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The year ahead in politics – 2022


February 11, 2022

The year ahead in politics – 2022


February 11, 2022

2022 is, hopefully, the year that New Zealand and the world begins to move past the pandemic. Jacinda Ardern’s Labour Government will face the inevitable Omicron wave as well as trying to implement a slew of far-reaching policies and reforms dealing with housing, climate change, work rights, the health system, water services, resource management, and others. Meanwhile, National will be looking to re-establish itself as a serious contender under new leader Chris Luxon in the lead up to the 2023 election.

This briefing looks at the state of the political parties and the major issues they will be dealing with in 2022 to give our clients a sense of what to expect and where they should focus their engagement with government.

To download a PDF version of this briefing, please click here.

Timeline

  • 8 February 2022 – Parliament resumes for 2022 with the Prime Minister’s Statement laying out priorities for the year ahead
  • 23 February 2022 – Reserve Bank’s first announcement on the official cash rate
  • 27 February 2022 – beginning of border reopening with return for New Zealanders in Australia with self-isolation instead of MIQ
  • 28 February 2022 – Working Group reports back on Three Waters reform
  • 13 March 2022 – border reopening with return for all New Zealanders and some skilled migrants with self-isolation instead of MIQ
  • 1 April 2022 – Minimum wage increases to $21.20. ‘Feebate’ on light vehicle imports introduced.
  • 12 April 2022 – Border reopening for some temporary via holders and international students, with self-isolation instead of MIQ
  • Late May 2022 – Budget 2022 announced. Emissions Reduction Plan announced.
  • 1 July 2022 – Health NZ and Māori Health Authority replace District Health Boards
  • Late July 2022  – border open to Australian and border waiver countries, with self-isolation instead of MIQ
  • October 2022 – border open to people from all countries and all visa classes (at some point self-isolation is expected to be ended)
  • 8 October 2022 – Local Body elections conclude
  • Early December 2022 – Half Year Economic and Fiscal Update
  • 14 December 2022 – Last sitting day for Parliament

 

Major Legislation expected to be introduced and/or passed during 2022 (specific dates not available):

  • Pae Ora (Healthy Futures) Bill (final stages)
  • Biofuels Mandate legislation (not yet introduced)
  • Fair Pay Agreements legislation (early 2022)
  • Social Unemployment Insurance legislation (not yet introduced)
  • Three Waters Legislation (exposure draft released for consultation)
  • Natural and Built Environments Bill (exposure draft released for consultation)
  • Strategic Planning Bill (not yet introduced)
  • Climate Change Adaptation Bill (not yet introduced)
  • Digital Identity Services Trust Framework Bill (select committee to report back in April)
  • Possibly legislation relating to implementation of the Emissions Reduction Plan

 

Political parties

The first publicly released polls of 2022 show Labour and the Greens able to govern, but with National well up on its nadir under Judith Collins. Labour is still solidly in control of the swing vote that decides elections. To date, National’s recovery has been a result of consolidating the right-wing vote, rather than winning swing voters from Labour. In fact, in most polls, the left bloc (Labour/Greens) has seen its support grow, while the right bloc (National/ACT) has shrunk.

Jacinda Ardern is well ahead of Chris Luxon as Preferred Prime Minister. Jacinda Ardern’s polling has declined markedly from her 2020 highs on the back of COVID elimination. Luxon’s initial 17% in the PPM poll is middling but an approval poll shows few voters disapprove of his performance and many are undecided, giving him the chance to make a good impression on those voters before views harden.

Preferred PM

Approval/performing well

Labour

COVID has defined Labour’s second term in office so far. At the same time, the Government is pursuing major reforms across a slew of portfolios. Some items have proven significantly controversial (e.g. the Auckland Harbour cycle bridge and Three Waters) while Labour is persisting with others in the face of controversy because it believes the results are worth the political cost (e.g. the Clean Car Package, Health Sector reforms, and Fair Pay Agreements).

As Labour looks to the post-pandemic world, Ardern has said “I don’t want us to just reflect on how we weathered the storm of a pandemic. But what we built after. Our economy cannot afford to return to business as usual, because the status quo is unsustainable”, referencing the government’s climate change agenda. She has also highlighted infrastructure, housing, and health as priorities.

