Pearls and Irritations

While Ardern is a success overseas, events occurring both in the domestic market and overseas have been working against her government. The Covid Pandemic, the Ukraine war and the high cost of fuels, inflation, high interest rates and a likely year long recession combine to create concerns for New Zealand families and a night-mare scenario for Labour in the election due next year.

The New Zealand Prime Minister’s talent for the subtleties of diplomacy came into focus during her recent travels in Asia.

In the past few weeks Ardern has been warmly received in Cambodia by her Indo-Pacific counterparts at the annual meeting of the East Asia Summit (EAS) and the Second ASEAN Global Dialogue on Post-COVID-19 Comprehensive Recovery.

“Leaders met this year against a backdrop of inflationary, economic and security challenges in the region,” Jacinda Ardern said.

“My participation ensured New Zealand had a voice on the issues that are shaping our wider home region and reaffirmed our commitment to a peaceful, stable and prosperous Indo-Pacific region with ASEAN at its centre.”

At the ASEAN Dialogue leaders also spoke of serious global inflationary and economic pressures affecting all sectors of Indo Pacific societies and economies. Poverty in the region is increasing. Ardern said the nations of the region should act together to resist increasing tensions.

“We must lean into each other not stray apart if we are to strengthen our economies and overcome the gathering storm clouds,” Jacinda Ardern said.

She had a most successful meeting with Xi Jinping on the side-lines of the APEC summit in Bangkok. Their meeting ran more than double the 20 minutes allocated to it.

Afterwards Ardern said a large part of the meeting was spent discussing tensions in the region and how the two countries can work together promoting peace and stability.

Xi later said he agreed on such a goal, and he noted that with different social systems, stages of development, histories and cultures, it is natural for China and New Zealand to have differences on some issues, but these differences should not be allowed to define or affect bilateral relations.

Ardern has consistently demonstrated an ability to successfully raise issues about human rights and other concerns with China without creating a crisis in their relationship.

Before the meeting Xi said New Zealand and China should cooperate in areas of converging interests and “the partnership had been mutually beneficial and should be taken to a higher level”.

Ardern said she “encouraged China to use its influence and access to help address regional and international security challenges such as the DPRK and Ukraine”.

Evidently the relationship is vigorous, honest, respectful and still developing, a tribute to the New Zealand Prime Minister’s ability to negotiate intelligently and effectively as part of her quest for an independent foreign policy.

This theme was further developed when Ardern led a productive four day trade mission to Vietnam which has maintained its long standing close relations with Russia.

While storm clouds gather internationally with rising tensions and deteriorating economic conditions in the Indo Pacific and further afield, a deep gloom is also gathering over New Zealand where the Labour Government faces an election on a date to be set in 2023.

The Government’s reforming ambitions to attack New Zealand’s problems on all fronts struck a road-block when the Covid-19 pandemic hit. Since then more challenges have piled up.

Labour’s handling of the Covid pandemic has attracted both praise and criticism.

The Government introduced strong measures. The stated objective was that a strong health response would produce a strong economic outcome. Finance Minister Grant Robertson said this approach saved lives and saved livelihoods.

The excess deaths figure sank below zero and stayed there, while during the pandemic most other countries that provided figures for excess deaths recorded between 2 percent (Australia) and fifty percent greater than expected deaths.

Research by Otago University public health experts and reported by the Otago Daily Times shows that across the entire pandemic period, New Zealand had minus 215 excess deaths per million, which equated to around 1103 fewer people dying than in a scenario in which the Covid-19 crisis never happened.

If New Zealand had experienced a similar per capita excess mortality rate compared with other jurisdictions, then the country may have seen 1856 extra deaths (Japan), or 2127 (Taiwan), 2577 (Australia), 3798 (Singapore) or South Korea (5167).

Remarkably, there were only nine jurisdictions on the planet which recorded negative cumulative excess mortality for the pandemic period, of which New Zealand was the largest.

