Economy and competence: two winners in doubt

The government came into 2005 with two main selling points for this year’s election: the buoyant economy and a credible claim to competence. Both lost traction during the autumn.

The economy is almost invariably the main issue in any election.

Opinion polling of “issues” usually focus on what is wrong and so feature negatives: health, education and crime, for example. But if real wages are rising and jobs are plentiful, such polling can mislead pundits and party strategists. A buoyant economy is a plus for an incumbent government and outweighs worries on other scores with most voters.

That was the dominant theme of the 2002 election. The strong economy erased from most voters’ calculations the sideline excitements such as Helen Clark having signed paintings she didn’t paint.

But this autumn voters began to get the jitters about the economy. The economic confidence readings on TV1’s poll plunged. So did published and unpublished figures on other polls.

In fact households will on election day still be doing just as well as at the start of the year — maybe even a bit better. Real wages are rising, jobs will be still plentiful and about 200,000 families will have got something out of the Working for Families package. Interest rate rises will not have affected many because fixed-rate mortgages don’t start to reflect recent Reserve Bank cash rate rises until after the election.

So the economic issue for the election will be whether the jitters translate into resentment at the government. The autumn plunge may have been just realistic recognition that the party is ending rather than fear of the future.

In fact, the 2%-2.5% GDP growth most commentators have been projecting as the trough in the coming slowdown will still be enough to create jobs. No-one is talking recession — an actual contraction — except as an outside possibility.

Moreover, for the economy to work against the government, voters must develop a belief that the opposition will manage the slowdown better than the government. Focus groups in May did not suggest that.

But in one sense the slowdown might nevertheless work against the government and for National and its allies: tax.

For two years or more middle New Zealand has been able to spend against rising house prices — either by borrowing more on higher-valued houses or by assuming the rise in asset values afforded more financial leeway.

The big house boom has come to an end — which the plunge in economic confidence indicates middle New Zealand knows or at least senses. The corollary is that if middle New Zealand wants to go on spending more, tax cuts will be needed to fund it. Labour’s counter-argument, that significant tax cuts will bring significant spending cuts, may not cut through the spending haze.

If so, the economy might not work for Labour on election day after all.

Stir in another polling plunge during the autumn — on the NBR poll’s measure of whether the country is on the right or wrong track. That is partly influenced by economic sentiment but reflects also approval for or disappointment at the government’s overall performance.

The right-track-wrong-track measure is thus in part a management assessment.

And the punters got it right. Having navigated skilfully round the foreshore rocks and completed its contentious legislation in 2004 and thereby got back on top of the agenda, the government this year has looked ragged around the edges — no longer competent and in command.

Add up the list: police 111 calls, John Tamihere off the wall, David Benson-Pope (yet another minister) under a cloud, immigration and passport troubles, the NCEA. Suddenly, middle New Zealanders were prepared to believe all manner of allegations: that, for example, the government was introducing compensation for criminals roughed up in prison when the bill said to be doing that was actually constraining compensation already available.

Then came National’s attack billboards, contrasting Labour and National positioning on policy issues: iwi v kiwi, for example. Factors previously blotted out behind economic buoyancy and government competence suddenly started to get traction in the election game.

When a government gets into this slot in voters’ minds, it can be very difficult to extricate itself, especially if voters are nervous about their economic future.

That double bind is at the core of the 2005 election. The odds are still on a third term — but only if the Labour leadership and ministers recover their once-sure footing and economic nerves are steadied.