Paradise Regained? How Can New Zealanders Get Out of the Hole They've Dug?

It's time to start working for solutions.

On Tuesday, Bryce Edwards and I, quite independently, posted analyses of the sorry state of Aotearoa New Zealand. Off the rails, languishing, heading in the wrong direction were some of the terms he used. If you missed mine, you can read it here.

The Luxon government’s economic plan has suffered another body-blow. The consumers price index (inflation) has risen again: from an annual rise of 2.2% reported in December 2024 to 3.0% in September. That’s hitting the top of the Reserve Bank’s target range (between 1% and 3% over the medium term with a focus on the 2% midpoint).

Cost of living was the most critical issue in Election 2023, leading to Labour’s defeat and the change of government. Luxon’s National-led coalition should now be sweating over the ongoing rise in inflation, especially as this could delay reductions in mortgage interest rates.

Luxon & Co – heading for liquidation?

Stats NZ also reports that food prices increased 4.1 percent in the 12 months to September, especially dairy products: the average price of butter was $8.53 per 500 grams, up 28.9 percent annually; cheese was $12.81 per 1 kg block, up 31.4 percent annually. And bread (white) was $2.08 per loaf, up 49.6 percent annually.

New Zealand is an efficient dairy producer, but Kiwis are paying prices set in global markets by buyers from richer economies. Parents are finding it much harder to feed hungry kids with milk and cheese. But producers want the higher prices they can get offshore – which contributes to aggregate economic success.

These literal “bread and butter” issues quickly become hard election-losing facts for any government. Parents can see the price tags in the supermarkets. But would another change of government in 2026 fix it for them? Will political leaders dare even to be honest with Kiwis about the predicament they face and about the hard work and difficult choices required to deal with it?

The present dire combination of negative growth and rising inflation is comparable to what happened in the early seventies – the political reactions to which lurched from Muldoon’s nationalist Think Big to Douglas’s globalist Think Small.

The New Zombie economy

Technical public policy changes to regulations, taxes, etc. can be useful, of course, but the malaise goes deeper than that. Labour’s proposed future fund plus (probably) a capital gains tax, for example, won’t produce an economic miracle.

It’s not easy for political leaders to be honest about what it would take to get the country out of the hole it’s been digging itself into for the last 50 years or more – if anyone really knows. It’s risky to talk straight in a world that’s overwhelmed by social media insanity. But some honesty would help right now. Promises to “grow the economy” and get the country “back on track” aren’t being fulfilled, so the field is open for bold leadership and for some common Kiwi pragmatism.

New Zealand governments past have been capable of making enduring changes that have benefited subsequent generations – from building state houses to ACC to the Kiwisaver scheme – and these were sustained politically on both sides, even though there may have been opposition to start with. ACC, Kiwisaver and the Cullen Fund (as it’s affectionately known) are now significant saving and investment mechanisms.

But the Treasury has recently said realistically that “New Zealand must simultaneously lift long-term economic growth and return fiscal policy to a sustainable path.” That will require unpalatable choices. But that’s a collective goal, to be achieved as humanely as possible. The alternative is impoverishment through inflation, higher taxes and perpetually low incomes, plus the risk of a debt spiral, asset sales and more young people emigrating.

On a global scale, the New Zealand economy is about the size of a rounding error, measured in a barely noticeable currency. It’s a cork on an ocean. It’s not part of a larger union (like the EU) that might bail it out.

Foreigners may not keep financing Kiwis’ debts, holding NZ dollars, and buying NZ brands forever. Being kind and inoffensive won’t cut it. On the other hand, theories made up in think-tanks in Washington DC or London may not apply well to New Zealand. As always, the country has to work for its living, but the future will also force us to change how we work.

In my previous article, I identified two basic crises that are weakening the country as a whole: constitutional and economic. (I could have added environmental.) There needs to be pressure on governments and oppositions to work constructively on these matters.

No political party seriously wanted, however, to resolve the impasse that occurred concerning the principles of the Treaty of Waitangi – after ACT had the temerity to propose a statutory formula. All of the parties saw political advantage in remaining in their trenches. And this unresolved matter now waits in the wings for the next attention-grabbing scene that “brings the House down”.

This constitutional impasse is keeping New Zealand stuck mentally in 1840, adopting an inward-looking and backward-looking posture that it cannot afford to maintain. It would be better to come out of the trenches, write a treaty on the Treaty, and move forward.

Well, okay, if conflict gives satisfaction of a kind, then stick to your guns. Capable only of arguing bitterly over basic constitutional issues, without ever resolving them, many people would rather replay the past than succeed in the future. If so, should they be leading?

The economic productivity problem is long-standing and deep-seated – but it always ends up in the too-hard basket. It’s partly caused by lack of managerial talent, so one shouldn’t just blame the government. The New Zealand economy is now in danger of being drowned by a global platform-driven AI-generated economic revolution. The New Zealand government is powerless to control this, and has no choice but to adapt. Moreover, NZ Inc lacks the scale and technology to build profitable innovations that will have much impact on global consumers. The land-based economy is under threat from these same emerging technologies. Will New Zealand have little to offer the world but regrowing indigenous forests on former farm land as carbon sinks and using hydro-power to cool one of Jeff Bezos’s numerous data centres?

To give some credit, Winston Peters has talked about the long-term problem New Zealand has faced. And both NZ First and Labour have proposed investment funds to kick-start some infrastructure or business ventures and to keep profits onshore. Winston complained bitterly that Chippy had plagiarised his idea – but, in truth, it’s neither party’s original idea at all. Peters could easily have said that it shows how NZ First and Labour could work together in a future government, since they share nationalist industrial policies.

The Green Party’s Fiscal Strategy talks about “public investment” and “strategic borrowing for productive assets”, so there could be some policy compatibility there too. But that requires cross-party collaboration on things that actually matter, as compared with the one-up-personship at which the Greens excel. Of course Gaza is a big issue, but some mahi in the back yard is urgently called for.

With any public investment fund, however, everything depends on how it’s financed, how it’s allocated, and what it’s used for. If the former Labour/NZ First Provincial Growth (Slush) Fund is anything to go by – not to mention Labour’s KiwiBuild fiasco – I wouldn’t expect much.

But the political parties are putting out some interesting ideas about, for example, infrastructure, investment, taxation, etc. The present government is taking some steps to better fund science and technology, and so on. These proposals will go into the policy “auction” in the election campaign next year.

Boston Consulting Group recently identified high-value “ecosystems” in which they argue New Zealand could “build and sustain an advantage in key industries”. We need more of this kind of thinking, looking for niches in which New Zealand can invest and excel. Sometimes these ideas can actually work.

But political leaders have yet to address the gravity of the situation the country faces at present. Unless they do so, public policy responses won’t be as effective as they could be, and fewer people will understand and support them.

Political leaders aren’t talking straight with New Zealanders about the deep hole into which the country has dug itself. And it won’t come naturally to be honest about the hard work needed to climb out of it. Politicians are averse to pointing us towards difficult pathways. But the future requires hard work, not pork barrels. With a leadership and governance deficit, a political alliance that can take the country forward is not immediately apparent on either side of the House.

It’s not the role of Politics Happens to advise readers for whom to vote. Indeed, regarding these long-term problems, it may not make much difference which parties govern at the end of next year. But none should be allowed to shirk the responsibilities.

Surfdale, Waiheke Island.