New Zealand is wallowing in the trough of a deep recession with no end in sight. Some say the figures for the June quarter are too much out of date to take seriously, but we are near the end of the September quarter and if anything, the last three months have felt even worse.
Bernard Hickey sums up the cause of the contraction of the economy in the last quarter in his Substack ,The rubber just hit the road. In a bad way:
”the Government’s abrupt halt in early 2024 to discretionary capital spending on housing, roading, hospital planning and school building shocked the construction, infrastructure and local government sectors. It triggered thousands of job losses and hit the psyche of investors and consumers much harder than anything Trump posted on Truth Social…The timing of the Government’s fiscal tightening in 2024 could not have been worse, arriving just as the Reserve Bank’s monetary policy tightening from 2022 and 2023 was at its most severe, and right at the bottom of a 20-30% slump in house values.’
Other ‘economists’ are vehement that problem lies not with the collapse of the economy through deliberate cutbacks of all kinds, but that Nicola Willis has not gone far enough or hard enough. Roger Douglas is leading the charge here with frequent invoking of the need for the ‘courage’ Ruth Richardson showed in 1991. In between, in the wishy washy world of bank economists and the like, various views on how much interest rates need to be cut are endlessly and breathlessly reported.
Bernard Hickey suggests:
There is no serious justification for a fiscal tightening that has driven an already stressed economy into a deeper retail and construction recession. The Government use its balance sheet to borrow and invest to grow the economy to help the Reserve Bank stimulate spending back to growth mode, rather down downward spiral mode.
We can’t wait for interest rate cuts to take effect if ever they would in an economy suffering collapsing confidence. The urgent challenge now is to stop the economy haemorrhaging any more before it turns more sinister.
The damage to low-income household balance sheets has been immense already, but more of the same policy is unthinkable. In major downturns such as the global financial crisis and the pandemic there was a substantial rescue package. This time round, there is nothing at all, but cliches about growth, further miserable cuts and threats of more austerity from a visionless government.
I witnessed the havoc of the 1991 budget and its cuts to the incomes of those who could least afford them, right at the time when the economy was tanking, all in the name of balancing the budget. Child poverty and preventable diseases requiring hospitalisation soared shortly after. As Bernard Hickey says balance sheets of the low-income families are far worse in 2025 than they were in 1991, fewer own their own homes, many have crippling debts and many face fewer job opportunities.
I was one of 15 economists to voice opposition to the current fiscal policies in late 2024. As we predicted cuts to social services, including foodbanks and emergency housing, have led to poor social outcomes with many more desperate and unwell on the streets. As we stated in that letter, the erosion of the “already low psychological and financial reserves of the poorest will be hard – and socially and fiscally costly – to repair”. But repair we must.
First let’s revive a bit of sensible Economics 101. Every student has been taught that the spectre of a wide-spread depression taking hold was eliminated in a modern world because when jobs and demand falls, automatic stabilisers kick in to limit the depth of the recession.
When there is a shock like a major earthquake or collapse of exports markets, income falls, tax revenue falls (GST and income tax) while government spending rises (e.g. unemployment benefits working for families). This automatically widens the deficit and should not be viewed a catastrophe at all but the natural cushioning effects of underpinning confidence and recovery. If these stabilizers are functioning well and no one panics about the rising deficit, the recession will be limited and as recovery takes hold, the deficit will reduce and eventually surpluses may appear. Sometimes in a severe downturn additional temporary government spending may be required to provide needed extra cushioning.
Currently, the challenge we face is more complex because our fiscal cushions are designed for last century, not for the vastly different 21st century. One bright light exception is the pension. The consistent unconditional income provided every week to everyone over 65, whether they have a job or not has undoubtedly been a major factor in keeping the economy from free fall.
Other fiscal measures are failing us. Today households require two parents in paid work just to pay the mortgage but currently, someone who loses their job is not entitled to a Jobseeker benefit if their spouse still has work. If one adult in a couple is disabled or chronically sick the benefits system also works very poorly and unfairly. Entitlement to a benefit must be put on an individual basis as is NZ Superannuation.
If a family accesses any benefit at all, their children miss out on at least $97.50 a week of Working for Families. The rationale is that parents need a work incentive. Clearly \ this is fallacious in today’s slumping economy, and all that happens is their children suffer. In the Global Financial Crisis, the National government gave parents who lost their jobs the full WFF for their children and an extra $100 for their accommodation supplement. Why not now?
Severe work disincentives for the low- and middle-income earners are holding back economic recovery. Overlapping abatements mean that families can face up to a 96% effective marginal tax rate over long income ranges. Debt build-up to the IRD and MSD, student loans and high-cost private lenders is out of hand along with huge withdrawals from KiwiSaver for hardship reasons. Low-income family balance sheets have been shattered and must be deliberately rebuilt.
