There's no real data to suggest the economy is better off under a National or Labour government
Political parties on the left and right agree that New Zealand is in a tight spot economically and both National and Labour are campaigning as a safe pair of hands to navigate through it.
National is pitched as the party of business and is currently led by the former chief executive of Air New Zealand.
Its past prime ministers have also had a reputation as savvy businessmen, particularly John Key, who garnered a reputation as the head of global foreign exchange at Merrill Lynch.
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Key’s National government also gets credit for steering New Zealand safely through the fallout of the Global Financial Crisis.
Other National top brass, such as former Prime Minister Bill English, have managed to build impressive CVs since leaving office.
It’s a party made up of businesspeople with impressive work experience and always rates highly with businesspeople and in Mood of the Boardroom.
In BusinessNZ’s Deloitte and Chapman Tripp election survey released in September, 93 percent of businesspeople said the Labour government had increased the cost of doing business.
If a National-led coalition is elected this weekend, there will no doubt be an uptick in business confidence, though greater business confidence isn’t always directly linked to greater business activity.
Labour doesn’t tout the same business credentials as National and doesn’t seem to have the same level of support from the business community.
Despite this, economists spoken to by Newsroom say it’s difficult to point to any data that definitively points to the economy or stock market performing better under National or Labour.
Business confidence
NZ Initiative chief economist Dr Eric Crampton said tracking the economic credentials of National and Labour was harder than it sounded.
“Was strong growth during the 2000s because of the then Labour-led government, or because of the strong foundation for growth set by policy changes in the 1990s under National? Both will want to claim credit. I’d give more credit to the policy changes from the 1990s, but others could disagree.
“Was the strong run of growth from 1993 to 1998 a testament to Labour’s reforms in the 1980s, National’s balancing the books and setting sound institutions in the early 1990s, or the combination of the two? I’d give credit to both, but again others may disagree.”
Craig Renney said the perception of National as the party of business was just a heuristic. “They're the party of finance, they're the party of businesspeople ergo they must be better at the economy. The evidence tells us nothing of the sort.”
Crampton said business sentiment was generally worse under Labour-led administrations, but there has been argument that business sentiment keys more strongly to the identity of the current governing party than to current economic activity.
“But it could also be the case that forward-looking businesses also weigh the longer term expected effects of policy changes that aren’t yet reflected in economic conditions,” Crampton said.
How a party spends its money could also be a sign of economic or financial nous, with Crampton pointing Newsroom to a recent report by NZ Initiative senior research fellow Dr Bryce Wilkinson sayings the first Labour government, cranking up taxes before the Second World War, set a precedent which was never wound back. Wilkinson said the trend only continued, with subsequent Labour-led governments also big spenders.
Infometrics chief executive Brad Olsen said New Zealand was already seeing business confidence tick upwards, but cast doubt on how much that meant. “The movements in businesses' own reported activity are quite a lot more muted or restrained compared to those sorts of bigger shifts in the general business outlook.”
Council of Trade Unions chief economist Craig Renney said business confidence and economic growth weren’t linked.
“If you want a better guide to GDP results, you can use Wellington Phoenix football scores. They show a greater correlation with GDP growth than business confidence figures.”
Economists across the spectrum seem to agree that despite external shocks such as earthquakes, Covid-19, the global financial crisis, 1980s stock market crash and the Asian financial crisis, economic measures such as Gross Domestic Product, the stock exchange and even the housing market have all trended upwards, for better or worse.
Looking at the historical economic performance between the parties is also made difficult by changes in what parties stand for over time; the neoliberal economic policies put in place under Labour’s Roger Douglas in the 1980s are a prime example.
Handling Covid
Just as the National government under Key deserves credit for steering the country through the aftermath of the GFC, the Labour government’s costly and perhaps less than perfect response to the Covid-19 pandemic has seen New Zealand fare pretty well compared with other OECD nations, outstripping them in GDP growth since the pandemic began.
It also has low levels of debt as a percentage of GDP compared with other developed economies.
New Zealand’s inflation picture isn’t great but sits behind other OECD nations such as the United States, United Kingdom and Sweden, all of which also rolled out extensive stimulus.
Nevertheless, the country is in a difficult position, with the Pre-election Economic and Fiscal Update expecting deficits until the 2026/2027 financial year.
Olsen said it would be “ridiculous” for anyone to claim the Government was responsible for the massive drop in GDP seen at the onset of Covid and equally as ridiculous to claim responsibility for the level of growth bouncing out of that dip.
The ownership of the good and bad outcomes of Covid policies, for example high GDP growth and high inflation, had to be seen together. “If politicians are going to claim economic wins, they must claim economic losses.”
Olsen said the ability of the government to influence the economy was maybe related to how much they can let businesses continue within existing regulatory confines.
“That [altering the regulatory environment] might not immediately or materially affect GDP at a headline level, it's probably more that over time, you might not see the sort of productive gains that you want to see, and I think it's been a long-standing issue for New Zealand.
“Our productivity under every stripe of government has been more challenging over time – we haven't been achieving the gains that we've wanted.”
What’s the difference
Renney said pretty much all big shocks to the New Zealand economy have been external.
“On a system level there isn't a huge amount of difference between what happens in the market when one political party takes over or another political party takes over.
“What tends to happen is over time, the winners and losers of that political party taking over can shake themselves out a little bit more. The impact isn't immediate, it takes a while.”
Renney said the winners and losers of the Helen Clark government, with its KiwiSaver, state housing investments, and Working for Families looked very different to the winners and losers of the government before it.
This means the social impact of the Clark government stayed on through John Key’s first term and beyond. “Those things would not have occurred under a National Party government, and they complained about them, but they kept them.”
He said the perception of National as the party of business was just a heuristic. “They're the party of finance, they're the party of businesspeople ergo they must be better at the economy.
“The evidence tells us nothing of the sort.”
Craigs Investment Partners investment director Mark Lister said there wasn’t any one way to definitively prove any one party was better than another for the economy but National had historically provided a backdrop that was friendlier for businesses and share prices.
“If you say this government was in power over this period, and the market performed very well and the economy performed very well, that's not always down to what policymakers are doing or not doing. It's often down to just what's happening at the time and maybe there was a good period for China or New Zealand or the US or whoever,” Lister said.
“What we do know is that businesses generally favour National-led governments. business confidence tends to be higher when National is in power than when Labour is, but that doesn’t necessarily mean National is a better economic manager. It might just reflect some of the biases of many businesspeople out there.”
Lister said if you go back 30 years and look at the past 10 elections, the three months post-election saw a share market rise no matter who was in power.
“I think that tells us that investors, businesses and consumers like the certainty of getting the election behind you and actually knowing who's in power.”
Lister is often on the road for work and said the vibe in the business community was definitely reflective of a mood for change and would welcome a National government.
Ultimately, Crampton said it was better to ask which policies are better for “long-term economic performance and overall flourishing” than to ask which of the main parties was better for business.
He said sensible policies on law and order, a stable tax and legal environment, education and housing policies were all good for businesses.
“Subsidising businesses might be viewed as good for those businesses, even if it’s pretty poor for longer term performance. Look less at the party’s label, and more at the policies the party is likely to enact, whether they make sense, and whether that party seems plausibly competent at delivering what they’ve promised.”
