There will be plenty of rocks under the beach towels for Government ministers this summer, with little time left to achieve substantial policy reforms this term beyond dealing with Covid, writes Peter Dunne

Opinion: Parliament wound up for the year this week. For many of the MPs, that will mean they can have a generally well-deserved break after another gruelling year. In their own way, every Party, even the National Party now that its leadership has been resolved, can feel reasonably satisfied at where they have ended the year.

It has been another year dominated by Covid-19, the persistence of which has been frustrating from both a public health perspective, and a wider whole-of-government approach. For another year, it has meant too many other policy areas requiring Government attention have been diverted or put on hold by the demands (or, in some cases, excuse) of the pandemic.

While that is starting to take a toll, the consolation for all the parties is the sense that with the move at last to the traffic light system on the back of widespread community vaccination, the days of interminable lockdowns are behind us, and the prospect of less abnormal times lies ahead next year.

As New Zealand seeks to re-join the rest of the world that it has been virtually cocooned from for the past 20 months, there are some major challenges to be overcome if that is to happen successfully. For example, a study by New Zealand Story, the government agency helping businesses promote themselves to the world, found in the wake of Covid-19 while key international markets like Australia, China, and the United States, still saw New Zealand as progressive, inclusive, and decisive, other important markets like Germany, Dubai and Japan are now viewing us as isolated, unfamiliar, unprepared, and closed. All of which makes it imperative that as New Zealand reopens for international business, our story to the world is a positive one.

That, in turn, will place fresh pressure on the Government as 2022 looms. With the next election due in the October/November 2023 period, the electoral clock will be ticking ever louder once the process of government resumes in the New Year. Because the three month “period of restraint” – the time before an election in which by convention governments make no controversial announcements, introduce no new policies, nor make significant statutory appointments – will start about June 2023. That means the effective time left to the Government this term to make progress across the range of its agenda is barely 18 months.

Over the past year, the Labour Government has signalled several areas in which it wanted to make major change this parliamentary term, to capitalise on its comfortable and unlikely-to-be-repeated single party majority as a result of the last election. Even so, the complexity and controversy of some of those, alongside the continued requirement to focus on Covid-19 has made achieving the Government’s ambitious programme a more herculean task than originally imagined.

With time now marching on, Covid-19 still demanding attention, and so little progress made elsewhere, it now looks most unlikely that much of its wider programme will see fruition in the next 18 months. Already the controversial Three Waters has been deferred, with the prospect of its being resurrected in its current form, especially after next year’s local government elections, now remote.

There must also be a question mark hanging over the proposed health reforms, the abolition of the 20 District Health Boards and their replacement by Health New Zealand. Assuming the public health system is not overwhelmed by Covid-19 cases in the meantime, at this stage it remains the Government’s intention to introduce and ideally pass the legislation giving effect to its proposed new public health structure next year.

It is hard to see how that can be translated into the effective establishment of the new system by the middle of 2023, let alone also how all the new health professionals promised for Health New Zealand can be trained or recruited in that time (especially given the ongoing curb on immigration, including of skilled professionals).

The Government may therefore eventually accede to the expert view that the middle of a pandemic is not the most ideal time to be undertaking a major restructuring of the public health system and defer substantive work on the implementation of its plans until the next term of Parliament. By that time, there is also likely to be better information available about the type of structural changes required to the health system to prepare for the next inevitable pandemic.

The review of Pharmac is similarly problematic from a timing point of view. The interim report of the independent review released recently was highly critical of Pharmac’s current practices but stopped short of making any formal recommendations for change. They will come in the final report due in a few months’ time. Assuming legislation will be required to give effect to at least some of these, the chances of that being passed by Parliament in time to be fully implemented and operational by mid-2023 seems unlikely.

The Government’s housing problems, both on the affordability and availability fronts, are well known and extreme. The Prime Minister’s recent plaintive observation that prices cannot keep going up next year the way they have been (while she has been Prime Minister, she could have added) smacked almost of surrender. The tax changes introduced by her Government and other measures, like the reimposition of loan to value ratios by the Reserve Bank, and lending restrictions by trading banks have all failed to curb prices so far. Now, it seems only a declining economy will curb rampant house price increases.

Likewise, the Government’s initiatives to build more affordable homes have been a damp squib. This week’s announcement that planned changes to the modest first home ownership grants scheme have been deferred was further confirmation that the Government has run out of ideas on housing. Its hopes currently seem pinned on the recent intensification accord with the National Party, although it is not clear whether National’s commitment remains as firm as it was originally.

Underlying all these issues are deeper questions about the longer-term performance of the New Zealand economy. The Government has been pleased at the economy’s apparent resilience over the last year or so in the wake of the pandemic, citing reasonable levels of growth and low levels of unemployment. New Zealand has been cushioned so far against the worst economic impacts of the pandemic because of the wage subsidy and business assistance programmes introduced in the 2020 Budget.

However, the $53 billion additional borrowing that enabled all that has now been almost fully allocated, and the Government has announced that the move to the traffic light system will mean an end to many of the business support programmes that have kept most businesses, although not those in the hard-hit tourism and hospitality sectors, afloat so far.

The focus is now beginning to shift to rising interest rates, after years of stability and abnormally low rates, and the return of inflation, now at its highest level in almost a generation. The combination of rising interest rates, and increased inflation will hit the pockets of many hard over the next year. And, over time all the money borrowed last year will need to start being repaid.

In turn, those factors will place fresh pressure on employment as local businesses continue to struggle in the wake of Covid-19, now without the benefit of ongoing government subsidies. Already this year there has been a record number of business closures reported and more can be expected as the post Covid-19 shakeout continues next year.

Last week, the ASB Bank warned that supply chain disruption was likely to keep prices high and hit consumers hard well into next year. Shortages in raw materials and building supplies brought on by less certain international shipping arrangements will not be overcome while offshore perceptions remain that we have become isolated and closed. By implication that makes us both a less reliable trading partner and less welcome place in which to invest and do business. That in turn will affect the certainty of domestic manufacturing production and export opportunities, placing further pressure on local employment and the security of household incomes.

It is little wonder confidence surveys are already showing New Zealanders becoming much less optimistic about their futures. We know from previous experience that once economic pessimism takes hold, it develops a snowball effect that is hard to reverse. And as public confidence falls, the sense of uncertainty will rise. These will be the last things the Government wants heading into the 2023 election year.

For now, though, the politicians will be understandably pleased to see 2021 and all its travails coming to an end, and instead be looking forward to a few weeks of sun, relaxation, and good family company, which they should not be begrudged.

Their respite will be temporary because 2022 promises to be an even more daunting year, whatever side of the House they occupy. Government and politics are likely to become far more fraught and evenly contested than this year, meaning it will be a fascinating year to observe.

In the meantime, may I take this opportunity of wishing everybody a happy and peaceful Christmas and New Year, and every good fortune for whatever 2022 may bring.

This is Peter Dunne’s final column for the year. He’ll be back in late January 2022.

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