The landmines in Ardern’s next 1000 days

Jacinda Ardern's Labour Government did better than expected in its first 100 days. Bernard Hickey looks ahead to the bigger tests in the next 1000 days before the 2020 election.

The honeymoon was so good that a baby is already on the way.

It's a cheap joke, but it does say something about the unexpected events and success of the first 100 days of a Government that most did not expect to begin with, and that most then thought would struggle early on.

The Labour-led Government itself can take none of the credit for the impending birth in June of the first baby of Jacinda Ardern and Clarke Gayford. That's all their own good work and good fortune during those hectic days on the road during the election campaign. But the reverse cannot be said. The baby is certainly helping the public's view of the Government.

The January 19 announcement of the pregnancy was the undoubted highlight for most voters of the first 100 days. There was genuinely spontaneous national celebration when the news broke late on that hot Friday morning in Auckland. The hastily-arranged news conference outside the front door of the Prime Minister's simple brick-and-tile home in Point Chevalier was the most enthusiastically received news event of the year. The nation is now invested in the future of that baby, which even Ardern and Gayford welcomed by saying the nation would help raise it.

A Reid Research poll taken for Newshub in the last week of January showed 34 percent thought the pregnancy would positively affect Ardern's performance and Labour's support rose 4.5 percentage points to 42.3 percent in Reid Research's first political opinion poll of the year. Ardern's personal rating as preferred Prime Minister rose 8.3 percentage points to 38 percent, while 70 percent said she was performing well. That was the highest performance rating in the poll for a Prime Minister since John Key in October 2011.

That rating and Labour's strong performance in the polls show there's more to the Government than the pregnancy.

Rating the first 100 days

It achieved all but one of the tasks set in the 100 day plan Ardern announced at the St James Theatre in Wellington during a campaign rally on September 10. The one uncompleted task -- holding a 'Clean Water' summit -- was ruled out by New Zealand First when it blocked Labour's plans for a broad water royalty.

The Government has appeared much more united and disciplined in its first 100 days than many feared, including many in the business community. Confidence in the wider economy fell sharply through September and into the December quarter as the uncertainty around who would be in the Government and Winston Peters' apparent prevarications unnerved many. Peters' strange comment in his nationally televised speech on October 19 that an economic correction was looming also didn't help confidence.

But the economy itself has coped very well during the first 100 days, in part because the rest of the global economy is firing on all cylinders and consumers and employees are much more positive about the new Government and the economy than employers.

ANZ's measure of job advertisements rose 3.1 percent on a seasonally adjusted basis in January from December, which was its highest monthly rise in three years. BusinessNZ's measures of activity in the services and manufacturing industries edged lower in the December quarter, but remained firmly in expansion territory. The ANZ's measure of light and heavy traffic movements, which are early indicators of activity, were solid through the final quarter of December and into January.

The Reserve Bank's measure of consumer lending grew 8.3 percent in December from a year ago, indicating voters and tourists were confident enough to be spending heavily in the last quarter of 2017 and early 2018. New car sales in January hit a fresh record, rising 7.3 percent from a year ago. Many are bought by small and large businesses and the vehicle buying reinforces the view that the correlation between business confidence and economic activity is stronger for businesses confidence about their own activity than for confidence about the wider economy. 'Own activity' confidence fell in the last quarter of 2017, but much less than for wider confidence and is still positive and suggestive of solid economic growth.

Early side-steps to the centre

Unlike in 1999 and early 2000 when Helen Clark's new Labour Government was falling into a 'winter of discontent' amid angry exchanges with business leaders, this Government has been careful not to spook the business horses with its early policy moves and rhetoric. Under pressure from New Zealand First, Labour decided to keep the 90 day trial period for businesses with less than 20 workers, which covers more than 70 percent of the workforce.

It also signed up to the revised Trans Pacific Partnership, relieving fears that a previously bipartisan approach to trade deals might have dissolved. Donald Trump's withdrawal of America from the TPP and the resulting suspension of controversial Investors State Dispute Settlement (ISDS) clauses was fortuitous, as was the fast discovery of a way to ban foreign buying of houses and residential land.

