The Election and Your Finances

The NZ election and what it means for your money

Our central government election is fast approaching, and many of us might be considering what the outcome will mean for our finances.

Over the short-run, the New Zealand share market could be impacted by election-related uncertainty. While investment markets are considered rational and should focus on fundamentals like economic growth and corporate earnings, the participants in investment markets are people, so they can be startled by surprises they hadn’t considered or situations they thought were unlikely to happen. Several years ago, the sharp reactions in investment markets to the United Kingdom’s unexpected vote to leave the European Union (BREXIT) is a classic example of a negative surprise. However, investors soon looked past the surprise, re-evaluated the likely impacts on company earnings, and adjusted their expectations accordingly. After a few days of unpredictability, investment markets recovered. Investors who sold in panic were left behind.

Investment Changes and Trading

During the twists and turns of a campaign trail, it might be tempting to trade markets (that is, regularly buy or sell some investments such as shares) or change your portfolio one way or another – including changing fund choice on KiwiSaver or make even bigger changes, perhaps make the decision to sell an investment property. If you do this, it’s easy to end up on the wrong side of volatility. Market reactions can also often be the opposite to what people might expect.

Remember: There Are No Rules in Politics

“War has rules, mud wrestling has rules… Politics has no rules.” Ross Perot

Trust in our politicians is at all-time lows.

In the run-up to elections we’ll continue to be bombarded with one-liners and slick promises from politicians. During such a time, political candidates are notorious for an approach known by many names, including: lolly scrambles, pork barrelling, and buying votes. These terms mean variations on the same thing: the party and candidates campaign on spending taxpayer funding on localised projects, regions, or segments of the population – in exchange for the votes of the people who would benefit the most, thus “buying” their votes.

Even worse, some politicians even stoop to divide and conquer politics, which is a strategy used to gain support and power by creating divisions among different groups within a society. They do this by blaming certain groups for the problems or challenges the nation faces, to rally the support of another group. Here are a few examples of how this strategy might be used:

1. Generational Divide: Politicians might pit younger generations against older generations, blaming one for economic struggles or social issues at the expense of the other. They might frame debates about housing or education based on different generations.
2. Urban versus Country: Creating a divide between urban and rural populations by highlighting differing needs and priorities, such as infrastructure funding or care of the natural environment.
3. Ethnic or Racial Divisions: Playing on racial or ethnic tensions, politicians may manipulate perceptions of one group being responsible for economic disparities or crime rates to rally support from another group.
4. Healthcare Access: Politicians could fuel animosity between those who have private healthcare and those relying on public healthcare services, capitalising on concerns about costs and quality of care.
5. Housing Divide: Exploiting tensions between renters and homeowners, attributing housing affordability problems to one group's preferences or policies.

The goal of these divisive tactics is to manipulate public opinion, generate support, and consolidate power by positioning one group as the solution to the perceived problems caused by another group. This strategy often overlooks the complex and nuanced nature of societal issues and fosters polarisation and distrust among different segments of the population.

Election-Time - Market Predictions

Predictions about elections and the share market often focus on which party or candidate might be “better for the market” or “better for the economy”. In this regard, New Zealand is unique as the two major political parties are a lot more similar than they would probably care to admit. Both major parties seem to say:

• They do not intend to reform core areas such as social welfare (the biggest single government expense), immigration, state owned enterprises, and so on.
• Similar things about infrastructure.
• Broadly, New Zealand cannot “tax itself wealthy” and while there are some differing approaches to income taxes or GST, neither of the main parties are planning major tax reforms or tax increases.
• Long-running housing affordability woes can be at least partially solved by partly reforming onerous consent and planning regulations.

Here at Become Wealth, we’re proudly apolitical – we don’t have any political leanings or ties. For the avoidance of doubt, that means whether the main parties agree or disagree on the points above is none of our business! That said, we have heard a common thread of comments from investing and business professionals observing how most New Zealand politicians don’t seem to offer substantial solutions on how our economy and society can rebound from years of closed borders, on-and-off lockdowns, and lagging productivity. The side effects of these issues are probably most visible to New Zealanders in the form of the increased cost of living and increased violent crime.

Most of our political leaders don’t seem to have adjusted to the ‘new normal’ and how rapidly our world is transforming, including with the advent of artificial intelligence (AI) and machine learning. This may not mean anything for most readers just yet but is already starting to show when it comes to career choices, because some fields are being technologically disrupted while others thrive.

Learn more:

• Who wins in a recession?
• Jobs for a bad economy
• Microsoft’s 10 best office jobs in a recession
• Three ways to make six figures
• Investing in a downturn

Keep Things in Perspective

It’s worth remembering that the governments of small nations all over the world, including New Zealand, have less influence over real-world events than we might first think. Most of these things are outside of the control of any government:

1. Innovation and technological advances, it’s nearly always multinational corporations who lead in this area.
2. Catastrophes, pandemics, and natural disasters.
3. Changes in the NZ Dollar versus major currencies, such as the US Dollar.
4. Major wars, trade wars, or changes to international law, (usually it is superpowers such as China and US, or trading blocks such as the European Union who lead in this area).

Easy to Say, Hard to Do

As we suggested earlier, sometimes concern about election promises made by politicians can lead people to make investment decisions or other financial and life changes during the election campaign. Such concern and changes are mostly unfounded, as despite the slogans, campaign promises, and – sometimes intentional – division which may present during an election campaign, many policies commonly end up unimplemented and things continue back as the status quo.

Even when new laws are passed or politicians allocate copious funding to one cause or another, there doesn’t seem to be much of a relationship between these things happening and improved outcomes.

Probable Outcomes, Regardless of the Election

When it comes to your hard-earned money, the election outcome matters a lot less than most people think. Regardless of what happens in the polling booths, it’s reasonable to expect that:

• Investment markets will stay volatile (have sometimes-large variations in price), but will reward patient investors by trending steadily onwards and upwards.
• Inflation might remain a challenge for some years. Nobody knows how long for.
• Interest rates will remain higher than we’ve been recently accustomed too. This is good news for savers, but bad news for borrowers – including anyone with a mortgage.
• Most New Zealand politicians will remain moderate in nature. They don’t seem to like reforming things or implementing unpopular decisions even if those decisions or reforms would be good for the long-term health of our country.
• After the election, a spell of uncertainty will occur as negotiations take place between small and large political parties. What is agreed to in these deals may surprise.
• The New Zealand economy will get through our current economic woes: as a nation, we export a lot of food to trading partners we have good relations with.
• Some companies and industries will struggle, others will thrive. The same goes for the people employed in them.
• The New Zealand government will have to borrow to pay the bills for at least the next two years. That is, the government will have to keep spending a lot more than taxpayers pay in taxes.
• At some stage, all the government-borrowed money will need to be repaid by taxpayers.

The Bottom Line: The NZ Election and Your Finances

If you still have any concerns about how the elections might affect your finances, investments, tax situation, or something else, simply get in touch and we can talk through potential personal impacts and solutions.