There has been much criticism that Labour leader Chris Hipkins' so-called state of the nation speech to Auckland business leaders this week was a missed opportunity. According to these critics, Hipkins should have used the occasion to spell out some major policy details to kick-start his party's election campaign.

However, the critics miss the unpleasant point Hipkins finally seems to have acknowledged. Based on its performance of constant over-promising and chronic under-delivery when last in government, Labour starts with a massive credibility problem when it comes to new policy. Add in the lingering bitterness in Auckland at Labour's treatment of the city during the second Covid19 lockdown, not to mention that as Covid19 Minister Hipkins was a dominant part of that, and the depth of Hipkins' and Labour's Auckland credibility problem becomes even starker.

Against that backdrop, a major policy speech from Hipkins to Auckland business would have gone down like a lead balloon. It simply would not have been taken seriously because the memory of how Hipkins (both when Covid19 Minister and later as Prime Minister) and Labour treated Auckland – where elections traditionally are won or lost – is still too raw.

Therefore, Hipkins' primary task over the last two years has been to repair the fences Labour has broken in Auckland and to rebuild his own personal credibility before he can be taken seriously as a Prime Minister. It is at best an ongoing, incomplete work in progress.

His speech this week was an important part of that, aiming to project Hipkins as a credible, trustworthy and reliable leader who could guide the country steadily through its current difficulties. If Aucklanders, and by extension New Zealanders generally, are going to warm to Labour again so quickly after dumping them unceremoniously at the last election, it must be because they are warming to the prospect of Hipkins as Prime Minister again. So, his primary objective in that speech was to present himself as an unthreatening and competent leader to whom people can relate to and trust.

Hipkins' quiet, reflective and almost sombre tone is like that being followed by his finance spokesperson Barbara Edmonds in her own presentations to business and professional audiences. The message from both is that Labour has learnt its lessons from the still not specifically acknowledged, but implicitly understood, failures of its last stint in office, and can now be relied on to be more prudent and reliable if elected to government later this year.

To reinforce that sense, both Hipkins and Edmonds are holding steadily to the line that Labour will not announce any new policies until after this year’s Budget when the true state of the government’s books will be known. While that sounds good and fits the tone both are trying to set, it could also mean that there are still battles to be resolved between the Caucus and the party’s left-wing, union dominated Policy Council.

But there is also a bigger point, beyond the need to rebuild Hipkins’ and Labour’s public credibility and any still unresolved internal party policy battles. Any future Labour-led government will need to involve the Green Party and probably Te Pati Māori. Hipkins knows that that prospect is downright scary to many of the swinging voters Labour needs to attract this year.

He also knows that Prime Minister Luxon is frequently criticised for his government too often appearing to be led by the nose by its ACT and New Zealand First partners. Hipkins is therefore understandably keen to avoid reinforcing any impression that the Green Party and Te Pati Māori will be similarly dominant in any future government he may lead.

In the wider sense, the truism that Oppositions do not win elections, but governments lose them still applies. As has been the case for nearly all this Parliamentary term, the current government leads the Opposition bloc in public opinion polls, albeit narrowly. But the polls are also showing increasing disapproval of the government’s performance and general indifference to the Opposition.

It is therefore in the Opposition’s interest to keep the public focus substantially on the government’s performance for as long as possible. The key thing Labour can do in the meantime is repair its credibility so that when voters are ready it looks like a credible lead party of government-in-waiting.

That is what Hipkins and Edmonds are trying to do through their public presentations – a combination of reassurance and prudence in difficult times. Making bold new promises at this stage to an electorate that is tired and cynical of the worth of politicians’ offerings would be counterproductive to their cause, and they both know it. Unfortunately, though, the ongoing public sourness and sense of denial about their public perception some of their colleagues still project undermines their efforts.

Hipkins’ state of the nation speech, derided by some as boring and unimaginative, was an important signal that he wants to lead a steady, predictable and focused government. But he faces two significant challenges from here on. The first will be sticking to that message as the campaign unfolds and the pressures from the various left-wing unions and support groups mount for more spending and intervention. And the second will be to persuade those who are of a mind to listen that he is strong enough to ensure any government he leads will be steady, predictable and focused, and not hijacked by the Green Party or Te Pati Māori if their numbers are vital to him forming a government.

Despite Hipkins’ best efforts, Labour’s path to government still remains steeply uphill.

Last week, at the New Zealand Economic Forum at Waikato University I was part of a panel discussing whether MMP had contributed to social cohesion.

I argued that MMP had definitely made more Parliament more diverse and representative of contemporary New Zealand by giving the opportunity of a wider range of political opinions to be expressed. However, it was doubtful that it had contributed positively to social cohesion. Indeed, I suggested that, contrary to expectations, MMP has actually had a negative effect on social cohesion.

When MMP was introduced it was generally and correctly assumed that the old National-Labour duopoly that had dominated New Zealand politics since the 1930s would be challenged by emerging new parties representing important shades of opinion not always given appropriate consideration within the two old parties. It was also expected that this would enable National and Labour to focus more specifically on their traditional audiences, rather than the broad churches they had become over time.