Labour will need to regain control of the political debate on these other issues when COVID (hopefully) ceases to be the overwhelming focus of political debate.

Labour knew its historic 50% support at the election wouldn’t last and its reform agenda would burn off some votes. The party will be happy that it hasn’t dipped below 40% or bled support to National under Luxon and that Ardern’s personal popularity remains strong. If it can maintain solid support at around 40%, its path to re-election with the support of the Greens in 2023 is clear.

 

National

New National Leader Chris Luxon is tasked with restoring the party’s competitiveness. In the first polls under his leadership, National has risen to by low 30s%, but only by taking votes from ACT and micro parties – it has yet to reach into the centre vote that determines elections. Although he has yet to grow the right’s share of the vote, consolidating National’s vote that had drifted to other  parties has given Luxon a sense of momentum. Luxon is determined to introduce management tools from the corporate world (KPIs, disputes resolution) to National.

Luxon has signalled the need for greater investment in health, education, housing and climate, and a kinder approach to those in poverty, while also saying government spending needs to come down. Luxon has also indicated he will move the party’s focus away from the more racially divisive issues of the Collins leadership, such her attacks on the He Puapua report.

In terms of attacks on the Government, it looks like National will continue to pick away at the COVID response with spokesperson Chris Bishop’s strategy being to highlight every problem in order to paint the entire response as shambolic. At the same time, Luxon and finance spokesperson Simon Bridges are set to attack the Government on the cost of living and government spending. Climate initiatives like the Biofuels Mandate and the Clean Car standards are likely to be attacked for imposing costs on households.

 

Green Party

The Green Party has maintained its support around 10%, a decent result that the party is broadly happy with, but not the breakout result they would hope for. The challenge for the party is how to grow its profile and get out of Labour’s shadow without falling into the trap of going for extreme and controversial moves that put off more moderate voters. As things are tracking, Labour will need the Greens to form a government in 2023. The Greens will want to have as  big as possible vote share to be influential in a 3rd term Labour-led government, but they will also need to be careful they don’t make the prospect of a Labour-Greens government sound so extreme it can be used by National to scare centrist swing voters away from Labour.

 

ACT

2021 was a golden year for ACT. It was only a matter of time, however, until National got itself a more credible leader. Voters that had gone to ACT under Judith Collins’ disastrous leadership of National immediately returned when Chris Luxon took on the job, with ACT ending the year on 11%. In 2022, ACT will be looking to regain some of those voters back from National again. Seymour appears set to continue to strongly oppose the Government’s COVID response, appealing to and encouraging the anti-government sentiment in the rightwing voter base. If Luxon flounders or fades into the background, voters will look again for more strident anti-Labour messages from ACT and the microparties.

 

Te Pāti Māori 

The new incarnation of Te Pāti Māori is more radical and leftwing than previously and has made headlines with fights over colonial symbolism in Parliament (culminating in the removal of the requirement that male MPs wear neckties). Beyond symbolism, Te Pāti Māori has also concentrated on the vaccine rollout for Māori – a fraught issue given anti-vaccine sentiment in some Māori communities and widespread alienation from and distrust of government among Māori – calling for more Māori-led solutions and funding for Māori health providers. Te Pāti Māori will look to continue to carve its own niche, distinct from the Labour candidates who compete with it for the Māori seats.

 

Reactionary political movements

The past year has seen the emergence of reactionary anti-government groups that have not previously been a feature of the New Zealand political landscape, organising around COVID conspiracy theories, and opposing government reforms to water management and climate change. Whether these groups become a serious threat to public safety, and their relationships with the mainstream right wing of politics will be important issues in the year ahead.

They are getting increasingly militant, staging two protests at Parliament in recent months where they threatened to storm the building and attack politicians, although they ultimately did not seriously try to break through a police cordon. Threats of violence against politicians from such extremists are on the rise, prompting concern from politicians and security services.

 

Major policy issues

COVID

The response to the COVID pandemic continues to be the dominating issue for the Government and for the political discourse. This may change in 2022 depending on the course of the pandemic, but there are no guarantees.

