The drums for fiscal stimulus keep on banging as the Government leaves it to RBNZ monetary policy to stimulate the economy

The drums have been banging for fiscal stimulus.

And different people have been wading into the conversation. Most notably, Simon Bridges, former National Party leader and now chief executive of Auckland's Business Chamber. 

His call came after the latest labour market data from Statistics New Zealand showed the country's jobless rate hit a five-year high in June, rising from 5.1% to 5.2%. Auckland recorded the highest regional unemployment rate at 6.1%. 

Bridges called on the Government to help lift the "animal spirits" of the economy, telling BusinessDesk this could look like a corporate tax cut, or changes in visa settings for tourists from Asia, or international students. 

He said this would make a difference to short-term confidence in the Auckland economy in particular.

Speaking to BusinessDesk, Bridges said he thought there was an argument for fiscal stimulus.

“We need more than cyclical growth to get Auckland booming again, and that requires government policy and/or fiscal measures,” Bridges said.

Bridges has support from Auckland Mayor Wayne Brown who recently proposed a bed night levy, saying it would provide an immediate stimulus for Auckland.

But it seems the Government isn't budging, believing the best way to stimulate the economy is through the Reserve Bank's monetary policy. 

On Wednesday, the Reserve Bank (RBNZ) cut the Official Cash Rate to 3% from 3.25%. Two members of the RBNZ’s six member Monetary Policy Committee actually voting for a 50-point OCR cut.

Now, an OCR low point of 2.5% is being seen as a real possibility in the not too distant future. While economists had anticipated a drop to 3%, there is surprise at how far things have swung around. 

Cutting tax not the answer

Jarrod Kerr and his fellow economists at Kiwibank have long been banging the drum for stimulus. 

But while Kiwibank's chief economist wants stimulus, he believes we need to take the tax the country is collecting and put it to work. 

“It’s easy to say ‘let’s cut tax’ but I don’t believe that’s the answer," Kerr said. 

“I think the Government should be looking to increase debt rather than decrease debt, and investors would be very welcoming of a Government that says ‘hey, look, we want to increase debt by $50 billion and spend that $50 billion on infrastructure’."

Investors don’t want a Government that’s spending more than it’s earning, Kerr said, so he didn’t know why we would want to cut tax.

“What we want to do is get investors behind us and take their money and put it into infrastructure.”

Productivity is the key

“The fact it takes 40 minutes to travel a handful of kilometres in Auckland is not good enough. Could you imagine the productivity increase if we all managed to get where we needed to go without waiting 40 minutes in traffic?”

"And then you think about Wellington," Kerr said. "There's burst pipes every other day. I came out of the Kiwibank building and the streets outside the building look more like Venice.”

Kerr said he'd prefer the focus to be on decades of underinvestment and turning that around. "The problems we have in our economy today are due to a lack of investment."

Kerr said he would love the Government to do more on the infrastructure front.

“That’s the sort of stimulus I want to see and the sort of economic stimulus that creates assets for future generations. It’s the sort of investment that will create a harder, faster, stronger, larger economy.”

Productivity is the key, Kerr said, but right now, it's so disappointing.

“A large part of it has been our lack of infrastructure investment. We have not maintained that infrastructure that we have, let alone build the infrastructure that we need and we just kept up with our population growth.”

“It’s a problem that is hard to tackle and needs bipartisan support and it needs multi-year objectives. It’s difficult," he said.

Christchurch, the poster child

But there are places we can look to and they're closer than you think.

"It's not like we have to go over to Australia or Switzerland or somewhere to find examples of where things work. Just look to Christchurch." 

The city is cool, people are out and they're enjoying themselves, Kerr said. 

"It’s a completely different world compared to Wellington. You build a city, you build a city well, you have more affordable housing and you’ve got a happier society right?”

In July, Kiwibank economists published their 2025 regional insights, giving regions economics scores between one and 10.

