National's Christopher Luxon visits Four Square Ahuriri to talk to manager Andrew Lee about ram raids – but the bigger issue is rampant rises in grocery prices. Photo: Supplied

Analysis: The election was not decided yesterday.

This may seem an unremarkable statement – but it could, so easily, have been all over red rover and let’s turn our attention to the rugby.

Political leaders and strategists woke with a cold sweat, early on Wednesday morning. And not just Chris Hipkins, isolating with Covid.

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The day had dawned that they had drawn a red ring around on their wall planner, if anyone still used glossy paper and marker pens. It was the day Reserve Bank Governor Adrian Orr would announce the monetary policy committee’s last decision on interest rates before the election.

Raise rates, and Hipkins’ staff might as well have started boxing up the books and photos in his ninth floor office straight away. Signal an imminent intent to raise rates, and it would be the same story. Lower rates – well, that could make the election very, very interesting.

This may seem overly dramatic, but Labour strategists trace the beginning of the party’s electoral decline back to May 2022, when the Reserve Bank increased the official cash rate to 2 percent.

Prices had been rising well before then. The Government had intervened in petrol and public transport prices. Interest rates, too, were already on the rise.

But it was then that Orr first conceded the interest rate hikes might drive growth rates into negative territory. 

He was asked, even if that forces a recession? “Ah,” he said, as he considered his answer to MPs on the finance and expenditure select committee. “Ahh,” he said again, and he paused. “That is one of the risks.”

Until then, responses to the all-important question in political polls – do you think New Zealand is heading in the right direction, or in the wrong direction? – still looked broadly salvageable for the Labour Government.

That all changed after May 2022, as the two lines crossed.

For voters, critically undecided and swing voters, cost of living is the biggest factor in deciding their vote. 

This seems silly, as Andy Kinghorn points out. He and his wife Kathleen are, according to the polls, almost the archetypal undecided voters – parents with school-aged kids, on a middle income, living in the provinces, renting a home while they look for somewhere to buy.

Kinghorn, 43, says whoever you put in government next week, they can’t suddenly shift the dial. “There are very few levers they could pull to suddenly make the cost of living better for everyone,” he says.

“That’s just not how global economies work. So I don’t necessarily think that throwing all my eggs into that basket for a vote is a particularly beneficial thing to do in terms of where I want the country to be for my kids in 30 years.”

Is NZ going in the right direction?

After first toying with a recession in May 2022, Adrian Orr doubled down in a monetary policy statement six months later. He warned the Reserve Bank expected to have to engineer a recession in order to cool inflation.

The Reserve Bank would do whatever it took to avoid a wage-price spiral, Orr told a media conference. “We can only stop it using the instruments we have, which is the interest rates. And it’s a blunt tool and there are real wage, real employment, real activity implications of that. That’s the way through.”

That, tracking polls and hindsight suggest, was the moment New Zealanders finally sat up and said, holy crap, never mind Covid, it’s the economy that worries us. We’re in the poo… (To be clear, this is a somewhat crude paraphrase of the data from tracking polls).

New Zealanders, like voters around the world, will wrap up a whole lot of concerns about their jobs and disposable income and community relationships into that one question: Is our country going in the right direction?

If their answer is no, they will characterise the performance of the economy accordingly. 

And they will judge an incumbent government on the perceived performance of the economy.

That’s been disastrous for Labour. Last month’s The Post/Freshwater Strategy Poll shows that 63 percent of voters think the country is heading in the wrong direction, while only 21 percent think it is headed in the right direction

We could argue about whether Labour’s political management is to blame for the perception that the country is heading in the wrong direction. They would say they’re a victim of the circumstance of global inflation, driven by stoppages and a post-Covid supply crisis and war in Ukraine and … you get the idea.

National and other opposition parties would say they’ve worsened inflation by injecting too much fiscal stimulus in the form of public spending. When Adrian Orr told Christmas shoppers to ‘cool their jets’ last year, the Government hit the after-burners on its spending.

They’re both right. And it means that, in the view of Labour strategists, the cost of living has become the No 1 issue in the election campaign with a bullet. Bigger than crime, bigger than climate, bigger even than Covid and lockdowns at the last election.

Labour are more competitive on issues management

Undecided or “soft” voters see Labour and National as pretty much tied on their capacity to manage the most important issue, cost of living. On crime, those voters trust National; on other challenges like health and housing, Labour are the winners. Source: Freshwater Strategy

But what is also certainly true is that there are trigger points on the cost of living that are outside the immediate control of any minister or political party.