The combination of very high vaccination rates and public health restrictions has been more successful than expected at containing the 2021 Delta outbreak and the Omicron outbreak, so far. Omicron cases are still expected to rise into the thousands per day, and peak in March. The Government is pushing to get as many children as possible vaccinated and get adults to have their boosters to limit the impact of Omicron on the health system.

The response to Omicron will proceed through three phases as case numbers grow. Initially, it will continue to use PCR testing 10 days isolation for contacts, and contact tracing to try to stamp out transmission chains. As case numbers grow, isolation times will shorten, Rapid Antigen Tests will be used more frequently, and the focus will move to sustaining and protecting critical workforces, such as health and the food supply chain, through allowing ‘test to work’ for contacts of COVID cases.

Widespread and high case numbers will also diminish the reasons for making people entering MIQ go through MIQ. Therefore, the Government has announced a plan for a gradual reopening of the border. People will have to self-isolate for 10 days initially (reducing to seven during ‘Phase 2’ of the Omicron response). The Government envisions that the self-isolation requirement will be withdrawn in time.

With the record number of cases of COVID in other countries, the emergence of further variants seems inevitable. If any of these is strongly vaccine resistant and/or has a high mortality rate, the Government will be forced to re-evaluate its plans.

The opposition has maintained its constant drumbeat of criticism, along with some members of the business community calling variously for an end to border quarantine, vaccine mandates, and gathering restrictions. Do not expect this to influence the Government response. The Government does not view the criticism as well-founded or politically damaging. It believes the public supports measures to limit COVID and it is determined not to be swayed from following scientific advice and choosing the path it believes is best for New Zealanders’ health and the New Zealand economy. Indeed, polling shows the public is more risk-adverse on reopening the border than the Government.

Policies and issues to watch:

  • Supply of rapid antigen tests: not needed during the elimination and ‘stamp it out’ responses, RATs will be needed widely once Omicron is endemic. 4.6m are in country with 20m on order, but more are likely to be needed
  • Hospital capacity: While the hospitalisation and ICU rates of Omicron are far lower than other strains, the number of infections means the system is likely to come under strain not yet previously seen in New Zealand during the pandemic
  • Boosting and child vaccination: getting adults to have their boosters and achieving a high vaccination rate among 5-11 year olds will be vital to containing case numbers and severity

 

Economy

The economy has grown strongly, up 4.9% in the year to September 2021, despite a quarterly decline due to the August lockdown. Growth should rebound from that quarter in 2022, although labour shortages and supply chain constraints will be limiting factors.

Unemployment is just 3.4%, effectively full employment, with the employment rate at a record 68.8% and underutilisation at 9.2% – the lowest level in 14 years. This is driving increasing wages, up 3.5% in the year to September 2021. Coupled with higher employment levels, more hours per worker on average, and recovery from the 2020 lockdown, this drove the median household income up by 7.7% in the year to June 2021.

At the same time, the highest sustained inflation in decades is being experienced at 4.9% in the September quarter. This is a combination of ‘cost-push’ – recovery in oil prices, rising shipping costs, supply constraints in construction due to record building – and ‘demand-pull’ – households buying more due to higher incomes, the wealth effect from the housing boom, and $9b a year in funds they would usually spend on international tourism. These are international factors and have seen high levels of inflation in other countries.

In the year ahead, the question will be whether constrained labour and supplies limit continued GDP growth and fuel further inflation. Forecasters are expecting house prices to stabilise, which could see demand-pull inflation ease and, perhaps, cool the rate of construction, although the Government will be keen to promote continued record home building.

The border closure means a tight labour market – leading to record low unemployment and strong wage rises, two leading indicators of falling business confidence. This, along with the stresses of the COVID pandemic, and government policies to lift wages, strengthen worker rights, and reduce businesses’ environmental impacts are affecting the relationship between Labour and business.

Labour will see strong employment, rising wages, and the wealth effect of the house price boom as underpinning its support with the electorally vital mortgage belt. It will be wary of the Reserve Bank raising interest rates to tackle inflation.

National is gearing up to make cost of living a major line of attack on the Government this year, and finance spokesperson Simon Bridges has already shown he will try to pin the blame for inflation on government spending.