At the same time, it was thought that as the two main parties redefined themselves, the moderate centre ground of politics, previously found in elements of both National and Labour, would assert itself independently and strongly, and play a pivotal role in the composition of future governments. Where new parties emerged, representing specific issues, philosophies, or ethnicities, they were thought likely to be either to the left or the right of the major parties.

In fact, things have not quite worked out that way. National and Labour have repositioned themselves aggressively as competing parties of the centre ground. In the process, they have not only killed off the moderate centre as an independent political voice, but also empowered more strongly the more extreme parties on the right and left on whom they must now rely to form a government when the opportunity arises.

So, rather than have a situation where the centre ground of politics moderates the performance of the two major parties when in government, the reality now is that National and Labour have become hostages to their more doctrinaire support partners. Rather than be moderated by the centre, National and Labour often have to be the handbrake on the small parties supporting them in government.

One of the reasons why the National Party today often looks indecisive and ineffectual within the current coalition government is because much of the focus of what it does is trying to keep the competing demands of ACT and New Zealand First in check, rather than implementing its own policy agenda.

And that means that both ACT and New Zealand First have an influence in government disproportionate to the vote share each received at the last election. It will be no different if Labour leads the next government and is similarly beholden to the Green Party and Te Pati Maori.

This is not to say that the views represented by ACT, New Zealand First, the Green Party and Te Pati Maori have no place at a government’s table, nor that each has no right to demand the implementation of some of their key policies as the price of supporting a government. Rather, the point is about relative proportion.

By shutting out any role for a sensible moderator, National and Labour have both, perhaps inadvertently, empowered the more extreme voices in New Zealand politics to a level not imagined at the time MMP was introduced thirty years ago. And that is where the impact on social cohesion becomes relevant.

There is no doubt that New Zealand today is a more divided society than it was before. In part that arises because we have become a more pluralistic society since the 1990s. And it follows that there are political parties now in Parliament that reflect aspects of that new pluralism.

But this is where the question of relative proportion becomes important and starts to impact on social cohesion. The way in which our MMP system has developed has delivered disproportionate influence to some political groupings. In turn, that disproportion has disrupted social cohesion by rewarding some with more political power and influence than their voter support merits, often at the expense of others who are left feeling they are missing out. National, Labour and the moderate centre where most voters reside, have often been left playing second fiddle to parties whose actual support amongst the electorate is low.

When MMP was developed in Germany after World War II it was seen as the best system to prevent the emergence of extreme voices in politics as had been the case in the 1920s and 1930s. It was hailed throughout the 1950s and 1960s in playing a major part in West Germany’s Wirtschaftswunder or Economic Miracle. So it was little surprise that when a Royal Commission considering the best proportional representation system for New Zealand recommended in 1986 that we introduce MMP.

Sadly, the way it has developed here has enhanced neither economic prosperity nor social cohesion.

 

Contrary to what many commentators are suggesting, Labour is not in the dominant position on what happens regarding the proposed free trade agreement with India. Labour is actually over a barrel on the issue.

Thanks to New Zealand First's obdurate xenophobia, based on inaccurate claims about what the agreement means for future immigration levels from India, the government lacks the numbers in Parliament to pass the relevant enabling legislation. Without New Zealand First's support, National and ACT therefore need to bring on board either Labour, the Green Party or Te Pati Māori to get the legislation through.

Neither the Greens nor Te Pati Māori are realistic prospects, given their antediluvian approach to trade and business. So, it comes down to Labour whether the legislation can pass, and the free trade agreement proceed.

But, contrary to what might be expected, that does not leave Labour in a very strong position. After all, over the last twenty years it has been Labour-led governments that have been more active in pursuing free trade agreements. Most notably, the free trade agreements with China (now our largest trading partner), and the European Union, among others, were reached during the terms of previous Labour-led governments. A free trade agreement with India eluded the last Labour government, even though it had been in its sights, although it was not for lack of New Zealand effort.

All of which makes it very difficult for Labour to do anything other than support the current agreement. Early indications were that would be the case, but now, in what amounts to no more than shadowboxing, Chris Hipkins is trying to raise doubts about whether it will support the enabling legislation.

He probably has a legitimate point that National should have consulted Labour earlier about the deal, but for partisan political reasons, that was never going to happen. Getting a free trade deal during this term of Parliament was an oft stated personal ambition of Prime Minister Luxon from election night (which may explain New Zealand First's opposition) and National was never going to let anything detract from his personal glory in achieving it.

Nevertheless, the temptation for Labour to rain on his parade by denying him the numbers to get the legislation is strong and understandable. But deep-down Labour knows that bloodying Luxon's nose this way, no matter how tempting, could ultimately prove extremely counter-productive to the national interest, especially if it means the deal does not proceed.

