The drums are 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.”
55 Comments
OCR might as well stand for “Occasionally Correct Response.” It should be well proven by now that this tool, particularly on its own, is no magic recovery wand. In fact in can be entirely the opposite. For instance by the time the pandemic struck interest rates were already low enough to have stimulated good borrowing for good purpose. But the subsequent crash dive then invited borrowing for the sake of borrowing. Incurring debt to spend was supposedly to save the economy. Actually all it was doing was flogging a dead horse and it catalysed probably the most astonishing property boom NZ has ever witnessed. However if this column is correct then this government is still hanging this old hat on the same old peg and the lack of any innovative thinking is worrying to say the least. Stimulation such as tax incentives for export innovation and performance would be one place to start.
The OCR works bloody well. But the people controlling it have no idea what they are doing.
the most astonishing property boom NZ has ever witnessed
Does that include the early 1970s Foxy
Yes I remember that one and remember too that Norman Kirk’s 3rd Labour government intervened swiftly and effectively to snuff it out with the Property Speculation Tax. Muldoon then left it in place until into his 2nd term. That boom though was not astonishing in so much that it wasn’t directly generated by a unilateral RBNZ decision and abetted by the sixth Labour government on a spending spree.
Few comments.
Firstly, this whole two-speed recovery thing is over-egged. Christchurch benefit numbers are up 5% year-on-year for example, Southland has stopped getting worse, but benefit numbers are still 40% up on 2019 (and higher than Covid peaks).
Secondly, the idea that additional borrowing / spending would push up interest rates, is a real stretch. People seem to be missing the fact that RBNZ is merrily doing quantitative tightening. That means that Govt bond issuance is running at around 8% of GDP - like after the GFC! If RBNZ and Govt put their heads together, RBNZ could pause QT and Govt could spend more without increasing the level of bond issuance.
On the risk of spending pushing on inflation side, there is ample space capacity in the economy - and we are wasting construction resources on vanity road projects when we should be building energy and public transport infrastructure. It is also painfully obvious that Govt decisions are pushing up costs - local govt rates is the obvious example but insurance cost increases could also be slowed with the right investments.
The fundamental issue here of course is that Govt has literally zero strategy - other than laissez-faire, animal spirits, cut and thrust of enterprise nonsense. Countries are built and developed by leaders with a plan. Our leaderless, planless country is falling to bits. We are quickly becoming a vassal state - getting milked by offshore investors and corporates, while we proudly destroy our ecosystem and run up private debt, hoping for another credit-fueled period of 'growth' - we are faking it as an advanced economy.
Hear hear
Agree. I would add that I think private sector debt growth might have peaked - households, in particular, are very highly exposed to debt meaning that it is difficult for the private sector take on new debt to stimulate the economy.
Private debt is steadily reducing as a percent of gdp while our current account balance stays very firmly negative. This is forcing govt debt up - they have no choice, it's an accounting certainty.
That makes sense - so the debt cycle has peaked and is now in contraction from very high levels. You're right - to maintain the economy above recession the government has to spend more to make up for contracting private sector credit growth. Which is exactly what is happening - government debt to GDP is increasing and the current government is 'borrowing' more than the previous one just to sustain demand in the NZ economy.
Private debt is steadily reducing as a percent of gdp while our current account balance stays very firmly negative. This is forcing govt debt up - they have no choice, it's an accounting certainty.
Unrelated but related, all the job growth in Aussie is coming from the public sector or govt-funded non-market sectors, rather than from the private market sector. In 2024, out of roughly 484,000 new jobs created, only 99,000 (about 20%) were in the private sector, while approximately 164,000 jobs (nearly 34%) were directly created in the public sector. When roles in government-funded 'non-market' sectors (such as health, education, and public administration) are included, the influence of government spending accounts for about 80-85% of all new jobs in Australia.
Yes, Govt spending in Australia is up but their offshore demand drain (current account deficit) is a lot less than ours. Aussie businesses are also borrowing and investing. The net impact of all of the above is better off Aussie households, sustained demand, and therefore more jobs and decent wages. It of course makes nearly zero difference whether a country has growing public or private sector service jobs - it's not like the big export sectors can't hire people.
