David Hargreaves says the Government's supposed year of delivery has been a non-starter. But key decisions in the final two months of the year may set the tone for the economy in 2020

Oh dear. This year is disappearing at break-neck speed. Where has it gone?

Indeed, it must all be going too quickly for a Government that promised us the 'year of delivery'. Oh, how they must be regretting that promise.

From where I'm looking it seems like the Government's delivery van must have broken down. Or it got lost. No delivery. No goodies. No shot in the arm for the economy.

It is not just the Government watching the days of 2019 disappearing with indecent rapidity at the moment though. These are very busy times for the people at the Reserve Bank.

This has been their own kind of 'year of delivery'. They have had some big things to front up on - not least the proposals for banks to carry more capital. And they still have much to do before the end of 2019.

Done and dusted

So, while the course of this year is close to done and dusted, there's decisions still to be made before Christmas that might have an outsized impact on next year.

And in that respect, my mentioning of the Reserve Bank and the Government in the same breath is no coincidence.

The paths of the two are becoming increasingly intertwined. This is an interesting development, particularly when the much discussed 'independence' of the RBNZ from government is considered. There have been mutterings in the village from some quarters that the RBNZ is moving closer toward doing Government-type things. 

However, New Zealand is not alone in seeing such an intertwining.

The expanding role of central banks

Conventional monetary policy around the globe is reaching the end of what now looks a very short rope. As interest rates head for zero and even below, then so-called 'unconventional' monetary policies, such as quantitative easing come into view. And central banks are looking increasingly to their governments for fiscal support.

We haven't got the unconventional monetary policies here (yet). But in Adrian Orr we've got a Reserve Bank Governor who has already been asking Finance Minister Grant Robertson for fiscal support. In other words: 'Grant, old mate, loosen the purse strings a bit, let's get this economy rolling.'

Minister Robertson is to this point, however, keeping his powder dry.

That's not to say that things might not be on the move soon though.

As I suggested in a recent column, the RBNZ may yet provide some stimulus of its own by announcing relaxation of the limits on high loan to value ratio (LVR) lending when it releases its next Financial Stability Report on November 27. 

A capital decision

The Financial Stability Report release will be followed, apparently in the first week of December, by that much anticipated final decision from the RBNZ on the proposals for banks to hold more capital.

The whole bank capital thing has become uncomfortably confrontational, as a recent speech by RBNZ Governor Orr demonstrated. I have previously criticised the way, particularly the big four banks have pushed back on the capital proposals. 

I had earlier thought the whole thing was a bit of position-taking posturing (particularly from the banks) that would eventually be sorted out uneventfully. Instead battle lines appear to have hardened. So, now I'm less sure we will get a happy resolution. 

The Government's going to be very much more than mildly interested in what the RBNZ finally comes up with. Make no mistake, the RBNZ's decision could have a big bearing on what happens in the economy here next year. 

Keep lending, please

At a time when the Government wants people and businesses to spend and invest, it doesn't want stroppy banks pulling back on lending to defend their own capital positions - as has been the threat.

Whether the banks would in any case do that, and whether it would serve them well in the long term, well, we would have to wait and see.

But it all provides a lot of room for uncertainty. And uncertainty is never good for business and the economy. And business confidence is currently dragging on the ground in any case.

Before Christmas the Government gets one last major say for the year on economic matters through the Half Year Economic and Fiscal Update (HYFU). This is the Government's big economic sign-off for the year, in effect.

The date hasn't been announced yet, but the HYFU tends to be released in the second week of December. So this year's HYFU will likely follow hot on the heels of the RBNZ's bank capital decision. Which could be interesting.

We may need a pick-up

If the RBNZ does indeed hold firm and does go ahead with reasonably tough new capital requirements, and if the banks do react to that with some tough posturing, then everybody might be in need of a bit of a pick-up.

So, would the Government be tempted (finally) to use the HYFU as a chance to portend some fiscal goodies next year?

The 'year of delivery' has seen this Government look increasingly lost.

For me the Government stand-outs this year - and not in a good way - have been the abandonment of KiwiBuild, the flipflop on migration and the poor handling of sexual misconduct allegations within the Labour Party.

I reckon these three things taken together - cumulative impact, if you will - would have been key influences in the sharp drop in Labour's standing in the latest opinion polls.

The KiwiBuild and migration U-turns were a government doing the opposite of what it told its voters it would do. That really ticks people off. The poor handling of the internal Labour misconduct allegations was just a really bad look and is the sort of thing people remember. Taken together the impact of all these things is a loss of support.

So, the year of delivery has really been something of a write-off for the Government. It's faced with an increasingly stodgy economy and plummeting business confidence and an electorate wondering where the 'delivery' is. 

It means that the closing weeks of the year are actually going to be very important scene setters for next year - which is after all election year.

Peace may break out

If peace breaks out between the big banks and the Reserve Bank this will obviously be helpful for sentiment. Likewise, if the RBNZ does relax the LVRs that might be helpful too. 

But if the RBNZ does hold its line with the banks (IE imposing very big capital requirements) and the banks do react with threats (even implied) of capital rationing for businesses and home buyers, well...not so good.

And in those circumstances some word of increased fiscal stimulus from the Government becomes not so much a 'nice-to-do' - but probably a 'must-do'. 

Starting the new year with even lower levels of business confidence and with signs of further slowdowns in business activity will not be good news for the economy.

And it sure as heck won't be good news for a Government facing an election in a matter of months. 

This has been the year of non-delivery.

The closing weeks of the year might, however, prove very important in setting up the country for the New Year. And that could be in a good way or a bad way.

The Government can, in effect, say, "sorry the van broke down this year - your delivery will start right after Christmas". And I think it needs to.

I think something substantial is now necessary from the Government before everybody disappears for the summer hols. Leave it to February/March and it might be too late.  

Time for a little economic magic now.

Time to pull that rabbit out of the hat. If anybody knows where it is.

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