John Armstrong: Cometh the hour; cometh the Minister of Finance?

John Armstrong
Source: 1News

The answer to that question has to be an unequivocal “yes”. So far, at least.

Grant Robertson.

With New Zealand’s not-so-long-ago “rock star” economy suddenly in peril of hitting the rocks, Grant Robertson could be excused for asking what he has done to deserve finding himself staring at not just an economic downturn, but conceivably a full-on recession just as the country is poised to go to the polls.

There has been much talk in recent days of “perfect storms”. Well, storms do not get any more perfect than the one now buffeting the Labour-led Government. This storm has added a fresh dynamic to the way in which the Government functions.

Jacinda Ardern delivered power to Labour nigh on three years ago but boil everything down and you reach one conclusion, it now falls on Robertson to keep Labour in power.

The deepening economic impact of — and, more pertinently, the response of the current Labour-led Administration to the coronavirus crisis — is going to dominate the coming election campaign to the exclusion of just about everything else.

Robertson has to drive that debate. Otherwise, he will find others, including National, will drive right over him.

By example, Robertson’s presence at the Prime Minister’s weekly press conference last Monday was absolutely crucial. It displayed a government on the front foot rather than one bobbing helplessly on the stormy seas of uncertainty.

There are times when politicians are best advised to say or do nothing. There are occasions when they are best advised to give the impression of doing as much as they can do even if they cannot actually do very much to make a difference. Monday’s press conference was in the latter category. 

Had the media briefing been scheduled in the wake of the following day’s carnage on the NZX, it might have left a very different impression — one far less favourable to Labour’s cause.

It’s still very early days, however. The threat to the economy may yet fizzle out. Alternatively, things could get exponentially worse with mass layoffs and business closures. If so, the Finance Minister will be under no illusions as to the potentially monumental task ahead of him.

While it took the crash in stock values on the world’s share markets for many to wake up to the seriousness of the economic impact of the coronavirus, Robertson’s statements and actions speak of someone who woke up long ago to the view that things will get a whole lot worse for quite some time before they start getting better.

The initial optimism in the financial markets that the spread of the virus would have “peaked” or “stabilised” by now — to borrow the jargon — and that any reduction in economic activity both at domestic and international levels would be limited to a short, sharp shock, and furthermore that the Chinese economy would be humming again by the middle of this year have turned out to be horribly astray. 

Any stabilisation of the number of cases of coronavirus is now not expected until late May at the earliest— and may not happen before August. But no-one really knows.

The timing could hardly be worse for Robertson. He has to produce a Budget in May. He will be flying blind. The Treasury’s  forecasts of levels of tax revenue for the next financial year risk being little more than stabs in the dark. Likewise the projections for economic growth.

The Treasury’s equivalent of Pin the Tail on the Donkey will then have to be repeated to meet the legal requirement of the opening of the Government books via the publication of the pre-election fiscal update.

Those are the least of his problems, however.

Business confidence is likely to go through the floor. There is a palpable panic starting to emerge in the services and retail sectors as businesses worry about the downstream impact on their balance sheets of the tourist industry, for example, suffering a drastic slash of patronage. 

Then there are the enterprises in the tertiary sector and elsewhere lobbying for special treatment, such as exemption from the ban on foreign students from entering New Zealand on direct flights from China.

To agree to such exemptions would be akin to playing politics version of Russian roulette. Were the Government to allow an exemption and a carrier of the virus slipped though the cracks and became the source of a much wider infection, the backlash against Labour — as the governing party whose ministers are carrying all the responsibilities for dealing with the virus and its ramifications — could be something truly awful to behold.

You can argue that the chances of being infected with the virus are in the same region as those applying to winning Lotto’s Powerball.

But when logic is forced to compete with basic, undiluted fear, there is only one outcome. And it is not one that no politician is silly enough to trifle with.

None of all this therefore helps Robertson do what he would most like to do — namely forge a national consensus as to how the potential emergency is best handled. 

Moreover, unlike other national catastrophes of recent times, he can forget thoughts of a bipartisan response to the crisis.

In the hope that the public might be become more amenable to a consensus, Robertson is telling it like it is. He has been frank about what might await the country in coming months, if not weeks.

It is difficult for the Opposition to criticise his instruction to the Treasury to prepare three different scenarios as to the likely impact of the virus on the economy.

These vary from a short, sharp impact over the first half of 2020 before economic activity returns to normal to the second scenario of a longer lasting shock as the global impact feeds through to the local economy for a period of time, and where there are cases of coronavirus in New Zealand.

The third scenario is a global downturn resulting from a global pandemic.

Robertson’s pondering aloud as to whether the country might already be in the second scenario was very deliberate. He cannot now be accused by the Opposition of trying to downplay the dangers to the economy.

Likewise, should the economic shock turn out not to be short, but still very sharp, Robertson can say he gave the public more than adequate warning.

There is also a wider, but hidden game being played here — one which is strictly political and one in which the stakes are quite massive.

Essentially, the virus has reactivated the long-running battle between Labour and National as to which party is best trusted with the task of managing the economy.

It is a battle which Labour has usually found itself on the losing side with public opinion tending to weigh in behind National.

Removing this drag on its electability would pay huge dividends for Labour in its quest to be regarded as a natural party of government rather than the habitual party of Opposition.

If Robertson gets it right and the country escapes a major downturn, he will become a living legend in the eyes of his party.

If he gets it wrong and the country slides into recession, he and Labour can expect to cop the blame — even though what happens may be beyond their control. For that reason, Robertson is keeping all options on the policy-making table.

He has even refused to rule out tax cuts should the economy need such pump-priming to stay afloat.

That is something which Labour would not entertain in normal times.

The country has been pitched into very abnormal times, however. Times in which the only certainty is uncertainty.