Australia is up but their offshore demand drain (current account deficit) is a lot less than ours. Aussie businesses are also borrowing and investing.
Noted. I'm less convinced on the pvte sector investment, particularly in the manufacturing sector. One of the most expensive countries in the world for manufacturing. For ex, Bluescope's energy costs are 3x more expensive than in the U.S.
Yes. The first thing that came to mind when Luxon announced the 6 billion dollar infrastructure spend was that it's what they should be doing anyway to make up for the decades of under spending by previous governments - just so they could boast a low debt to gdp ratio. Now we're seeing the consequences of that.
And now Luxon and Willis think the RB will come to the rescue so they can once again kick the infrastructure can down the road.
Jonny Foe,
Sad but true. You have expressed my own views very well. A year ago, I wrote a report for a U3A group on the direction of the economy and came to much the same conclusion.
Well they took their time but the Keynesians in NZ are beginning to come out of the closet. Why was this not being said last year when the government adopted contractionary fiscal policy?
No-one said a thing even though it was obvious there would be impacts on the unemployment rate and GDP.
Charlatans in suits are mighty persuasive, at first.
The stupidly over leveraged need printed money bail out parachutes. This would create more inflation and decimate the retired and unemployed and continue to drive educated youth offshore. Is that what we really want...?
Let the over leveraged risk takers...take their 💊
Yeah, burn the whole country down to punish the debtors. Great strategy.
It is inevitable that some debt has to be forgiven - historically societies conducted debt jubilees to reset their economies back to normal when indebtedness consumed too much of the available labor and resources. In those times debt could lead to indentured labor and slavery denying the state access to the labor and soldiers it needed to conduct affairs.
In modern economies we have a fiat currency monetary system and a reserve bank balance sheet that can absorb private sector losses and make whole debtors and alleviate the indebted. No-one calls it a debt jubilee but its purpose and outcome is roughly the same.
Private debt is secured by mortgages, it will not be forgiven, it cannot. Public debt is not that bad in comparison to many countries, about 180bill NZD and NZ Super fund has about 75bil NZD, so our net position is really not that bad, no one is about to forgive a country with this debt level anything.
We are actually in a great position to borrow and build the infrastructure we need now, using the build phase to try and stimulate the economy, but borrow and spend (in NZers best interests, is not a NAct specialty, they will want to do Private Public Partnerships where we as NZers are basically screwed, and they as Politicians can end up on the boards of the PPPs once they retire.
Public debt is not that bad in comparison to many countries
Yes, but Aotearoa has a dire 'infrastructure deficit'. That is why we have relatively low public debt - mañana, mañana syndrome. This is problematic for a number of reasons:
1. There are no resources and / or collective expertise to build infrastructure effectively and economically
2. The lack of infrastructure is a hand brake on the private sector - for ex, we cannot adequately house or transport migrants without charging extravagant fees.
I had to google Manana Syndrome... yeah.
Just look at our most successful locations for business profits, house prices, Queenstown , no one who works low pay there can find a home to live in, and Waiheke, same same, though there are no jobs in winter anyways. I guess the same at bigger and bigger scales, fruit pickers, kiwifruit packers etc etc.
Our welfare system does not support mobility and neither do our employers.
Still our low public debt means we can spend, not wait for private companies not to spend.
Still our low public debt means we can spend, not wait for private companies not to spend.
Agree. But that overlooks what I'm saying:
1. Just because you have capacity to spend doesn't equate with quality of spend. Case in point: cycle bridge feasibility studies.
2. Without the skills, prior experience, guide rails, outcomes are likely to be sub-standard.
For sure that was be kind BS spending, lets spend on assets that will make us richer, coal power stations , hydro dams, searching for more natural gas.
on point 2.
We have a culture of milking the bigger purse for as high as we possibly can. The gravy train. Look at contractors to councils for nigh on anything. I feel this is a matter of importance as the issue is twofold with both lack of skills, and lack of ability to have hard contractual conversations and pull people into line with obligations.
