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New Zealanders have just witnessed a new-look Waitangi Day with a Prime Minister bringing fresh leadership and a new understanding to what has typically been an event riddled with tension.

Analysis

The Ardern-effect continues to cast its spell, even more so since the announcement of her pregnancy. Despite that, the Government faces real policy challenges in the coming months and its challenge will be to build on the present positive energy as it grapples with the policy challenges it faces in the coming months.

However, it is slowly becoming apparent that there is more to Ardern than the feel-good factor. She is an unusually instinctive politician who can read the right approach for the right groups of people (Ardern would not call them stakeholders or audiences). Her deft handling of Waitangi was a case in point with her breaking from tradition in a number of small but significant ways and being rewarded for it. Expect to see her use this same skill as the country heads into winter (and the Government’s first Budget). As expected, money will be tight and expectations high. The challenge of meeting those expectations is only likely to be increased by the possibility of a cooling world economy.

To date, the Government has moved relatively deftly, carefully calibrating the mandate it has and ensuring it does not unduly frighten the business community. It has signed up to the updated Trans-Pacific Partnership and it is only now looking at an aspect of immigration policy – post study work rights for international students. Its restrictions on overseas buyers purchasing residential property are blunt and questionable in policy terms, but likely to be popular with the electorate.

The biggest immediate challenges facing this Government are in housing and transport. It is in these policy areas that the National Opposition is posing the most questions. Voters want to see more houses. Those who already own houses don’t want to see their value diminished. In transport, there is a complex web of central and local government costs associated with light rail and the out-of-Auckland provincial demands for major roading projects.

Māori will judge the Ardern-Government by different criteria. At Waitangi the Prime Minister invited Māori to judge her Government’s performance. Māori want negative social indicators reversed and the fraught issue of water ownership addressed. Successive Governments have foundered on both.

Overview

The arbitrary timeline of the first 100 days are over. The spending has occurred and promises have either been delivered or some progress made. Key among these promises is the tertiary education free-fees and increased allowance package worth $360 million in the first year, an increase in the minimum wage to $16.50 from April 2018, a ban on overseas purchasers buying existing houses and Employment Relations Act amendments providing for collective bargaining, provision for meal and rest breaks and limiting the use of 90 day trial periods to businesses with fewer than 20 employees.

The Government has established 10 inquiries and working groups. Among them are a tax working group, an Inquiry into Mental Health and Addiction, an Interim Climate Change Committee and a Royal Commission of Inquiry into historical abuse in state care. These are complex issues, and taking time to properly investigate policy solutions is a good idea. The plethora of inquiries and working groups does create downstream risks for the Government though – the reports and outputs of those groups will need to be acted upon, possibly leading to difficult budgeting decisions in the coming years.

The Government has backed off some policies based on official advice and political pragmatism. There’s a pick-up in legislation introduced to Parliament. It has introduced legislation to set a child poverty reduction target and to change the Public Finance Act so the Budget reports progress on child poverty.

The Government is continuing to work at speed.

And it seems to be working with voters, at least so far. The latest Newshub Reid poll sees Labour’s support at its highest since 2007 on 42.3 percent. National continues to lead on 44.5 percent. Labour’s eight percent rise comes at the expense of New Zealand First, which is repeating the experience of gaining power but losing its independent voice. The consequences of this are inevitable and have been played out before.

Budget 2018

But with the preparation for this Government’s first budget now underway, there are tough decisions to be made. Labour has an ambitious programme and there are cost pressures including significant public sector wage claims. Officials say the money has been spent in the first 100 days. Labour will find more, by repaying debt at a slower pace, but the Government’s finances are tight. Finance Minister Hon Grant Robertson is working to manage and even lower expectations among colleagues as he juggles the spending bids from Ministers and coalition partners in his first budget to be read on 17 May. Ministers have been asked to go line by line through their budgets and prioritise. There will be cuts to expenditure – in some departments cuts are being sought of up to 5%. In many ways this is a similar story to the one that played out in the first years of the last National Government. The difference here is that Labour is looking to find savings to spend on other (social) programmes. The well-flagged cancellation of National’s tax cuts has been met with little fuss. Dampening wage expectation in the public sector is going to be a particular challenge.

NZ First delivers to its base

Finalising Budget 2018 will also see tensions between Labour and NZ First come to the fore. NZ First will be looking to extract its price for enabling a Labour-led Government. Expect the Budget to deliver funding for NZ First’s showcase policy, the Regional Performance Fund. This is set to include two all-weather horse racing tracks, hardly a serious contributor to regional performance.

When the Rt Hon Winston Peters announced the tracks at the Karaka yearling sales Grant Robertson called the track talk a ‘budget bid.’ Mr Roberston’s challenge will be in ensuring that the successful ‘bids’ for Regional Performance Fund dollars are real contributors to a step change in the regional economy, rather than ‘pork barrel’ politics.

Mr Peters is also openly lobbying for more funding for MFAT and New Zealand’s overseas aid budget.

The Greens’ economic model

Meanwhile, Associate Finance Minister James Shaw has signalled that the Government’s confidence and supply partner will be using new models of economic thinking that balance economic and environmental and social outcomes to guide decision making.

In his State of the Planet speech, he said the existing economic model isn’t working - he pointed to dirty rivers, polluted drinking water, entrenched poverty, growing wealth inequality, road congestion, house prices and homelessness as evidence. The Green co-leader highlights a model developed by Cambridge University’s Kate Raworth. The two concentric circles of her Doughnut Economics define an inner social foundation and an outer environmental ceiling. Between these two spaces is “the safe and just place for humanity.” The Earth’s “operating limits” are defined.

However, the Greens will be internally focussed in the immediate future. The race for the new female co-leader is now underway between Marama Davidson, Julie-Anne Genter and possibly Eugenie Sage.

Budget responsibility

Despite the pressures, and mindful of a fall off in business confidence, the Government has repeated that it will stick to its Budget Responsibility Rules and will continue to reduce net debt as a proportion of GDP.

Budget 2018 will build on the December Budget Policy Statement with an emphasis on child poverty, homelessness and regional development. The 2018 Budget will also reflect Labour’s moves for a completely new-look Budget in 2019. In 2019 Minister Robertson will deliver the country’s first Wellbeing Budget that will expand the assessment of expenditure beyond the impact on GDP to natural/environmental, social, human and possibly cultural impact. The Minister has asked Treasury to speed up its work on the Living Standards Framework. The new metrics will be designed to paint a more accurate picture of New Zealanders’ lives and inform Government spending priorities.

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Linda Clark2
Linda Clark

Special Counsel

Wellington

+64 4 915 0862

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