Like the devastation wrought on food crops by the Auckland Anniversary Weekend floods and Cyclone Gabrielle.

Or last month’s meeting of OPEC, the Organisation of Petroleum Exporting Countries, at which they confirmed they would continue tightening production in order to maintain high crude oil prices.

Or Adrian Orr’s comments on inflation prospects.

So this week, the election was not decided. The Reserve Bank monetary policy committee played it safe, announcing it would neither raise nor lower interest rates. Indeed, to the chagrin of some economists, it tentatively signalled it would maintain the same 5.5 percent official cash rate for the next 12 months.

“I can’t imagine how difficult it would be if we were two parents and four kids on a lower income than we’re on. I mean, that just seems unthinkable.”
– Andy Kinghorn, swing voter

It expects consumers price index inflation, currently at an annual rate of 6.0 percent, to keep falling thanks to a slowing global economy, and cooler labour and housing markets. And as it falls, so too will business and household expectations of inflation. That means businesses are less likely to decide to hike prices, and workers are less likely to demand big wage rises.

But in the fine print, Orr’s monetary policy committee warns that domestic core inflation pressures remain strong. Stats NZ hasn’t yet reported the CPI inflation for the third quarter, ended last week, but the Reserve Bank has already predicted it will be a higher-than-expected 2.1 percent for the quarter. That would cause the annual rate to remain high at 6.0 percent, for now.

“A prolonged period of subdued activity is required to reduce inflationary pressure,” the committee warned this week.

Who cares about the cost of living?

The soaring cost of living matters to everyone. Obviously.

It matters most to those who have the least disposable income; more of their money goes into unavoidable rising costs like petrol and power.

But it doesn’t follow that they are the voters most likely to be persuaded to change their vote by the parties’ solutions to this intractable problem. For example, low-income workers in south Auckland overwhelmingly vote left, mainly Labour, and it’s unlikely this year’s promises of tax cuts will change that.

So the parties, somewhat cynically perhaps, are targeting those for whom cost of living is not just important, but may actually affect how they vote.

Curia Research has provided Newsroom cross-tab data from its Taxpayers’ Union polling; Freshwater Strategy has provided data from its polling for The Post.

Both identify the demographics that are most likely to be swing voters, and those that see the cost of living as their biggest election issue. The question for strategists is the extent to which those two circles overlap in the complex Venn diagram of Election 2023. 

The data from Curia, which also polls for the National Party, shows those most worried about the cost of living are more often women, aged under 40, living in the provinces. Those who are “moderately deprived” are just as likely to be concerned as those who are on the breadline.

What about the undecided and swing voters? Freshwater’s poll of 1551 participants identifies “soft voters” as more likely to be women aged 35-plus, who voted on the strength of their support for Jacinda Ardern in 2020.

They are renters, on middle incomes. They have children living at home and are more common in regional areas of the North Island, such as Waikato, Taranaki and Manawatū-Whanganui.

So there’s a great deal of overlap between these two groups. If you’re, let’s say, a 32-year-old woman with two kids, renting in Whanganui, who voted for Jacinda Ardern at the last election, then you can expect to be targeted almost daily by canvassing politicians.

Tim Hurdle of Campaign Technologies, which is Freshwater’s New Zealand collaborator, says Kiwis had lived with low inflation for 30 years and weren’t used to seeing big price rises.

He agrees the impacts of inflation are always most keenly felt by those on fixed or low incomes. Those with wealth and assets benefit from the nominal uplift.

“Our research reflects this, with those on tight household budgets and spending a high proportion of their incomes on housing – rent or mortgage – are really feeling hammered.”

Hurdle, an economist, goes back to the language of the 70s and 80s and talks about nominal and real incomes as a factor. Those with a declining real income can see that reflected in their savings and standard of living.

“Hip pocket issues are always important in elections, but people started seeing hikes at the pump and the weekly grocery shop they noticed. And then the mortgage payments and rents skyrocketed.

“Everyone has a story about going to the checkout and having a big shock when the bill adds up. When an issue becomes smoko room chat – the politicians soon hear about it.”

“Issues often go up the agenda when the politicians start talking about them. There is a bit of a feedback loop.”

The cost of living issue is potent, he says, because it directly impacts on us and on our families. Geopolitical issues or what happens to people that you might or might not know never matter as much. “Self-interest makes an issue potent.”