Not everyone considered this was a success, however, and the Prime Minister and the government have seen a reduction in popularity.

Despite the pandemic the economic figures for 2022 are remarkably healthy. The September quarter unemployment rate was historically low at 3.3 percent. Wages grew slightly ahead of inflation in recent years.

New Zealand’s Government debt is also low at just over 31 percent of GNP and dropping.

The economy is predicted to grow for a few more months but about the middle of next year Ardern is expected to face substantial challenges associated with the economy.

On November 23 the Reserve Bank increased the Official Cash Rate by 75 basis points to 4.25 percent, the highest rate since December 2008 and the biggest single increase since 1999 when the OCR was established.

A cluster of crises caused the decision. The Monetary Policy Committee said core consumer price inflation was too high, employment was beyond its maximum sustainable level and spending had to be restrained to bring inflation back within its 1-3 percent per annum target.

Inflation reached a 32-year high of 7.3 percent in the year to June before falling slightly to 7.2 percent in the September quarter. It is expected to peak at about 7.5 percent early next year.

The worst news for the government is the forecast that the Official Cash Rate could rise to 5.5 percent by September next year and a year-long recession could start about the middle of next year. Unemployment could reach five percent around the time of the election usually held late in the year, often in September, October or November.

Predictions of a recession along with higher mortgage rates combined with property price falls will be a shock for many homeowners.

The Reserve Bank governor Adrian Orr told Parliament’s Finance and Expenditure select committee the Reserve Bank would slow spending in the economy and get inflation down.

When asked if he was deliberately engineering a recession, Adrian Orr said “I think that is correct. I mean we are deliberately trying to slow aggregate spending in the economy.”

He said a rise in unemployment was likely, but it may be a “job-rich” slowdown because of the labour shortage in the economy.

The Finance Minister Grant Robertson said it would be a “soft landing”. Government support for families and businesses during the pandemic and strong exports placed the economy in a stronger position than many countries to weather the slowdown.

A number of measures help families cope with the rising cost of living including a short term cost of living payment, support for families with children, help paying education costs, a higher minimum wage and doubled sick leave entitlements.

While Ardern and the Labour Government can produce a long list of achievements, yet criticisms are gaining traction, led by the opposition National Party and the most abrasive minor party leaders, New Zealand Party’s Winston Peters and the right wing ACT Party’s David Seymour. Either or both minor parties could be significant in an election under New Zealand’s Mixed Member Proportional voting system. Other minor parties that could have a role after next year’s election include the Maori Party and the Greens.

The polls are inconsistent. In the latest Newshub-Reid Research Poll National and ACT could take power from Labour. However in mid-November a new poll showed Labour-Green and National-ACT neck and neck.

The National Party has prospered under the leadership of Christopher Luxon. The party has floated some policy ideas that have pressed buttons with its supporters and exposed areas of vulnerability in the Labour government.

Among the challenges to the Ardern government’s performance is the issue of law and order. Parts of Auckland have seen ram-raids on shops and drive-by shootings between rival gangs. Luxon says the government is soft on crime, especially crime by young gang members.

National’s response has been to revive proposals for young offender military academies run by the army, a ban on gang patches and a ban on gangs gathering in public.

However another major policy announcement led recently to a spectacular U-turn. Luxon promoted large tax cuts even though economies internationally were experiencing high inflation.

His reversal came after the Reserve Bank announced a likely recession in New Zealand next year. Under cover of headlines about the likely recession Luxon stepped back from the plan to remove the 39 percent top tax rate.

A further development that could prove significant after next year’s election is the announcement by the New Zealand Party Leader Winston Peters he will never again work with the Labour Government because, he says, they can’t be trusted.

Peters was the veteran politician who held the balance of power in the 2017 election and chose Labour under Jacinda Ardern to be the Government. He says he won’t do it again.

A rash of obstacles will challenge Ardern’s leadership skills as her government faces the prospect of campaigning for an election that could be held during a recession.