Policies and metrics to watch:

  • Minimum wage increase: Labour delivered its 2017 election promise of a $20hr minimum wage in 2021 and has announced that, on 1 April 2022, it will increase again to $21.20.
  • Inflation: whether inflation is transitory or persists longer term will have a major effect on how well-off households feel, how the Reserve Bank reacts, and the politics of the cost of living
  • Interest rates: Banks forecast the Official Cash Rate will rise to 3% by next year, lifting mortgage rates and business interest costs to levels not seen in five years. This could stifle house prices, as well as growth
  • Immigration: the post-COVID resumption of mass immigration will have a major effect on the economy, easing labour shortages but increasing the strain on housing and infrastructure.

 

The fiscal picture

The Government’s books are in astoundingly good health compared to the forecasts made in Budget 2020 at the start of the pandemic. Net Core Crown debt stands at 34% of GDP (as of October) and is forecast to peak at 40% of GDP in 2023, when the books will return to surplus (in Budget 2020, the forecast was debt would be 44% now, on its way to a 54% peak, with no surplus until 2028). The strong economy has underpinned this result, with tax revenue continually exceeding Treasury forecasts on the back of higher profits, wages, and employment.

Finance Minister Grant Robertson has announced a record $6b allowance for new operating spending in Budget 2023 (roughly equal to a 5% increase in underlying government spending), with much of this to be focused on climate policies. Despite this increase, Core Crown Expenditure is actually projected to fall to $120b in the coming 2022/23 fiscal year, an $8b reduction compared to this year, which has seen billions spent on COVID response measures like the Wage Subsidy that (hopefully) will not need to be repeated.

Labour is determined to invest substantial sums in priority areas – poverty, climate change, housing – and carry out costly reforms to health and water services. However, it is conscious that debt is one of centre voters’ biggest concerns about Labour and it would like to be able to go into the 2023 election in surplus to assuage those concerns.

National is attempting to cast ‘loose government spending’ as the culprit for inflation, although the factors are more related to international issues (see above). Finance spokesperson Simon Bridges has highlighted the 68% increase in Core Crown Expenditure between 2016/17 and 2022/23 claiming National would cut loose spending. When asked to provide examples, National has pointed to the extra 10,000 public servants compared to 2017 at a cost of $1b a year – although many of those have been employed for the COVID response.

Policies and metrics to watch:

  • Monthly financial statements of the Crown: will they continue to beat forecasts?
  • Budget 2022: will there be another improvement in forecasts? Will debt have peaked and the Crown be in surplus by Election 2023?
  • Climate Change funding: The Government has announced it will ring-fence Emissions Trading Scheme revenue for funding climate change policies – what will this look like in practice, and what will get funded?

 

Climate Change

It is expected that Budget 2022 will be the ‘climate change budget’ with allocations of funding from the new Climate Emergency Response Fund (CERF). $4.5b is expected to be available over the first four years of the fund, using hypothecated revenue from the Emissions Trading Scheme. The fund will be spent roughly 50/50 on capital and operating spending, with $840 million already allocated to the Government’s increased international climate aid commitments. This leaves around $900m a year for climate change-specific spending, on top of existing allocations like New Zealand Green Investment Finance.

Around the time of the Budget in May, the Government will also release its first Emissions Reduction Plan, showing how it intends to meet the carbon budgets laid out by the Climate Change Commission. The consultation document on the ERP released last year was still very high level and left a large gap in reductions that current policies will achieve and the Government’s international commitments. New policies will be needed to achieve further reductions, or the Government will be dependent on purchasing international credits. We expect that allocations of the CERF will be aligned with the ERP.

The Government’s Clean Car package is expected to be passed into law early this year, with the ‘feebate’ (an import fee on high emissions vehicles to fund a rebate on low emissions vehicles) starting on 1 April 2022, replacing the current rebate introduced as an intermediate measure last year. Opposition to the so-called ‘ute tax’ has been strong from rural groups and the political opposition.

