Reserve Bank sets table for an Orr-full Christmas

Within a week, Reserve Bank Governor Adrian Orr had apparently gone zero to hero in the National Party’s estimations, courtesy of the utterances around his move to try to stifle inflation by ramming the Official Cash Rate up.

A modern-day monetary Moses, Adrian Orr had made his six-weekly descent from the Mt Doom that is the Reserve Bank to issue the latest OCR decision and his next set of commandments.

The OCR decision was not pretty and the commandments were thou shalt not ask for a pay rise, thou shalt not buy nice Christmas presents, thou shalt swap turkey for cheap chicken, thou shalt have a staycation.

Orr’s own gift was high mortgage rates and a recession for 2023, wrapped as a cruel-to-be-kind present. He wrapped it in an apology, saying the Monetary Policy Committee were “sorry that New Zealanders have been buffeted by these significant economic shocks and are experiencing inflation well above our central bank 1-3 per cent target range”.

He had a few commandments for the Government as well, and it was those that delighted National so much.

Just a couple of weeks after baying for Orr’s head after his reappointment, National MPs are now quoting him as the great omniscient one.

There was Nicola Willis asking Finance Minister Grant Robertson about Orr’s comment “we've got too much home-grown inflation” and what the Government would do to address its contribution to this homegrown inflation — a snippet that tied nicely into National’s attempts to pin inflation on Government spending.

We had Erica Stanford and Nicola Willis quoting Orr’s comment that tighter immigration settings were “a handbrake,” that more labour would be better “and everyone has told the Government that”.

That ties nicely into National’s attacks on immigration settings contributing to worker shortages.

It would be hard to tell which group is filled with most dread by Orr’s bitter medicine: the Government for the impact on mortgage rates as election year looms, retailers for his “have a sensibly spending Christmas” signoff, or mortgage holders who have to re-fix in the near future.

From the Government’s perspective, Orr is at least now taking some of the heat for something it doesn’t particularly want to wear the blame for itself: the pressure on household pockets from inflation and the remedy for inflation (the higher interest rates).

That will be a temporary reprieve: it will not be long before it centres on the Government again.

It is tempting for voters to go the party that says they can make everything alright, even if they don’t necessarily believe it. That is easier for an Opposition party to do.

For some months now, Ardern and Robertson have been warning 2023 is shaping to be a tough year, in an apparent bid to soften the realisation for voters when it actually happens. While in Bangkok for Apec, Ardern made a point of noting the International Monetary Fund managing director had told the leaders if they weren’t in recession, it would feel like it.

Labour is now confronted with an election year hell – and so are voters. Both National and Labour — and the smaller parties — will have to digest what Orr’s commandments mean for them as that “very tough year” coincides with an election.

The current debate consists of Labour describing everything National proposes as “austerity” and National accusing Labour of wasteful spending. It doesn’t cut it.

Whenever trimming spending is raised with Robertson, he immediately reaches for the line that New Zealanders would not thank the Government for cutting “key services”.

He is right, but not everything the Government spends money on is a key service.

Robertson said the Government would look at its spending programme to see what might be delayed or scotched, all the while insisting its spending was not the problem anyway.

The next day, Transport Minister Michael Wood insisted his road and rail empire building plan would not be affected — one of the most expensive areas of Government capital spending — again while insisting the Government was going to be judicious with the books.

There is capital to be made here by the smaller parties who can promise the world without any real expectation they will deliver on it. For the larger parties, putting up voterpleasing, big-spending policies to try to win that election is not necessarily the election-winner it might otherwise have been.

National has already made a token acknowledgement of that, stating that the luxury item in its tax cuts package (repealing the 39c rate on incomes of more than $180,000) was on the chopping board.

That u-turn has been in the works for some time, but was presented once the time was right.

That time was when a sacrificial lamb was needed to illustrate National was the “responsible” manager of the economy, willing to sacrifice their wish-list for the sake of the economy.

It carries the side-benefit of depriving Labour of something to whack it about the head with: big tax cuts for the rich while the poor got crumbs was not playing well.

And it does it without actually getting rid of the potential votewinner policy, it’s wider tax cuts policy.

The real ballot box gain from its tax cut policies lies in its parallel policy to adjust the other tax thresholds, giving a tax cut to everybody — and that remains intact.

Meanwhile, Robertson has claimed the Government is already trimming its spending.

Robertson is indeed trimming spending from the Bacchanalian feast of the Covid-19 years — but not from the pre-Covid years.

It will drop from 35 per cent of GDP during the Covid years when the Government chequebook was propping up workers and businesses to about 31 or 32 per cent of GDP, the same as usual.

Labour’s week had begun relatively well but then came Wednesday and Adrian Orr. And then came Thursday and news of the horrific killing during a dairy robbery in Sandringham, the PM’s own neighbourhood and electorate.

That was just a day after Ardern had pointed to the apparent decline in recent months in ram raids and retail robberies and put Labour back on the back foot on the issue.

It was fighting fires on both the economy and law and order front at the same time. Both issues decide elections.

One week does not an election loss make — but the crime wave may improve.

But the pronouncements from Mt Doom will not be getting any more cheerful for some time yet.