Others can add to the list but here’s a start to what could and should be done immediately:
- All benefits put on an individual basis.
- All low-income families entitled to the same maximum WFF for their children.
- WFF must be indexed annually along the same lines of the pension.
- The threshold for WFF abatement must rise to at least $60,000 and the abatement fall to 20%.
- Adult benefits must be made more certain and more adequate with removal of the sanctions system and improved access to supplementary hardship provision.
- The accommodation supplement asset limit lifted to $150,000, and abatement reduced to 25%.
- Programme of debt forgiveness implemented.
No. There’s prosocial socialism (like renationalizing electricity), and then there’s antisocial socialism (like encouraging welfare dependency as above). Stick to the latter: we should aim to lower the cost of living by – for example – renationalizing electricity.
that would do bugger all for the average kiwi family .Even if the power companies were taken back they would still be expected to make a profit and pay the government a dividend just like housing was made to do under Bill english .They had to pay 100 million per year to prop up his books while cutting back on doing repairs hence the massive amount needed now to get those houses up to scratch .Then there will be the need to invest in all of the new generation that is planed so the savings to consumer will be vey small .
So you’re assuming an SOE model? I don’t want power companies turned into SOE’s. I want them nationalized properly.
For decades the SOEs worked.
No they didn’t, the vast majority of them were flogged off within a decade of their creation.
They were only created as a means toward selling public assets into the private sector, effectively they were a smoke screen to hide the swindle because if the truth had been honestly announced at the outset the public wouldn’t have stood for it.
While I tend to support the idea that we should not encourage welfare dependency, there has to be some sort of support for those who would work if they could and are unable to get jobs. We also have a responsibility to provide for those with health (physical or mental) issues that limit their ability to work. The easiest way is to ask yourself, “How would I like to be treated if I were in that situation?” before rushing to reduce the support for others.
There are likely some individuals who could benefit from some tough love, but the situation is so complex that we need a system that can consider all the circumstances before making any decisions.
The welfare dependency narrative needs to stop. In my experience, the ones who express the most distaste for helping those who really need society’s support, including the 250,000 children under the poverty line, are usually aged over 65. Unless they are refusing to take NZ Super- a welfare benefit much better than what we do for the sick and disabled, they invalidate their right to express this opinion. Steve is right, consider how you would feel if you were made redundant and or sick and disabled in this harsh climate of social blame. We have many low-income families who currently get no income protection at all in this recession as I discuss. This is disastrous for our future. If the answer is more suicide, early deaths, homeless, chronic illness and more emigration we are in a death spiral in which even the well off will be protected.
As a boomer I always cringe when I hear other boomers saying younger ones are lazy bludgers etc .They have no idea or just dont care because of the Im ok jack mentality.We have boomer councilor whoes claim to fame over the last term in council is that he drove the cutting of all social programs that council had been doing for years .
I so agree. I am going to challenge that narrative whenever i see it as the older generation should be the ones with vision and leadership. I am a boomer, eternally grateful for my fortunate life and in despair at the real hardship my generation appear to tolerate for others.
Kia ora Susan.
Could you give me your thoughts on deadbeat dads in Australia not paying child support?
I understand the debt is well into the billions and I remember the Key government wiping billions of it from the books.
We chase student loan debtors and even seize their passports if they enter the country having ignored the letters from IRD.
Can we do the same with these useless men who don’t want to accept responsibility for their whanau?
It could be transformative for many families.
Nga mihi
child support is such a huge topic. I cant do justice to it here, but I do understand the very real problems.
should read ‘will not be protected’
One bank economist with his fingers crossed reckoned an uptick in credit card borrowing is a ‘green shoot’.
Or it means the middle class are resorting to paying their bills on the zipzap.
It is so tiresome to hear these so-called commentators and their confusions about saving and spending. Credit card debt is the worst kind and when basic spending requires credit card debt we are in real trouble
” Credit card debt is the worst kind and when basic spending requires credit card debt we are in real trouble ”
Quite right Susan. Only the foreign owned banks and finance loan sharks charging out debt at up to 25% are the winners here.
Difficulty with ” basic spending ” has long been a problem given our notorious subsistence low wage economy and kept low deliberately to ensure maximum profits and lucrative shareholder returns.
The duopolies are contributing to the severe hardship we are seeing out here in our communities and the view that there is simply no one in parliament that represents and protects our economic rights.
The reluctance by NZ economists to mention or discuss fiscal policy is a wonder to behold. They just can not bring themselves to admit the impact of fiscal policy on the economy. It’s as though it is forbidden.
