Business as usual despite PM’S notice
The economy is unlikely to take a major hit from yesterday’s surprise news that John Key is stepping down as Prime Minister and leader of the National Party.
Market reaction was muted with commentators citing Finance Minister Bill English as a safe pair of hands for the economy, whether or not he takes over the top job.
The New Zealand dollar dipped slightly to about US70 cents, but economists don’t expect long-term fallout.
ASB chief economist Nick Tuffley said it was possible business confidence would dip slightly in the short term and that the usual pre-election slowdown of business investment decisions may be larger than normal.
‘‘[Our] main economic risks remain potential shocks from overseas, particularly through the outcome of the US presidential election, the added political uncertainty generated by the resignation of the Italian prime minister, and geopolitical risks in general.’’ he said.
Tuffley said the main focus would be on the Government’s policy direction and whether it would continue until the general election in 2017.
‘‘You would expect largely business as usual until the election. From then on it’s a little bit more interesting in the sense that it may shift the chances of the National-[led] Government remaining in power for the next term.
‘‘But you still need to bear in mind that from a fiscal point of view Bill English is still Finance Minister and is a very safe pair of hands. You’ve got someone very experienced in fiscal and economic affairs who is there to provide input into policy,’’ Tuffley said.
Bank of New Zealand senior economist Craig Ebert said Key’s resignation would make it harder for National to win the next election and, at the margin, would be seen as a negative by financial markets.
He assumed Key had spoken to English about taking over, with the Finance Minister now able to use Thursday’s Half-year Economic and Fiscal Update to launch his credentials.
This would involve a fantastic set of accounts and the promise of tax cuts, Ebert said. ‘‘English has been the thinking man behind National’s success and the real anchor of its policy.
‘‘The problem is that he is not the frontman that Key is. The next political polls will be very interesting, as will the next business confidence surveys.’’
Speaking on behalf of the business community, Businessnz chief executive Kirk Hope praised Key’s ‘‘impressive’’ leadership.
‘‘If you think about his prime ministership, his stewardship of New Zealand has been pretty effective through a postglobal financial crisis world, having to deal with large natural disasters.
‘‘He managed to do all that, and kept momentum in the economy, and at the same time not cut spending in a way which left the most vulnerable even more vulnerable.’’
Hope said Key’s Government was marked by a ‘‘no surprises’’ stability that was envied across the Tasman.
As well as balancing the Budget, which was part of Key’s long-term plan, there had been other successes which had not been given much airplay.
One was raising the number of trade apprentices to about 50,000, Hope said.
University of Auckland pensions expert Claire Dale said Key’s resignation meant the country could start debating how to make New Zealand Superannuation more sustainable.
Key famously refused to countenance any changes to NZ Super on his watch, she said, which effectively killed the debate about changes that could make it more sustainable as the population ages.
The cost of NZ Super was rising at an unsustainably rapid rate, she said.
‘‘It’s not just a matter of increasing the age of eligibility [currently 65] to solve the problem; it is looking at perhaps indexing NZ Super to inflation like other benefits,’’ she said.