ANALYSIS: All elections matter, and it is rarely accurate to say that the outcome won’t change anything. But when we look at the key factors that have driven our economy to growth of 1.8% this past year and possibly propel growth towards 3% over 2027 and 2028, the election outcome counts for little.
The big factor behind our recovery is a strong rise in farm incomes. These rises predominantly reflect high international prices for our red meat, dairy products, and Kiwifruit. None of these offshore markets will be affected by who ultimately forms the government.
Good growth in foreign visitor numbers is also a key driver of our economic growth recovery. And the big factors influencing people’s willingness to come our way are international airfares, security issues in non-Australasian markets, and the economic strength of the countries from which our visitors predominantly come. Our election outcome will not influence any of these factors, although a hung parliament may lower the currency – and therefore boost inflows.
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Numbers of foreign students coming to New Zealand are growing strongly, and this is likely to continue as Australia makes access harder. The small support for NZ First suggests little prospect for a curb on these inflows regarding the ability of students to work and remain after graduating.
There is a good level of infrastructure work underway and scheduled in New Zealand, and although the centre-left might pull back on some projects such as roading, this would likely be offset with even more debt-funded spending on other pet projects.
There has been a strong lift this past year in the number of consents issued for construction of new dwellings around the country. The lag to actual construction seems to be longer than usual, but it still seems reasonable to expect a good lift in construction activity next year. If a centre-left government prevails after the counting of special votes, we would see efforts to discourage people from investing in the provision of rental accommodation for the 32% or so of the population who traditionally rely on it.
Independent economist Tony Alexander: "Investor interest in purchasing or constructing new property has been very weak for over five years." Photo / Fiona Goodall
But investor interest in purchasing or constructing new property has been very weak for over five years, and reaction to a possible change in the bright-line test is unlikely to have much additional negative impact on investor demand for property.
Little change lies ahead for the key problems affecting Kiwis in the economic sphere. The cost of living is set to keep rising, and business margins are set to remain constrained. Access to healthcare will shift little, given the main problem is the lack of resources rather than a lack of cash.
At the margin for our economy, at least in the short term, the general election outcome counts for little. But if cobbling together a viable government involves extra spending that boosts public debt and potentially misdirects resources to low-productivity activities, the medium- to long-term outlook will be worse.
Are there any immediate monetary policy implications? A centre-right government will leave things unchanged. But a centre-left government might add the employment target back in, which would risk even faster cost-of-living increases (higher inflation) because of our central bank’s revealed bias towards tolerating inflation averaging 4% rather than targeting 2%.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