Why demographics aren’t everything

Kathleen Kinghorn, 32, voted for Jacinda Ardern’s Labour at the last election. She, her husband Andy, 43, and their two kids rent in Whanganui. They moved down there from Auckland to get a bigger home, more work-life balance and a better quality of life for their children, Sebastian, aged 7, and Penelope, 2.

Does their demographic sound familiar? Yes, they’re pretty much in the sweet spot of swing voters who should be concerned about cost of living. Andy owns his own business, and Kathleen has returned to study to retrain in psychology. Their household income is around $150,000.

They are, indeed, swing voters – but their votes won’t directly decide the election outcome. Andy reckons he’ll shift his vote from Labour to The Opportunities Party, and says his wife may vote Green this time.

Andy is concerned that rather than addressing big questions like climate change, this election is painfully short-term focused.

His views have changed. Growing up, his dad was from Scotland with very “hardline” views on a lot of things like drugs and crime that filtered down to his son. 

“As I grew up, ended up having a lot of conversations, I’ve had run ins with the law, I’ve grown up watching the media, I grew up in a certain way. And then I went out into the world as a 20-year-old with a whole bunch of views.

“And it wasn’t until I probably got to my late 20s, early 30s, and had met a whole bunch of people and lived a whole bunch of life, that I went, oh man, turns out all those views were either wrong or misinformed.”

His concern now is more for others who are worse off, than for his own family’s day-to-day cost of living battle. “We have times where we struggle, but we get by because we’re doing all right.

“I can’t imagine how difficult it would be if we were two parents and four kids on a lower income than we’re on. I mean, that just seems unthinkable.”

The challenge for the political parties is not to persuade those New Zealanders that they’re doing it tough – they know it. The question in this campaign is whether they will change their vote – and which policies will persuade them to change it.

What does move the dial?

Labour nine-point pledge card lays out four promises that it says will help voters manage rising prices: free dental care for under 30-year-olds by July 2026;  removing GST from fruit and veges; expand 20 hours free early childhood education to two-year-olds like Penelope; and providing an extra $25 per week for 160,000 working families by boosting Working for Families.

National’s Back Pocket Boost policy is less complicated: reversing effective tax rises by shifting income tax brackets to compensate for inflation; expanding tax credits to more modest income earners; introducing the FamilyBoost childcare tax credit; and also increasing Working for Families tax credits for working families.

If some of these promises sound similar, it’s because the two parties are seeing much the same polling, at much the same time, and often responding much the same way.

National is pinning much of its hopes on those so-called tax cuts; a problem given the serious and ongoing doubt swirling around the foreign homebuyers tax and online gambling tax that they say will pay for the cuts.

Just today, the Labour Party finance spokesperson Grant Robertson put out a media statement describing as a “scam” National’s claim that average families would be $250 a fortnight better off. Only 0.18 percent of households (3000 families) would see those kinds of benefits.  

Most Kiwis want some relief from tax, but are aware that these gains will quickly be eaten up when prices keep rising, Hurdle says. The relative benefit (and the fiscal impact) makes the National policy more attractive, though.

Labour is convinced that one or two big policies can’t make a difference; instead it’s relying on a series of smaller law changes. The advantage of this strategy is that if one change doesn’t work – GST-free fruit and veges, for instance – it can point to others that may be more effective.

Hurdle says research indicates that while people like the idea of GST-free fruit and veges, they are also cynical that they will benefit. “Most believe any saving will go to the supermarkets and administration costs.”

Behind the scenes, Labour’s candidates and volunteers are reminded daily of the 10 points in its cost of living plan, which aren’t so much promises as principles. Bringing inflation under control is one; targeted cost of living support for working Kiwi families is another.

To focus on any single policy would be to miss the point, its strategists believe. Instead, they want to keep talking every day about what they’re doing, and what they’re going to do, to manage inflation. They want a sustained focus; they want Hipkins to be “the bread and butter guy”. 

If they take their eye off that ball even momentarily, their daily tracking poll numbers fall away.

“Because cost of living has been so big an issue, interest in other issues has been suppressed to a major extent,” Hurdle says. “We haven’t seen the debate you’d expect, given some of the differences in major issues like education or health.”

That frustrates Andy Kinghorn, back in Whanganui. “Honestly, the rising prices definitely affect me personally, and definitely are of concern,” he says, “but I don’t believe there’s a silver bullet or panacea that the next government can use to address it.

“I’m concerned about it, and I don’t like going out and spending heaps of money at the petrol station or the supermarket. But I believe the vast majority of that is not being affected by what our government here in New Zealand does.”

Newsroom Pro managing editor Jonathan Milne covers business, politics and the economy.

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