How much does government affect the economy?

Over the course of the next few weeks - or months - New Zealand will know what form its next government will it take, but does any of it have an impact on the economy?

Economists say perhaps not as much as you think.

Massey University economist Matt Roskruge said governments had less control over the economy than their election campaigns might suggest.

"Aotearoa is exposed to global shocks and no government can insulate us completely," he said. "Where governments make a real difference is in how they respond and who carries the costs.

"Choices about tax, public services, benefits and investment affect employment, household incomes and how well people weather a downturn.

"There are trade-offs. Greater spending or tax cuts can support jobs and incomes, but can also add to inflation pressure, depending on how they're funded and how much spare capacity the economy has.

"Cutting spending can ease that pressure, but risks weakening employment and services."

Westpac chief economist Kelly Eckhold said, while people might be affected on an individual level, the overall impact was small, because the difference in approach between the two main factions wasn't significant.

"There are probably some differences at the margin. A right-leaning coalition is more quite likely to be more fiscally austere than a left one, probably less borrowing coming through.

"Our pre-election preview noted that ACT is possibly a bit harder-core in terms of fiscal consolidation. Some of those things will matter at the margin."

Businesses might be slightly more confident under a right-leaning government.

Simplicity chief economist Shamubeel Eaqub agreed that some specific groups, such as workers in the public service or those who relied on welfare, would be affected by policy changes, but overall, the impact was limited.

"There is just this extraordinary focus on what government does and people think about it as if they've got their fingers in every aspect of your life, but that's not quite how it works. Government is more at the periphery, in some ways.

"You think about the rules and regulations. We don't interact with rules and regulations every day, unless you're a fairly risky kind of person.

"The government provides public services, we consume quite a lot of that. We drive, we send our kids to school, we go to doctors, that kind of stuff.

"Those are personal interactions, but do these things change materially, whenever there's a change of government? My GP didn't change much just because of the colour of the government in Wellington."

ASB economists said the next government, whether it was National-led or Labour-led, would inherit significant fiscal and infrastructural challenges.

Crown debt has risen from below 6 percent of GDP in 2007 to more than 40 percent.

ASB estimates New Zealand faces an infrastructure deficit of about $200 billion and about $1 trillion of infrastructure investment requirements over the next 30 years.

"We need to invest in infrastructure that can support productivity and resilience, but we also need to be realistic about how much the economy can absorb at once," senior economist Mark Smith said.

"Trying to do everything immediately risks running into capacity constraints and putting more pressure on inflation."

Roskruge said a drawn-out negotiation period to form a coalition could be more of a concern.

"Normal government business continues under caretaker arrangements. A prolonged period of uncertainty could, however, cause businesses to delay investment and hiring, particularly where decisions depend on government policy.

"I think the bigger question is which government has the most credible plan to lift productivity and build resilience, so we're better placed to withstand the next shock."

Infometrics chief forecaster Gareth Kiernan said New Zealanders were generally used to the uncertainty of elections and coalition negotiations.

"Although the closeness of this election campaign, and broader challenges created by the overhang and potential influence of Opportunity have meant that the uncertainty has been elevated this time," he said. "Depending on how the seats come out, there's potential for the post-election uncertainty to be more elevated than at any time since 1996.

"Normally, that could be an issue for businesses and the economy, but given we've been operating in a highly variable - and often challenging - environment for the last two years, I suspect that an extra layer of uncertainty is not going to make a great deal of difference to most people's decision making.

"The exception to that statement might be key policy areas, where there are significant differences between Labour and National, such as Labour's capital gains tax, but across a lot of economic policy, the difference between the two major parties is not particularly stark."

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