Labour wants to show results on climate change, which it has stated as a priority, as does the Green Party, with Co-Leader James Shaw in his fifth year as Climate Change Minister. The last term saw the creation of legislative frameworks for action and the Government is now allocating serious amounts of funding to deliver on its promises but it remains to be seen if it can find politically palatable options that will result in the level of emissions reductions needed. Already the ERP consultation suggests slowing the rate of afforestation, which some rural groups have called for, despite the importance of carbon offsets in achieving the carbon budget.

Opposition Leader Christopher Luxon has said he takes climate change seriously, but National has continued its opposition to the Clean Car policies under his leadership, and is likely to likewise continue to frame climate initiatives as increasing the burden on businesses and households. National will instead call for increased reliance on the Emissions Trading Scheme to do the heavy lifting on reducing emissions.

Housing

The perennial housing issue won’t be going away in 2022, but there is hope for prices to stabilise. The last year has seen a boom in housing prices driven by record low interest rates, a record high employment rate and strong wage growth, and Kiwi households sitting on $9b/yr that they would usually spend on overseas travel (the same factors have seen booming demand for vehicles, homeware, renovations, and garden supplies). Despite rocketing prices, first home buyer market share actually increased while the removal of mortgage interest deductibility cut investor borrowing by a third.

House prices now seem to have reached the limits of affordability. Demand should be curtailed by rising interest rates and a reduction in mortgage approvals following the introduction of the new Credit Contracts and Consumer Finance Act (CCCFA) rules. At the same time, new supply should put a dampener on the market, with a record 37,000 net additional homes in 2021 against low population growth equal to approximately 13,000 households. 48,000 homes were consented in 2021, suggesting even stronger building in 2022 (the housing shortage that stood at around 70,000 in 2017 is now down to 50,000 and will be gone in a few years if build rates and low population growth due to the lack of mass immigraticontinue).

Treasury projects that house prices will fall by 0.2% and 0.4% in 2022/23 and 2023/24, and may give back some of the recent gains in the second half of 2021/22.

If house prices do stabilise or fall, there is a risk that construction will slow rapidly – as happened following the Global Financial Crisis, which led to the current housing shortage. Developers can rapidly put plans on ice and development credit may dry up. The Government will want to push against any slowdown, using the Government Build Programme (which currently supplies 10% of new houses – state houses, KiwiBuild affordable houses, and ‘market’ houses), and tools such as allowing investors to claim tax deductions on mortgage interest for new builds only, relaxing density restrictions, and supporting the Build to Rent sector.

Labour will want to be able to go into the 2023 election with stable house prices, the housing shortage taken care of, and high first home buyer activity. National Housing spokesperson Nicola Willis is determined to weaken Labour’s favourability on housing, by switching the conversation from National’s role in the housing shortage that emerged during its time in government to Labour’s failure to fix it thus far.

Policies to watch:

  • CCCFA: calls are growing for a fix to the increased stringency being applied to new mortgage applications, particularly affecting first homebuyers. Banks say the new CCCFA regulations that came into effect on 1 December 2021 are to blame, while the Government says the problem is with implementation.
  • Building for Climate Change: Consulted on a year ago, this programme is expected to lay out a long-term plan to lift the energy/emissions performance of new homes – how fast and how far it goes remains to be seen
  • National Policy Statement on Urban Development and Resource Management (Enabling Housing Supply and Other Matters) Amendment Act: How councils implement these central government policies that are intended to relax density controls will be a major issue, particularly with local government elections this year
  • Mortgage interest deductions: The Bill to remove mortgage interest deductions is before select committee – the details, including the exemption for new builds, will have important effects on developers and the Build to Rent sector
  • Build to Rent: The Government has signalled that it is working on a policy package to support the Build to Rent sector

Other major items on the Government’s agenda

New Zealand Income Insurance Scheme

The pandemic has exposed the risk that large employment losses could create a negative economic spiral as households are forced to cut demand and default on mortgages. The Wage Subsidy averted this as an ad hoc measure, but it showed the need for a more permanent fix to the income shock experienced by households and the broader economy when people lose their jobs.