One is described as “frozen, get the defibrillator!” while 10 is “scorching hot, it feels bubbly”.

The report found Auckland’s activity was weak despite strong population growth, sitting at four out of 10, while Wellington was scored a three out of 10.

“Wellington is the most downbeat of the lot. There’s a lot going on there - there’s been some cuts to public services, ongoing issues at the council level and then just a general sort of economic slump," Kerr said.

“Auckland’s a little bit more upbeat than that but still not showing too many signs of recovering.”

Then there’s places like Waikato and Taranaki that are also below normal.

On the other side, Southland and Otago both ranked five out of 10 which is described as “just right, goldilocks is sleeping” and these were the highest scores out of all the regions.

And Christchurch was the most upbeat out of the big cities, he said.

“It’s the poster child. It’s a gleaming example of what things could be.”

“We talk about the agriculture sector doing really well and people say ‘oh, that’s why Christchurch is upbeat.’ Well no, we’ve got cows and sheep in the North Island too," Kerr said.

“So, why is Waikato a three out of 10 while Christchurch is a five out of 10? Why are people in Christchurch so much more upbeat than people in Auckland or elsewhere?

"Because they are really happy with their environment.”

‘Multispeed economy’

When asked if he thought any fiscal stimulus was needed for places like Wellington and Auckland, Reserve Bank Governor Christian Hawkesby on Wednesday said that was a question for the Finance Minister.

But he acknowledged it felt like a two-speed economy - when different parts of a country’s economy feels like it’s growing at different rates.

“What we’d emphasise is that it’s always a multispeed economy."

“There’s always different sectors, industries, regions feeling different depending on the environment we’re in," Hawkesby said.

“So it’s not unusual that we’re in a multispeed economy but it is very pronounced at the moment between Wellington and Auckland, and the rest of the country." 

Leaving it to monetary policy

On Tuesday - a day before the Official Cash Rate announcement - Finance Minister Nicola Willis spoke about New Zealand's credit rating and fiscal stimulus. 

Last Sunday, rating agency Fitch affirmed New Zealand's sovereign credit rating at AA+.

While there were a few things that could lead to a downgrade, there was only one thing that would lead to a one notch upgrade to the highest possible AAA  That would be a sharp decline in public and net external debt resulting from substantial fiscal consolidation and a much narrower current account deficit. (See credit ratings explained here).

"The path that we are on is necessary. It has become fashionable for many people to say 'we can just borrow more and everything would be easier'," Willis said.

"No, it wouldn't - it would be harder not just for the Government to pay for our debt but for every New Zealander."

Willis said it was important New Zealand borrowed for important assets for the country's future. 

"We're effectively borrowing to invest in hospitals, schools and roads ... We're not saying debt should get to zero but it should be at a healthy level."

Willis said the Government was borrowing to maintain public services for Aucklanders and others - "with a significant deficit".

"Now again, I am critiqued for the fact there is still a deficit but I have judged that is the balanced approach right now because to withdraw spending would actually put our economic recovery at risk and make life a lot harder for New Zealanders. I think we're striking the right balance."

When asked whether any fiscal stimulus was on the cards, Willis said the Treasury affirmed the best way to stimulate an economy that is in a downturn is through monetary policy.

“If the Government were to embark on a large fiscal stimulus right now, that would be the end of interest rate reductions," Willis said.

“I’m concerned that without dropping interest rates, we won’t see the revival we all wish to see in our construction sector, in our business sector, all of the private industries that rely on being able to borrow in order to generate the growth New Zealanders need.”

Willis said Bridges is right to advocate for Auckland.

“Auckland needs to be an engine for New Zealand’s growth and I want to see it succeeding.”

Kiwibank's Kerr said while we did need to rein in operating expenses, he thought it was the capital expenditure the country needed to talk more about.

“It is unfortunate that we’ve spent the last two years going through a very tough economic time and we need both the central bank and the Government to do what they can to rebuild, but also build a stronger economy tomorrow.”