Comment: From the time National took office nearly three years ago, its long-term election strategy for re-election in 2026 was based on achieving economic recovery. Its focus was to be on easing cost-of-living pressures through reducing inflation and lowering interest rates. However, the short three-year election cycle, and the volatile three-way coalition arrangements with Act and New Zealand First, meant the prospect of achieving an economic turnaround by 2026 looked risky at best.
Nevertheless, by the start of this year, it appeared to be working – albeit modestly – with inflation and interest rates falling, and National holding its own in the opinion polls. Business confidence was rising and the public mood appeared to be lifting after the grimness of the post-pandemic years.
But then US President Donald Trump and Israel launched an attack on Iran. Oil prices soared as the Strait of Hormuz was closed and oil supplies started to dry up. Inflation and interest rates started to rise, and both business confidence and National’s opinion poll support slumped.
Now, after months of international uncertainty, a shaky stability has returned after the ceasefire negotiated between the US and Iran. However, it would be foolishly premature to conclude that the underlying conflict is over and that a sense of normality has returned. That can never be the case when Trump is involved.
Yet, on the back of the still-brittle ceasefire, a measure of international confidence has returned. The sharp drop in oil prices following the ceasefire has resulted in international equity markets strengthening, inflationary concerns easing and central banks less focused on interest rates.
The same has also been apparent locally. Business confidence is rising again – retail spending is rising slowly, and consumer confidence levels are improving. Overall, economic commentators are talking afresh about the economic recovery that Trump’s attacks on Iran had stalled in February now resuming.
Stronger corporate tax revenues – just under a billion dollars above forecast levels – have contributed to the Government’s Budget deficit being reported recently as $3 billion less than originally predicted. And, on the back of this slow improvement, National’s opinion poll fortunes have also begun to improve, although it is still well short of its 2023 levels.
With the general election now only a little over four months away the political implications of these trends – should they be sustained and Trump not start another war somewhere else in the meantime – are potentially significant for what has been shaping up as another cost-of-living election.
Already Labour’s Chris Hipkins has been reprising the old Ronald Reagan line “are you better off than you were four years ago?”, asking voters to compare their situation today with how they felt when Labour was last in power. It is a risky question, given the depth of animosity voters felt about Labour when they tossed it from office three years ago. But it is consistent with Labour’s overall small target approach to the coming election campaign.
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So far, aside from the nebulous and still details-free Future Fund idea, all Labour’s policy announcements have had a very specific cost-of-living focus – from three free annual doctors’ visits to free prescriptions and subsidised public transport, through to more support for apprenticeship training. There has so far been no grand vision of directional change from Labour of where the country might head, but an almost unrelenting here-and-now focus on the cost-of-living.
By way of contrast, National’s recent policy announcements are taking on more of a big picture focus, looking ahead to the future rather than the immediacy of the current situation. Its about-face to advocate making KiwiSaver compulsory not only overturns 50 years of opposing mandatory savings schemes but is now being promoted as the best way to ensure future retirement security for today’s workforce. The announcement about National’s intention to seek new free trade agreements with another seven countries takes a similar long-term view, although it is more consistent with National’s historical approach to free trade.
However, these announcements, designed to promote National as forward-looking in contrast to staid, narrowly focused Labour, are predicated on the economic recovery gaining momentum and not being derailed yet again. But they also imply a more subtle message from National that, having done the hard yards over the last three years, it can now take advantage of economic recovery to address some of the bigger, longer-term issues facing the country, such as retirement income security, and diversifying trade opportunities. The unspoken contrast is with Labour, still stuck in the past justifying its record in government.
At the same time, the smaller parties have reverted to type, promoting policy options that are all about appealing primarily to their base, to secure solid representation in the next Parliament. And the Opportunity Party is trying to break into the Parliamentary club, by appealing to the “plague on all your houses” feeling many voters now have.
Though National has taken a punt that the turnaround in the economy means it can now promote more expansive policies than it might have considered feasible a few months ago, it is not yet clear whether voters are of the same mood. Polls suggest many voters are not yet persuaded that the good times are just around the corner but are equally unconvinced Labour has the answers.
National’s newfound optimism is therefore a risky strategy. As it promotes its plans for a positive future it will have to be careful that it does not get too far ahead of current public sentiment and end up looking more out of touch than the centre-left bloc (and occasionally its own coalition partners) claim it already is.
But if economic reality over the next few months matches the forecasters’ emerging confidence, and households do start to feel a little more positive, National might just get the lift it needs to be able to lead the next government. Even so, to paraphrase the Duke of Wellington’s famous comments after the Battle of Waterloo, the election still looks set to be a “a near-run thing”.