The Government has also soft-pedalled on the immigration cuts that both Labour and New Zealand First talked up before the election. Immigration Minister Iain Lees-Galloway has gone away to consult with businesses about the effects. Where once Labour talked about reducing net migration by 20,000 to 30,000 a year with tougher rules on temporary work visas and removing work rights for sub-degree level international students, now Lees-Galloway says Labour does not have a target to reduce migration. He has also delayed any decisions on work rights until well after a review is presented to him by officials in October.

Meanwhile, net migration has been broadly steady at just below record highs in October, November and December, helping to elevate economic activity and soften the concerns of businesses worried about the flow of fresh staff drying up.

The Government has also doused any remaining fears about radical monetary policy moves, creating a centrist review group and appointing a new Reserve Bank Governor (NZ Super Fund CEO Adrian Orr) who was widely welcomed.

But the first 100 days weren't completely picture perfect. Labour's early performance in Parliament was patchy with acting Prime Minister Kelvin Davis appearing far from Prime Ministerial in a couple of hesitant early performances in Question Time. Labour's Leader in the House, Chris Hipkins, will also want to forget his first day where he seemed unsure of the new Government's numbers in Parliament to elect Trevor Mallard as Speaker. The end result was an embarrassing back-down in the face of National's challenge for more of its MPs to be included in Parliamentary select committees.

National's Leader of the House Simon Bridges forced Chris Hipkins to back down on plans for smaller select committees in this exchange in Parliament in November. Photo by Getty Images.

The next 1000 days

But the work has only just begun and the honeymoon will inevitably end, as Jacinda Ardern acknowledged in her first interview with Newsroom last week.

"I will make mistakes and to a certain extent I do feel a huge weight of expectation so I worry about that day, but at the same time I hope at least I’m willing to front mistakes when I make them and I hope people will see that," she said.

The fate of Governments rest as much on how they react to events as to how they deliver on their promises. The two usually intermingle, but the biggest risks for Labour are around how they manage the economy and whether they deliver on their housing pledges.

'Events, dear boy, events'

Winston Peters' ominous warnings about a global and local economic correction set the tone of the debate about economic risks for the new Government.

Unfortunately for him, he was making the warning just as the global economy was beginning to fire on all cylinders and just as global financial markets began a fresh sprint to record highs.

Japan and Europe have joined America and China as engines for economic growth without too much inflation. That was reflected in much-better-than-expected export figures for the December quarter, with exports in the month of December being up 24 percent at $5.6 billion.

Rising inflation and sharply rising interest rates are also nowhere to be seen, despite the strong economic growth around the world and in New Zealand. December quarter Consumer Price Index data for New Zealand was weaker than expected, meaning the Reserve Bank has even more time to hold off on its first rate hike -- possibly until late 2019. Some even argue it should be cutting interest rates. (More on that later)

The risks around a conflict in North Korea or an economically disruptive Brexit remain ever present, but so far neither have materialised in the face of multiple warnings. There are also the unforecastable risks of another earthquake or Global Financial Crisis.

Both happened in the first three years of the previous Government and the team of John Key and Bill English broadly handled them well, using the Government's strong balance sheet to rack up over $60 billion in debt to fill the various holes. That was the right thing to do.

Financial markets fell on Friday night, but are only slightly off record highs and are nothing like the dramas seen in 2008, 2009 and during the euro crises of 2012 and 2013.

No pressure Phil...

Housing Minister Phil Twyford at a news conference in December at the first state house built by the first Labour Government in Mirarmar. Photo by Lynn Grieveson.

The biggest risk for the Government over the next 1000 days is a failure to deliver on its core promise — Kiwibuild. Ramping up a programme to build 100,000 houses in a decade will always take time, but the Government's commitment to built 16,000 in the first three years is very specific. The first Kiwibuild home has been promised for mid-2018.

Voters will want to see houses being built pronto and won't have much tolerance for excuses, of which there are smorgasbord to choose from, ranging from construction sector capacity, Council borrowing capacity, ratings agency nit-picking, RMA-wielding NIMBYs and nervous bankers. Any signs of bickering between the Government and the Auckland Council in particular, or foot-dragging by either, would disappoint voters hoping for solutions. Any delays in forming the Housing Commission and getting MBIE's interim Kiwibuild unit up and running will be leapt on by the Opposition and the media alike.

