To win, Labour will need a better story
The Reserve Bank’s announcement of the biggest hike yet to the official cash rate was a bombshell Labour could have done without.
The bank ramped up the OCR up by 75 basis points to 4.25%, and now expects to lift it to 5.5% next year, although some bank economists expect the rate will have to move higher.
Either way, it implies interest rates of 7% to 8% on residential mortgages for a country that hasn’t seen rates that high since Helen Clark was in office.
The bank also expects a recession next year and for inflation to rise further. Neither is good news. While the headline-grabbing bit is that the Reserve Bank will engineer a recession to drive down inflation, for Labour it will be the continued general price rises, and the potential house price drops, that are most worrying politically.
And the economic outlook is fundamentally mixed: middle New Zealand is still spending, unemployment is low, and there are decent pay rises if you switch job. But, underlying all that, inflation means most people’s real wages are falling.
The conditions are perfect for National and ACT: Fears about the economy and crime.
A shallow recession adds to the mood music of doom, but it is ultimately abstract unless your lose your job or have to lay off people. Rising prices – especially on food and consumer goods – are felt by everyone everywhere. If inflation eases, it just means a slower level of price rises, not price drops – something not every Labour minister seems to fully comprehend.
In a broader historical sense, the higher interest rates actually represent the price of money returning to something more like normal.
It is easy to forget that, since the global financial crisis in 2007-2008, the world has been awash with some of the cheapest credit in the history of humanity. Savers have been screwed. An age of Shylock it has not been.
The difference is that, this time, interest rates have been lifted so quickly.
But it was Labour’s response that was most instructive.
Finance Minister Grant Robertson led it, saying that inflation is imported, New Zealand is doing pretty well by global standards and that, while tough, this was a better outcome from Covid-19 than having high unemployment. Labour had Kiwis’ backs during Covid-19, and would do again – and, oh, the National Party’s ideas are stupid.
The Government has been saying this for months, but the instructive part of it is how backward looking it has mostly been. Essentially, everything is framed in terms of getting over Covid-19.
While that may be true, there is very little talk about what comes next: what’s the next thing and how does the Government plan to deal with it. There is no particularly coherent account from Labour of what New Zealand will look like in 2023 and beyond.
In short, next year voters won’t care about how the Government managed Covid, but how it will manage inflation and run an economy that can underpin a society with opportunities.
As MPs and Parliament shuffle through to the end of an exhausting third year heavily disrupted by Covid-19, everyone is knackered. The public service is exhausted, pulled in every direction by a majority Government that dealt with Covid but is in a hurry to rush though its legislative programme.
Instead of concentrating on a few key things, the Government has spread itself pretty thin in trying to ensure it passes as much as it can: Three Waters, RMA and health reforms, and now add hate speech to that list. The calling of urgency this week with a list of a staggering 24 bills at various stages is reflective of this rush.
Labour has also come up against a disciplined Opposition now very good at pointing out Labour’s failings, if being suitably vague about its own plans.
Labour is fundamentally a technocratic government, and thinks National’s answers to most questions are either wrong or simplistic. Claims such as that inflation is the fault of the Reserve Bank’ and too much Government spending; parents should be held responsible for truancy, youth crime requires more punitive measures.
That is clearly particularly infuriating for Labour, which is keen on the social causes of crime and ‘‘wraparound services’’. Labourites find National’s views infuriating because they think they are wrong, but popular. Very much in the way National and ACT view much of the Government’s spending: stupid but popular.
But in trying to combat this, Labour has not been putting its political talent to its best use. If it is to lead a government after the next election, Robertson will need to play a key role, not just as finance minister but as Labour’s storyteller: what does New Zealand want to be and how will Labour sort out the economy to do that.
Instead, he has been extremely busy doing his job of finance, which also includes infrastructure, a big portfolio in its own right.
For Labour to succeed, it is Robertson who will have to find some time to act more strategically and set the Government’s direction. The economy will be the main thing come election 2023.
There is also other key talent on Labour’s front bench that is being underused. Chris Hipkins left the Covid-19 portfolio earlier in the year, being switched to police after the crime wave in Auckland meant a safe pair of hands was needed.
Crime is shaping up as a big election issue, but it isn’t clear that portfolio is making the best use of Hipkins. He is also the main education minister
Andrew Little, who carries the unfair moniker of ‘‘angry Andy’’, is another of Labour’s competent ministers, but he has a lot on his plate: a shambolic health system, plus the spooks, plus Pike River.
Among junior ministers, Kieran McAnulty is underused and so, frankly, is Kelvin Davis, who stumbles with the media but is serially underrated and could be doing something other than Crown-Mā ori relations and Corrections. Associate Education Minister Jan Tinetti has also been a pretty strong performer.
All of this will be feeding into the Cabinet reshuffle, which Jacinda Ardern has flagged for early next year. There are some talented Labour backbenchers, some ministers will be retiring and some would be better used in other portfolios. Underused backbenchers include Barbara Edmunds, Duncan Webb and a couple of others.
Parliament rises in two weeks, returning on February 14. It is most likely a reshuffle will be announced before it returns so new ministers can hit the ground running.
Ardern is, by nature, a cautious political operator but the reshuffle in the new year will probably have to be radical if Labour is to look in charge leading into the election.
These have been dog years for the Government. It feels like it has been in power for ages, thanks to Covid-19 meaning the Government has been up in everyone’s grille way more than usual
A Christmas break can’t come quickly enough.
The Cabinet reshuffle will have to be radical if Labour is to look in charge.