern said in her victory speech.
‘‘We will be a party that governs for every New Zealander,’’ a nod to the fact that a lot of Kiwis voted Labour for the first time.
It is the worst result for National since 2002, with 26.9 per cent of the vote at the time of writing. In line with the preelection polls, ACT had a strong showing with 8 per cent of the total centre-Right vote of National and ACT combined was not even 33 per cent of the vote, a figure National party hopefuls thought Collins might have hit herself on the night.
Labour has made strong foray into the National Party’s heartland, killing off the centre-Right vote carefully nurtured and built up during the John Key and Bill English years.
But now is when the real work begins. Labour will enter the election in the most dominant position to change New Zealand quickly, and according to its beliefs, since the last first-past-the-post Government led by Jim Bolger in 1993, New Zealand’s last clean parliamentary majority. It looks likely to be the biggest single party majority since 1990.
The political achievement of this in the MMP political era should not be understated.
But when the celebrations and hangovers subside tomorrow, Labour will have to grapple with the biggest set of challenges facing any Government since 1984.
The first-up challenge will be how to keep a lid on unemployment and the Covid-19 rebuild without blowing out the national debt. According to the Government’s Pre-Election Economic and Fiscal Outlook, it will spend an additional $58.5 billion on the coronavirus recovery.
Net core Crown debt is projected to still hit 48 per cent of GDP in 2034 on current policy settings. This is a key metric Labour will have to get under control. As a small, exposed trading nation, fiscal incontinence is not an option. Running careful fiscal policy provides the buffers the Government will need for the next economic disruption. A credible path back to a balanced budget will be crucial.
Finance Minister Grant Robertson has repeatedly said he won’t put a target on debt, and will aim to get debt down as quickly as possible. But, and it is a big but, not at the expense of public services Labour deems important.
Labour has promised a big infrastructure building programme. But how it is rolled out and what the priorities are remains to be seen. The need for new infrastructure was a bipartisan issue during the campaign.
It is, says BusinessNZ’s chief executive Kirk Hope, the main game.
‘‘ Infrastructure – full stop. Wellplanned, well-thought-through economic and social infrastructure development will address our productivity, skills, and economic challenges – done well it can make us sustainable and the envy of the world,’’ Hope said.
With this in mind, the key political economy question is how constrained the Government will feel without the immediate pressure of running budget surpluses: the books show that there won’t be a surplus for 15 years on current projections.
There are some moving parts that could drastically reduce the nation’s debt track. The first is that New Zealand gets a competitive advantage out of its Covid- free status which reaps significant export returns and attracts investment. The second is that Robertson has put aside $14b for a Covid rainy day. Because that money has been appropriated it has to be booked as being spent.
But should it not need to be spent at all, the debt recovery track will get much more favourable much more quickly.
Partly, the debt recovery will also depend on the Government’s approach to unemployment. Should it decide that significant stimulus is required to get unemployment down quickly, that will come at a fiscal cost. According to the Pre-Election Fiscal Update, unemployment will stay above 5 per cent until after 2024. While on a global scale this is a good performance, New Zealand is a small, exposed economy. Crucially as well, under the Treasury’s less rosy scenario of extended border closures, that figure could hit 9 per cent next year.
The impact of further lockdowns on economic activity remains significant. Treasury estimates that another nationwide level 2 or level 3 lockdown will have the effect of hitting the economy to the tune of 10 per cent and 20 per cent respectively.
The other big, but quiet, structural change for the New Zealand economy will be the re-emergence of unions as a central part of the political firmament, through new industry-wide Fair Pay Agreements favoured by both Labour and the Greens.
Council of Trade Unions president Richard Wagstaff says New Zealand has shown we can be the best in the world in a crisis – ‘‘now let’s be the best in the world at looking after our people outside of one’’.
Another overarching issue will be the Government’s ability to recalibrate its appetite for risk and New Zealand reintegrating into the world. In short, when the borders will reopen?
This will require some skilled
threading of the political needle from Ardern. She has made her Covid reputation on keeping Kiwis safe but reopening the border will necessarily entail some risk. People are scared of Covid and yet the Government’s path back to global reintegration will be crucial.
Net migration, a significant source of New Zealand’s growth over the decades, is expected to drop from 86,000 to a paltry 5000 through to the middle of next year. Keeping the border closed isn’t just about tourists coming home: it has the much more serious effect of not allowing new New Zealanders in, driving growth and bringing aspiration and economic dynamism.
National now has been reduced to a rump that will most probably take years of hard work to rebuild. Judith Collins will remain leader for now and is clearly not stepping aside given the dearth of obvious leadership candidates. Any sensible leadership aspirant in the party should be begging her to stay on for the time being.
The International Monetary Fund predicted a trenchant five years ahead for New Zealand, arguing that the economy will still be smaller than its pre-Covid levels in 2025, making it one of the most prolonged recoveries in the developed world.
On last night’s figures, Labour’s dominance in Government will give it a significant ability to make swingeing changes to New Zealand’s economy and society. The question will be whether it will have the inclination to do so.
In particular this poses a challenge for Robertson.
He has tried hard to change the perception that National Party finance ministers are better economic and fiscal stewards than Labour ones. He clearly believes in more spending on public services and government in general than National, but also in running surpluses. He wants to leave a strong Labour legacy of economic management.
In effect the question will be whether Robertson gives in to spending demands from his more Left-wing colleagues, or he backs his grand historical project of changing the public view of Labour’s economic management. How he performs will also ensure whether he firmly comes in behind Ardern as her clear successor when the time comes.
In the last few days of the campaign Labour deliberately hewed back to economic management, making a direct appeal to National Party voters who don’t like Collins but couldn’t quite bring themselves to vote Labour. Ardern and Robertson successfully pitched themselves as the heirs to the Key and English economic management legacy.
That creates both a political problem and an opportunity: pitching as a middleof- the road Government will help win votes, but Labour will also feel potentially crimped in what it can do.
New Zealand is now facing an extended period of the economy sputtering to get back to the level of last Christmas. It is more than likely that this Government will have to take risks and make bold decisions.
The Fourth Labour Government under David Lange and Roger Douglas was transformational, and although clearly Ardern, Robertson and their fellow travellers would not like to emulate that policy framework, there may well be necessity to take similar bold action.
The other big question will be around who or what Jacinda Ardern becomes this term. The prime minister is clearly wellknown and loved. But her identity as a political leader in ordinary times is still not fully formed.
Once the immediacy from Covid dies down, unemployment starts hovering up around 8 per cent, and the number of people who have given up looking for a job also increases, Ardern will be faced with the daily grind of leading during tough times. Results will be key.
It is highly unlikely that there will be another three massive disaster moments in her next term in Government. Her credentials as prime minister will be tested. The next year is also likely to be the first time in her career that the prime minister will come under sustained criticism and pressure.
The Covid recovery, and all the money rushing out the door for projects will invariably turn up some duds. Stories of the impact of high unemployment will start to seep out. It will be tough, and consistently so. Ardern’s biggest political achievement has been the management of Covid-19, but the second biggest has been to be seen as somehow non-political, or above politics. That has been achieved by her communication skills and a carefully and a highly professional, stage-managed media operation.
As Covid becomes more a reality of everyday life, the memory of the disasters fade, the PM’s job will be harder and the public image more difficult to burnish.
The question will be whether Ardern is prepared to spend her political capital to do what needs to be done. John Key wasn’t. It will be a mark of leadership if she does.