From how I see it this is what’s happening in the US. Bessant understands that they have got too deep into the debt cycle to get out of unless they can inflate out of it. So the Fed gets overhauled into a dovish institution, cash stays artificially low causing inflation to be higher than it historically has been. Govt issues short T Notes into the fed balance sheet and their long term nominal debt gets eroded away by higher nominal GDP. Either that or global debt default.
going to get a bit exciting though if in 5-10 years, all of a sudden (but not that suddenly) they are mainly short duration and no one wants to lend at a lower rate, like a giant finance company sort of dynamic.... I guess they can always print more
The people who bought near top are taking their medicine for sure, many who bought 2019 are debt stressed. Clearance is starting but likely a lot of vendors are going to have to drop 10-15% off ask to get a sale as they are not watching what is selling and the prices achieved. Its one of the reasons we will not see a sudden bounce is that no one is silly enough to believe there is no risk in real estate any more.
The problem is that in Auckland, to much of our economy is based around building, renovating, redecorating, fencing, land scaping, selling new furniture etc. I know a roof repair guy who is going gang busters patching things that should really be replaced to get another year or two out of it.
Harsh reality is the government cannot restart the Ponzi so its going to be a slow climb out from here. WFH has killed the inner city which also does not help morale, while suburbs are not doing too bad (walk to your local) the inner city is crime infested, unsafe and unappealing. I am at home with a busted leg muscle but someone in our office of 400 staff did a 360 degree show in tell on Friday on teams , and there was no one in the office. We have a enforced 3 days in a week, but no one comes on Fridays anymore even though they often put on a few beers etc and food. Thus on a Friday after work local Hospo is dead. The worse it gets the less you want to go out as it seems pointless paying $15 a pint at the pub with no one else there, strangely.
Everyone knows the company numbers are down and are waiting for the coming right sizing (will still be over 100m profit). Hence wallets are shut.
No one knows what to do, welcome to the lost decade, in the best case.
Agree. WFH is a culture and company coordination killer. Mind you, when restructuring, it makes it easier if you can't remember what people look like.
being laid off by teams or zoom is common now, saves on tissues and security.
Followed by your cellphone and home internet stating to be billed for the 1800 ex Spark employees.
Spark leadership talk a big game, they are just another telco.
Back in your box.
Those thinking stimulus/QE will be the silver bullet might want to check how that is working out for China right now. They've been in deflation for six quarters straight and despite throwing everything at it (rate cuts, fiscal packages), it's still not working.
Remember Japan? They tried stimulus for 30 years, ran massive deficits, and their central bank's balance sheet ballooned to 75% of GDP (way bigger than the Fed's). Result? Three decades of deflation and the world's highest debt at 240% of GDP. So much for QE being the magic fix.
Why doesn't stimulus work its magic in a balance sheet recession? Simple, when everyone is busy fixing their balance sheets (paying down debt, building cash reserves), that money just sits there. China is seeing exactly this with people hoarding cash instead of spending it. Sound familiar?
The real killer is the self-fulfilling prophecy of deflation. People think house prices will drop (RBNZ now "precisely" predicts a 0.3% decline after predicting 7%+ increases just months ago... nice 7.3% error there), so they hold off buying. That means more people paying down debt and/or saving instead of spending, the economy suffers, house prices actually do fall, and everyone goes "see, we were right" Rinse and repeat.
According to the latest PSI report, employment has been underwater for 20 consecutive months, longer than the GFC. We're already breaking records and we haven't even been hit by the tariff tsunami yet.
Balance sheet recession + China fighting its own deflation battles (won't be riding to the rescue like after GFC) + tariffs we haven't seen for a century = what could possibly go wrong?
tick... tock...
Lol, you're seriously warning that we might end up in big trouble like, errm, China and Japan?
Lol, you're seriously warning that we might end up in big trouble like, errm, China and Japan?
China and Japan have infrastructure. They haven't necessarily pissed it all up against a wall.
But we have expensive houses and we are successful....
We have capacity to go into deficit more and still pay it back/maintain it longer term. Things feel bad but there's still macroeconomic room to breathe so to speak. The core issue is how that deficit spend gets allocated, and do we trust the powers that be to do this using sound advice and logic, then convincing the public why it is the best choice, or do we think they will do whatever gets votes for the upcoming election? The latter seems most probable.
