After a campaign with several twists and turns, the New Zealand election delivered a comparatively tame result overall.
The incumbent National Party ended the day with the largest share of votes and in the box-seat to form a government, probably with the support of New Zealand First. However, the Labour Party still has a modest chance of stitching together a government, with support from New Zealand First and the Green Party. Negotiations will continue over the coming weeks to decide the makeup of the new government and outline agreed policies for the next term of Parliament.
Impact of election results
New Zealand markets were subdued on Monday morning, with little movement in the Kiwi dollar, local share market, or interest rates. This reflects a result largely in line with polls immediately prior to the election, and a general comfort among investors that a National-led coalition will largely mean a continuation of the status quo for economic policies. Nevertheless, uncertainty remains. Swings in the Kiwi dollar and local markets could be sparked by talks between the parties. Markets will be most interested in developments that affect areas such as immigration, taxes, superannuation, fiscal control, Reserve Bank objectives, and trade agreements.
Despite the expressed hopes and fears of many interest groups, New Zealand governments are fairly constrained in the degree of policy change they are able - or willing - to achieve these days (see our article Politics and markets for more info). The two main political parties are committed to responsible fiscal management, including keeping deficits and debt at reasonable levels. In addition, with open markets and free flow of money in and out of New Zealand, investors are unforgiving of imprudent policies. This tends to make governments wary of changes that are too radical. Consequently, regardless of the alignment of the government in coming days, I don’t expect long-lasting impacts on the New Zealand dollar, interest rates, and the local investment environment.
Raising eligiblity age for NZ Super?
From the perspective of New Zealand savers, one area that could be significantly affected is the New Zealand Superannuation entitlement. In March, National Leader, Bill English, announced that the eligibility age for NZ Super would be gradually lifted from 65 to 67 years to acknowledge the increasing cost of NZ Super as our population ages. English and Labour Leader, Jacinda Ardern, may both be open to reversing this decision to gain the support of New Zealand First Leader, Winston Peters, who vehemently opposes the change. This would increase the probability that sharper changes to NZ Super may be required in the future, as its burden on government finances becomes more acute. Unfortunately, another change of direction in this politically fraught area will likely hinder, rather than help, peoples’ retirement planning.
The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed, or relied on, as a recommendation to invest in a particular financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any investment decision.
John Carran, Senior Economist at Gareth Morgan Investments
You can read more articles by John on our blog.