If the free trade agreement with India falls over because the government cannot get the support necessary to pass the enabling legislation it will be extremely embarrassing for both countries. New Zealand has spent much time over the last decade under both governments trying to persuade an often-reluctant India to complete a free trade deal. If the deal fails at this point, India is likely to be wary of trying to resurrect a deal too hurriedly, especially since New Zealand stands to benefit more from free trade than India. And if that occurs because Labour fails to support the legislation, India will be even more wary of talking to a future Labour-led government about free trade.

Moreover, Labour has a substantial Indian voter base in New Zealand. Those voters are unlikely to view favourably Labour failing to support the free trade agreement, especially given its provisions about improved immigration opportunities. 

So, for a variety of national interest and partisan political reasons, Labour really has no option but to support both the free trade deal and the enabling legislation. National knows this and it is why it has Labour over a barrel. Labour credibly has no option than to offer its albeit grudging support to the government.

But how long that takes to be forthcoming is less certain. Realising it must ultimately support the legislation, Labour's only remaining card is to drag out the confirmation of its approval for as long as it can to keep the Prime Minister on tenterhooks for as long as possible. However, it needs to be careful not to overplay its diminishing hand. The longer it delays agreeing to support the agreement, the more its credibility will weaken.

There is too much riding on this free trade deal to risk its being derailed by short-term political games. For the country’s sake, let alone its own Integrity, Labour cannot afford to cause this to happen. 

The election year blame game over the state of the economy is underway, with all the accompanying fanatical partisan vehemence that makes the politicians' claims and counterclaims tedious and pointless.

National will always say that they have spent their time in government cleaning up the unmitigated mess left by the last Labour government. And Labour will shamelessly claim that National has wrecked all the economic gains they secured while in office. The only point both have in common is their blind insistence that, based on their respective records in government, the other side should never be trusted in office again. But the underlying truth is that neither should be believed when it comes to their claims about how well they can manage the economy.

The best way to assess the relative economic achievements of both the current government and its Labour predecessor is to strip away the “they said, we said” rhetoric and compare the situation at the end of 2023, when the government changed, and now.

The rising cost-of-living was an issue that dominated the last election campaign and still rates highly as a major concern today. At the end of 2023, the annual increase in the cost-of-living was measured at 7.3%, whereas today it is recorded at 3%. The annual rate of inflation was 4.7% at the end of 2023, today it is around 3.1%.

 Mortgage interest rates have dropped from, around 7% to around 5% today. The cost of buying a house, which reached peak unaffordability in 2022, has now returned to the more sustainable levels being recorded before the Covid19 pandemic, although the government may not want to see house prices falling too much further in election year.

Annual GDP growth which was -0.1% at the end Labour’s reign has now improved to around 1.8%, although still well short of that of many of our trading partners. Net core Crown debt has remained at just under 42% of GDP over the last three years, much lower than that of other countries. Over the period government spending as a percentage of GDP has fallen only slightly from 33.4% in December 2023 to 32.8% now.

On unemployment and job growth, the picture is starker. Unemployment has risen from 4% at the end of 2023, to 5.4% today, its highest level in more than a decade. Although the latest quarterly figures show the first increase in the numbers of people being employed since the middle of 2024, the overall number of jobs in the economy has fallen about 32,000 from its peak at the end of 2023,

When Labour left office, opinion polls recorded 31% of respondents believing New Zealand was heading in the right direction, and nearly 58% believing it was heading in the wrong direction. Today, the number of “right direction” respondents has increased marginally to 32.6%, while the “wrong direction” respondents have fallen to 49%. ANZ Bank reported in December 2023 that business confidence was at a 30-year high, with 64% of respondents expecting better economic conditions ahead. By the end of 2025, that level of optimism had risen to a new record level of 74%, although it has dropped back since.

The picture that emerges is that the economy is performing better today than it was at the end of 2023, but the turnaround has been slow and cautious. Although the overall picture tilts slightly in favour of the coalition government, the margins are slim. So, while the government may be able to say it has turned things around, it still has some way to go to achieve its campaign commitment to get the country properly “back on track.”

Unemployment and its social consequences remain the government’s Achilles’ heel, the small growth in jobs recorded over the last quarter notwithstanding. And while the statistics may tend in its favour, public perceptions of the government’s performance are not nearly as positive. For example, in the latest Ipsos Issues Monitor poll, Labour was rated as more capable than National on handling 15 of the top 20 issues facing the country, including the top issue of the cost-of-living.

Nevertheless, the overall data provides enough signs to give the coalition parties more cause for optimism than their opponents. Added to that are the opinion polls showing a small but increasing lead for the centre-right bloc over the centre-left. But these various results and the economy’s steady, not spectacular, recovery are not yet sufficiently conclusive to guarantee electoral success.

While people remain sceptical about this government’s performance, they are even more so about its predecessor. They remain to be convinced either bloc has the answers.

They want parties to promote practical solutions for the problems at hand, rather than more overblown rhetoric and fanciful promises.