Japan's population went down by 1mil last year and it is the better of the two with regards to population demographics.
If Auckland is not thriving why spend on it.
The South is propping the nation up. Support them
I am not sure its that easy to spend on "it", how would you target Auckland relief, god knows the council rates are not providing any relief to Aucklanders.
Impossible to direct relief to businesses as anyone in the south island will just move their registered office to a Queen street location.
If the USA enters a serious recession or god forbid a share market crash here, its going to get real interesting.
Yep. US having an Orange swan moment looks increasingly likely.
Lots of ways to support the productive South.
Certainly not just throwing money about to juice things up.
But make it easier for them. Roads, health services energy. Decent net for farms.
I agree the Dunedin hospital decisions have been shocking, no vision, re internet, that's what Starnet is for.
This is like the early thatcher days, the belief that the free market will step in and invest... but only if they see reasonable profits, we need the long term investment that only stable government can provide. The ferries are another debacle altogether. But what we are more likely to get is constant muddle through ..... and a lost decade. Perhaps we will learn what happens when you lend to private people to speculate on housing assets.
Is there any location we could build more hydro dams? would we be better off building another coal plant and restarting coal mining here?
"Is there any location we could build more hydro dams? " I'm sure there are but taniwhas and other creatures are likely to put an expensive impediment in that route. I'd love for it to happen but not Onslow.
" would we be better off building another coal plant and restarting coal mining here?" Coal fired power station together with a close proximity coal mine. Go for it. More metallurgical coal for export. Yes sir.
"I agree the Dunedin hospital decisions have been shocking." Yes by the Labour govt who were inclined to sign any cheque with no questions asked.
"The ferries are another debacle altogether. " I believe that'll be Winston Firsts nemesis. It appears to me that both govt and local councils have poorly written contracts with no option to pull out at a minimum cost penalty.
With this setup, recession and market crashes are really just a question of "when".
Tariff transmission is way quicker than rate changes. Tariffs -> trade tanks -> revenues decline -> profits evaporate -> companies go bust -> mass layoffs -> global recession. Even if NZ dodges the worst tariffs, what happens to demand for our exports when our main trading partners start shedding jobs and closing businesses?
We've got way more debt than the 1930s, China has been in deflation for 6 quarters, and tariff rates are already 18-20% -> highest in a century. This could make the GFC look like a practice run.
Gross domestic product per capita of New Zealand regions: https://figure.nz/chart/tHjQuDfZNFsXRMTk
And who paid to build a flash new Christchurch?
https://www.nzherald.co.nz/business/beehive-must-be-nervous-as-economy-…
The Beehive must be feeling nervous about how the economy is tracking for next year’s election. So far, every prediction of better times has been a false dawn. It was “survive to ’25” until Q2 of ’25 arrived. Then it became “no fix till ’26”. Now the boss of Fletcher Building reckons it might not be early 2027 before we actually feel like things are improving.
Verity J, HDA, Liam, everyone is sticking a knife in or fairly asking, what is the plan here. The current economy feels like an all black game, balanced at half time... we can but live in hope.
They are peddling hope to prevent anything drastic (capitulation moving to panic), but the public are wearing thin on faith and reality is an ill-tasting medicine.
Bridges is just working hand in glove with Nat central.
Ya think there might be some infrastructure announcements soon?
think big think another harbour crossing and that 3rd supermarket chain must be this week? but easy announcement with no serious money required until after election, take ages to complete the drilling holes and plans through advanced quick RC (which we will celebrate..... yeah nah)
This seems all theater not solution to NZ problems
They keep banging on about the CRL as their investment to Auckland, which was a project they were very anti, and only ended up do it on a captains call because they pretty much had to. They never seem to mention that they recently cancelled Light Rail.
Great article Mandy - lots of comments, must have stirred the pot well!!
So it turns out that all the "vanity projects" that are supposedly a waste of money do actually stimulate the economy and produce more money than they cost (as I suspected). People would rather live and spend in a city that is up to date (e.g. Christchurch) than one where all the council does is empty the rubbish and leave the city stuck in the 90s (e.g. Wellington).
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.