Interest rate warnings influence electorate

MICHAEL FOX
Last updated 05:00 15/05/2014

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National's warnings about a free-spending Labour government appear to struck a chord with voters, who overwhelmingly back National to keep interest rates low.

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But economists say there is little difference between the economic management of the two major political parties and the winner of the next election will have little impact on the official cash rate, currently being raised by the Reserve Bank as it seeks to curb rising inflation.

The latest Stuff.co.nz/Ipsos Political Poll shows 40 per cent of respondents believe National is the party most likely to keep interest rates low.

Labour, which like National has promised to run budget surpluses if elected, received 26 per cent support, followed by the Greens and NZ First on 4.8 per cent and 2.7 per cent respectively. No other parties made it past 1 per cent.

A quarter of those polled did not back any of the parties or said they did not know.

That result comes despite Labour promising to change the Reserve Bank Act to deliver lower interest rates.

BNZ chief economist Tony Alexander said Labour's reputation as a party focused on addressing social issues could be why people had less faith in it to keep interest rates low.

"Generally, people . . . would look towards Labour to address perceived social issues in the economy like equality, social housing, these sort of things - and people know that costs money."

But both parties had a demonstrated commitment to responsible fiscal management and "I think one would struggle to find a difference of any significance between National and Labour" when it came to managing the economy.

Westpac chief economist Dominick Stephens said low interest rates were maintained through a low inflation target, an independent central bank and solid fiscal policy.

"Both the major political parties seem very intent on solid fiscal management," he said. "We don't think the election has very big implications for the long-run average level of interest rates."

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Labour's proposal to make KiwiSaver compulsory or to introduce a variable savings rate would likely not have an impact but broadening the focus of the Reserve Bank beyond inflation and price stability might.

"If the Reserve Bank's got two mandates there is an outside chance in my mind that they might lose focus on inflation and that would be counter-productive."

Westpac believed Labour's promise to introduce a capital gains tax would lead to an economic downturn, however, which would slow the economy and lower interest rates in the short term.

Dr Claire Matthews from Massey University's Centre for Banking Studies said the lack of trust in Labour to keep interest rates low could reflect concerns that its proposed monetary policy was "confused and unfocused".

"I think the Labour government is more likely to run deficits and this would be likely to increase interest rates. But overall, I'm not convinced either Labour or National are more likely to drive up interest rates . . ."

NZIER economist Shamubeel Eaqub said the public did not understand that monetary policy was largely independent of government.

- The Dominion Post

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