After a week of heavy policy releases where the major parties have clung to the political centre like a limpet to a life raft, we've been reminded - as if we needed it - why we have a life raft in the first place. It's official: Welcome to Recession Day. New Zealand's economy shrunk by 12.2 percent in the June quarter, the second quarter of negative growth in a row.
Yesterday, Treasury laid out its pre-election fiscal update (PREFU), offering its non-partisan predictions for the next four years. As Kiwibank Chief Economist Jarrod Kerr says, "We’ve never seen anything like this. It was traumatic." Or as Guyon Espiner says on today's Caucus podcast, "Pakaru mai te hāunga te āhuatanga o te ōhanga". The economy is stuffed.
An estimated 280,000 New Zealanders will be unemployed in 2022, government debt will reach 55.3 percent of GDP by 2024 (up from 19 percent last year), when we'll owe a whopping $201 billion. As we discuss on this week's Caucus podcast, these are massively, enormously, giant figures. But in the midst of a global pandemic it can be hard to absorb just how big they are. So let's put it this way; this was a PREFU straight out of Gulliver's Travel, where Lemuel Gulliver is shipwrecked on the shores of Lilliput, a land inhabited by people who are 15cm tall. The numbers are on a Gulliver-esque scale; so much bigger than everything you've seen before. Previous election numbers look Lilliputian by comparison.
Most years this result would be the government's death warrant, but in a sign of the bizarre times, Finance Minister Grant Robertson was able to announce the numbers with a tone of optimism. Treasury and the banks had in May been predicting unemployment at least double the 7.8 percent peak now predicted and economic contraction of 17-18 percent. So Robertson is able to say we're better off than many had feared. He took credit for that while blaming the worsening medium-term predictions on global uncertainty.
It's almost like it's an election campaign.
As it stands, the economic bad news this week - and it is truly awful - is ka pai for Labour politically. Better the devil you know in a crisis, many seem to be thinking. And there's even the odd brighter spot. Despite Labour's constant that this is a "one in 100 years event" and National's Paul Goldsmith reasonably saying "this is the deepest recession in living memory", the unemployment rate isn't even as bad as when Jim Bolger and Ruth Richardson governed us through the 1991 global recession. Then unemployment peaked at 11.2 percent. One thing the experts seems to agree on is that 'it could be worse'. And that only helps the incumbents.
Whereas Richardson met that 1991 crisis with huge cuts to government spending, Robertson is promising that with "careful management" he can keep up public services and pay down debt. That optimism is yet to be tested by events, but even if it's ill-founded the election will be well over by the time we find out.
Indeed, both major parties are extending the Gulliver's theme to the entire campaign. Consider that at the last election National and Labour were debating their respective $2.6 billion and $2.2b transport plans. National has already promised that much spending on renovating schools alone, plus another massive $31b on roads, rail and other infrastructure. Labour had promised $12b more in January, even before Covid-19 struck.
With low interest rates and immigration stalled, this is a great time to play infrastructure catch-up. But let's not forget just how gigantic these promises are.
Politically, the focus is increasingly on what votes the minor parties can take off Labour and National. It's been a while since we had a public poll (more are expected next week), but the question being asked is whether Labour might be the first party under MMP to govern alone. Guyon Espiner, Lisa Owen and Scott Campbell think the signs are that Labour is angling for that slice of history, free to follow their own path without the hindrance of coalition partners.
I disagree. Why would they want to take the responsibility alone for what will be a brutal three years in government? Hard choices lie ahead and Ardern and Robertson don't want it all to be on them. By clinging to the centre they maximise the vote they can take off National, while leaving room on their left for the Greens to grow. I don't think that's by chance.
Jacinda Ardern has repeatedly shown herself to be a conservative leader, despite the "transformational" rhetoric. Labour governing alone is unlikely to be a very progressive government, something many in Labour want it to be. So rather than expose those centre vs left tensions within Labour, how much better to let the Greens be their progressive conscience while it concentrates on being the party of the masses?
Labour leaders certainly still expect the Greens to win. After all, in 2017 they did all they could to get kicked out of Parliament and still got more than 6 percent. The longer shot now is New Zealand First, a party it's clear Labour could live without. So, one month from election, one key question is whether Winston Peters has another comeback in him. Taihoa, we'll see soon enough.