So what will happen to NZ economic policy now there’s a new Labour-led government with the incoming Prime Minister Jacinda Arden and deputy and kingmaker Winston Peters set to dominate thinking.
For Australian investors it is big news because our big four banks dominate the NZ economy and financial system with an estimated 80% market share.
That makes them very sensitive to the sorts of policy changes the new government is promising. And that brings in our major regulators, APRA and the Reserve Bank which will be watching any impact closely.
Australian retailers such as Woolworths operate across the Tasman, while Kiwi retailers such as Kathmandu have strong links to Australia.
Qantas and Virgin Australia compete vigorously with Air NZ across the Tasman while Fairfax Media is a major media company (and is now involved in court action to challenge the blocking of its merger with rival NZME).
Insurers such as IAG, Promina (Suncorp) and the AMP operate in NZ, some investment baks operate on both sides of the Tasman and big investors own important assets on both sides of the Tasman.
Kiwi commentators says one of the first areas will be a change to monetary policy which could be the most important since the Reserve Bank Act in the late 1980s.
The new government (Labour) made it clear during the campaign that it wanted employment added to the Reserve Bank’s inflation mandate.
So that will happen, although Peters did not win his wish for a full Singapore-like monetary policy model that targets the currency (and has draconian powers over banks and other financial groups and exercises them ruthlessly).
Labour’s Finance spokesman Grant Robertson has not defined what full employment means, other than that it is definitely less than 5% unemployment. NZ unemployment is currently 4.8%, while NZ’s inflation rate was 1.9% in the year to September after a quarter on quarter rise of 0.5%.
Like Australia, the RBNZ is following a wait and see policy on inflation, housing and overall demand, even if the economy is travelling well.
The former government had budgeted for a $NZ3.7 billion surplus in the current financial year. That was after a $NZ1.5 billion surplus in the 2016-17 financial year.
The NZ Reserve Bank’s independence was established in that Act 30 years ago and it was the first to have a specific inflation target and has stuck to it ever since, and been joined by counterparts in the UK, US, Australia and elsewhere.
Adding employment to the mandate will mean it follows the US Fed which has a dual mandate of maximising employment and stabilising prices (and a third less mentioned aim of moderating long term interest rates) .
Also on Labour’s list is legislation banning overseas housing speculators by Christmas, implementing Labour’s family support package by July 1, an increase in the minimum wage to $NZ16.50 an hour and locking in the goal of zero carbon emissions.
Perhaps the biggest change will be state intervention in the housing market with Winston Peters referencing Labour’s Kiwibuild policy which would see 100,000 affordable houses built and on-sold over 10 years. That will be tied to a cut in immigration will be sliced by 25,000 to 30,000 off the current 74,000 figures
In 2016, New Zealand recorded a net gain of 70,000 migrants and long term arrivals, which has since risen to 74,000.
A Labour-led government will also press for the renegotiation parts of the Trans Pacific Partnership to allow restrictions on foreign (housing) buyers “to ensure New Zealanders are looked after – to protect the assets they have been unable to attain – housing” as the new government put it in the past.
Ms Arden plans to attend the APEC summit in Vietnam in next month where that will be a key issue.
TD Securities Asia-Pacific macro strategist, Annette Beacher, said concern over the new government’s immigration policy and any pending changes to rules on foreign ownership of New Zealand assets would weigh on the kiwi dollar’s value.