The income insurance scheme is planned to be built on similar lines to ACC income compensation. Businesses and employees will pay a percentage (initially 1.39%) of their wage/salaries into the scheme, which will then pay out 80% of workers’ former income for six months if they lose their jobs (employers will have to pay the first four weeks’ themselves and provide four weeks notice). This is intended to give people time to retrain, if needed, and find a suitable job without a sudden drop in income, and prevent the economy-wide shock of a mass increase in unemployment.

Consultation is now open on this proposal. If it proceeds, the scheme will come into effect in 2024. National’s opposition has been muted, due to Business New Zealand’s involvement, but are wary of it as a cost on business. Disability and poverty groups point out that there will be inequities with those who have never been able to work (eg due to congenital disabilities or chronic illness, which are not covered by ACC), and between higher and lower income workers who lose their jobs.

Three Waters

The Government plans to move management of reticulated drinking water, stormwater, and sewerage systems from local councils to regional bodies in response to a growing list of failures of water services.

Proponents argue that councils have underinvested in water services for decades, leading to the current failures, and that smaller councils are simply unable to afford the infrastructure or procure the expertise to run their systems effectively. Modelling commissioned by the Government shows that ratepayers in all council areas will face reduced bills as a result of the amalgamation of assets into bodies with deeper pockets and greater expertise.

Critics argue that this is an asset grab by central government from local government that will remove local voice, and larger, wealthier councils fear their ratepayers will be forced to pay for their poorer neighbours’ water infrastructure.

The debate has unfortunately been marred by racism, much of it directed at Local Government Minister Nanaia Mahuta. Opponents have focused on the plan for aspects of ‘co-governance’ of the water agencies between central government, local government, and iwi.

Legislation is expected to be passed this year to implement the Government’s changes. This also being a local government election year, the politics of the issue are not going away quickly.

Health reforms

Legislation is before Parliament to begin the implementation of the Government’s Health and Disability Sector reforms, which will abolish the District Health Boards and establish in their place a new agency called Health NZ and a Māori Health Authority.

Health Minister Andrew Little says the pandemic has highlighted issues with inconsistent practice and convoluted decision-making in the health system, which these reforms will attempt to fix. National argues that the pandemic is the wrong time to be revamping the health system, that DHBs provide local communities with control, and that the Māori Health Authority is dangerous separatism.

The debate is likely to continue strongly this year. The cost of the reforms (which is large, if mainly an accounting fiction), any disruption to services, and the role of the Māori Health Authority will be points of debate.

The Pae Ora Healthy Futures Bill to establish the new health entities is currently before select committee.

Fair Pay Agreements

Labour is determined to push ahead this year with the introduction of sector bargaining similar to the system in Australia, with the goal of ending ‘race to the bottom’ pressure holding back wages and conditions. The law is particularly intended to target sectors where workers are subject to low pay and poor conditions, such as cleaners.

Unions will be able to initiate the Fair Pay Agreement, by meeting a representation threshold of support from 10% or 1000 workers in coverage, or a public interest test. Bargaining will take place between unions and employers in a sector, with the government providing funding for the process. The resulting agreement will cover all workers in the affected sector, unionised and non-unionised.

Business NZ is refusing to participate as a backstop negotiator arguing that FPAs will constitute a violation of freedom of association and compulsory unionism by stealth. The Opposition has characterised FPAs as a ‘return to the 1970s’.

The Government intends to introduce legislation to enact FPAs early this year.

Resource management reform

The Government’s replacement of the Resource Management Act with three new pieces of legislation is a mammoth task that will be challenging to execute well. The goal is to simplify planning law to make it easier to apply and comply with, while also implementing better environmental protections and placing climate change at the heart of planning rules.

The Natural and Built Environments Bill, covering land use and environmental regulation, has been through a special pre-legislative select committee process with the full Bill due to be introduced and passed this year.

The Strategic Planning Act  to integrate with other legislation relevant to development, and require long-term regional spatial strategies and the Climate Change Adaptation Act  to address complex issues associated with managed retreat and funding and financing adaptation are due to be introduced this year, although timelines may slip.

Political debate will be shaped by the details of the Bills, which have not been revealed yet. National also has a policy to repeal and replace the RMA, so there is the possibility for bipartisan accord on these reforms, building on the parties’ recent co-development and passing of a RMA reform Bill to relax density requirements.

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