The key players are Housing and Transport Minister Phil Twyford and Auckland Mayor Phil Goff. They need to coordinate their respective governments to plan, fund and deliver the joint and massive investment projects needed to build at least 50,000 Kiwibuild houses in Auckland over the next decade, as well as the rail and other infrastructure needed for those houses. The Government and the Auckland Council must somehow come up with the tools to fund new urban development projects. That will require the cooperation and enthusiasm of both private bond investors and the ratings agencies, who can be wary of the special purpose vehicles that Twyford and Goff hope to use to keep the debt off both their balance sheets.

A provincial backlash?

The next biggest risk for the Government is around how voters in the provinces beyond the 'Golden Triangle' of Auckland-Hamilton-Tauranga feel about the Government's actions, particularly when so much of the money and attention is focused on transport and housing in this area, which is expected to generate more than half of the country's economic and population growth over the next decade.

The first test will be whether the Government allows room in its Government Policy Statement on Transport due early this year for seven regional roading projects outside of Auckland, including the extension of the Waikato Expressway from Cambridge to Tirau, the extension of the Wellington motorway from Otaki to North of Levin, the extension of Tauranga's motorway to KatiKati, four-laning the Napier to Hastings expressway, extending the northern motorway from Warkworth to Whangarei, and the extension of the Christchurch motorway from Belfast to Pegasus.

The Opposition has already launched local petitions for the roads, which National promised during the election campaign to deliver, if elected, as part of its Roads of National Significance programme. It has already sought to frame the debate as one pitting urban rail projects in Auckland against roads in Auckland and the rest of the country.

Voters in the provinces have little sympathy for urban rail projects in Auckland, which appear very expensive and funded out of their taxes and fuel levies. The Government's ability to tell that story and keep the provinces happy with its $1 billion regional development fund will be crucial.

Meanwhile, the prospects of a fuel tax for Auckland could also be a political road mine for Labour, taxing often poorer voters in their cars, which they see as essential to get to work and take their kids to school in Auckland.

NZ First turmoil

Political turmoil is always a risk for any government that relies on New Zealand First to stay in power. It hurt National badly between 1996 and 1999 as New Zealand First disintegrated around Winston Peters. Partly, that was due to pressure from within National itself and its own leadership dramas, but it was the nail in that Government's coffin ahead of the arrival of Helen Clark's Labour-led Government in 1999.

Clark herself relied more successfully on Peters and New Zealand First to stay in power from 2005 to 2008. They worked together well and New Zealand First was much more cohesive, but Peters' own dramas around donations from Owen Glenn proved distracting and helped voters decide to change the Government in 2008.

Peters and Ardern have started in cordial and coordinated fashion, with few outward signs of dissent or grumpiness. Even Labour's soft-pedaling on migration reform was allowed through to the keeper by Peters last week.

Winston and Jacinda

Winston Peters and Jacinda Ardern announcing their coalition agreement on October 24. Photo by Lynn Grieveson

Perhaps the least predictable but biggest individual risks for the Government lie around Jacinda Ardern and Winston Peters personally.

Their personal health and their relationship are arguably the most important things for the health of the Government.

Most 72 year olds who have smoked through their adult lives spent in high stress environments have health issues. Peters appears healthy at present, but the risks of health problems will be higher at the end of this term than at the start, simply because of his age.

Jacinda Ardern's own situation is also crucial for the Government. She is its talisman and the main connection voters have with the Government.

Every pregnant couple worries about their own health and that of their unborn child throughout. The nation hopes everything goes well for the first couple and the first child, but the arrival in June adds another layer of personal risk onto the future of the Government.

The Prime Minister is planning to return to a decidedly full time job (18 hours on a quiet day) within six weeks of the birth, and to leave Gayford and the baby in Auckland during the working week while she is in Wellington in the Beehive and in Parliament. That would be difficult for any couple, let alone one with the nation's spotlight on them. Everyone wishes them the best, but it will be a risk to consider over the next 1000 days, alongside all the others.

Bill English's stickability

The other factor to watch outside of the Government itself is whether Bill English wants to stay on as National leader for an extended period.

While he remains and wants the job, few think he will be challenged.

But if he wavers or someone emerges with clear backing within the caucus to challenge him (there are none at the moment) then a politically disruptive period for the Opposition would help the Government.

For now, the risks of that are low, but could rise closer to the end of the 1000 days, particularly if National's poll rating drops below 40 percent, which it is showing no signs of doing at the moment.

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