Confidence question is constraining Labour

Since returning to Wellington, Jacinda Ardern has been at pains to point out that, compared with other countries, we still have it pretty good in New Zealand when it comes to the economy. The prime minister has effectively reduced business confidence to nothing more than ‘‘sentiment’’, preferring ‘‘real’’ measures such as low unemployment and healthy Government forecasts. For the business community, in a collective funk that has seen confidence drop to levels not seen since the global financial crisis, this may feel like an unwanted sermon, but they would do well to look just across the Tasman.

National leader Simon Bridges has been espousing the strength of the Australian economy, pointing to new jobs in mining being created every few minutes. But the reception for the business community elsewhere is downright hostile.

Since late last year, banking and financial services executives and senior managers are being called in, one by one, to face a royal commission grilling over alleged misconduct. Under threat of prosecution, careers have been destroyed for the misleading and mistreating of customers.

As well as being in the public glare, the probe appears to have had an impact on banking behaviour, with the appetite for lending dropping.

Will the same happen here? The banking sector is not only hugely profitable here, it is dominated by the same banks under fire in Australia, and union officials as well as some in the financial community have called for an inquiry.

For a few brief hours in July it seemed likely, when Michael Wood, chairman of Parliament’s finance and expenditure select committee, gave an interview to business website Interest.co.nz saying that the chief executives would be hauled in for a grilling, invoking the ‘‘public interest’’ in the issue. But while this made the MP for Mt Roskill one of the most talked-about politicians in banking circles, it appears he wasn’t just jumping the gun, he was misreading the changing political mood, and speedily backed down.

While it is quite possible that some measure will be taken to appease union concerns that frontline bank staff are responding to pressure to meet targets by selling products that customers do not need, any real heat seems unlikely.

With the Treasury warning its forecasts are at risk from global pressures and plunging business confidence, and the Reserve Bank expected to follow suit and trim its own growth forecasts this week, there seems little appetite to heap any real pressure on a sector that of the economy is more critical to maintaining speed than any other.

This is especially important at a time when possibly the most political of economic indicators – house prices – is easing, especially in Auckland.

As Ardern deflects questions about whether her Government has been responsible, even in part, for the business mood, falling confidence already appears to be constraining the Government.

The coming weeks could prove absolutely critical. Most of the points raised by Ardern about the economy since her return are valid, but appeared to be aimed much more at the general public than the business community.

That business community may be politically biased and it may be overreacting, but effectively telling them that their perceptions are not the same as the reality may not win friends.

More likely to build trust would be some type of acknowledgement that, in striving to take a new direction, the Government may have misread the importance of clarity, or that business confidence may have been taken somewhat for granted.

But any acknowledgement or concession is fraught with risk for the Government. What would win support from the business community would be signs that policy will be developed in a way which it is comfortable with, after nine years of National-led governments that were willing to back down at the first sign of employer or investor confidence being at risk.

Already Ardern’s Government is coming under heavy pressure from state-sector unions to make hefty pay offers to help make up for years of low wage growth. Yesterday’s agreement with the New Zealand Nurses Organisation will only have encouraged others, especially teachers, to apply pressure to extract better settlements.

The same lesson applies to business, only the pressure will be felt through lobbying and publicity rather than the threat of industrial action.

If Ardern’s Government was to offer a significant concession in the face of a fall in business confidence, which so far she is not willing to take any responsibility for, then the pressure to bend on policy whenever the going gets tough will only increase.

What would win support from business would be signs that policy will be developed in a way which it is comfortable with.