It is very weird. Fiscal policy is of critical importance and in my opinion the current situation is so desperate even the suggested improvement in the automatic fiscal stabilizers is not going to be enough. It is time to deliberately increase the structural fiscal deficit (ie the remaining fiscal deficit at full employment). This could be time limited focused boosts, or long-term debt forgiveness programmes to restore confidence. Capital or investment spending must be expanded. For example, restoration of necessary state house building and a programme to adequately house the homeless is the state’s duty and would play a vital protective fiscal role.
We need to rebuild NZ from the bottom up which will lift the whole country .End poverty tomorrow and watch NZ boom like it has never done before .If every one is contributing the country will go ahead in leaps and bounds .Currently we have a small group draining everything out of NZ socially and economicly .
We stopped building,our builders and construction workers have left what do you expect. It’s trickle down in action in real time. How’s that working for you ??
In my humble old opinion; If we’re trying to make sense of AO/NZ’s economy then we must first start with a foundation of historic facts then work up to the roof through a sludge of lies.
On 13 May 1936 the national party was formed from an amalgamation of conservative and liberal parties so lets begin there with a public, royal commission of inquiry. Remember? All else will be subterfuge.
It’s quite simple really. All that was needed to make billions was to get farmer produce for as little as possible then ship it out to northern hemisphere consumers who were prepared to pay premium prices for fresh food and wool fibre. The farmer, of course, never saw a penny more for it above the pittance they’d already received via the dodgy producer boards. The rest went into lazy private pockets. Aye Boyz? We’re broke as fuck, broadly writing, because of the unfettered greed enabled by unregulated, otherwise criminal behaviour of the urban middlemen.
Remember when I wrote that our economy was heading headfirst over a cliff? Do you now understand how I could write that so confidently? I do a lot of driving through our beautiful agricultural countryside and I started to see empty fields and no stock. We’re a farming country with empty fields, or paddocks if you prefer and that means what? That’s right. No money.
We farmers went from productive confidence to fiscal desperation in less than a generation as Aucklanders started parking Audi and Ferrari in million dollar garages and building helicopter landing pads in Herne Bay.
Hmmmmmmm…. I wonder how that happened?
I double-wonder? Is the gruesome fact that Australia, our fiercest agri-exports competitors now own the three banks that were once our own ( Asb, anz and the scumbag’s bankster of choice, the bnz. ) and are now the second most profitable in the world, second only to Canada?
The fourth bank, Westpac, was always owned by the Australians. Now, combined, they earn $ 580,000 an hour from us. Doesn’t that make you farmers go ” Hmmmmmm…? ” https://youtu.be/XF2ayWcJfxo?si=ebz53dZ2JsxS1LLI
But you still don’t get it do you? You poor bastard farmers still can’t get your heads around the fact that you’ve been so profitably scammed that you’re now close to ruination and y’awl urban types will go down with them.
You want it in black and white? Then here it is. There are six parts so don’t miss any.
Looking back: David Lange, Roger Douglas, Ron Brierley and the BNZ
https://businessdesk.co.nz/article/the-life/looking-back-david-lange-roger-douglas-ron-brierley-and-the-bnz
Farmers? This is what you must do. Do nothing. No slapstick sideshow slow tractor driving and no swellings of any kind. Simply Unite then stop. Everything. Just stop it until there’s a very, very public, royal commission of inquiry.
If you don’t. Then you will lose everything you love. All of it.
Let’s not forget half of Westpac used to be the Provincial Trustee banks. The only one of the Provincial trust banks left is the taranaki one.
Ban foreign banks then. One Kiwibank to rule them all!
They should certainly pay to access our lucrative mortgage market.
I don’t think society has any future at all if all we can do in response to the scourge of neoliberalism is rearrange the bandages.
We need to stop making lists of what could or should (but never will) be done and start fighting the enemy.
Treat the underlying cause not tinker with the symptoms.
The wish list is patching up the terror caused by inequality and just makes the beneficiaries subject to dependency and making them the scapegoat for the problems societies face instead of providing them with a means to provide for themselves and their whanau.
Yes, Rangi but this government is creating more beneficiaries.
Not sure what that has to do with it.
Fix what causes the creation of beneficiaries and then you don’t need to worry about it.
Of course the band aids are necessary to patch the damage, but always focus on the root cause and not the symptoms.
100% correct
In my econ101 and econ102 I was lied to. Economics is a cult and they make assumptions repeating them until it becomes fact. As zealots in a cult they protect their own to not take any criticism as cults do. They do not understand energy, money, and double entry accounting for starters.
fair enough comments. you are right about double entry accounting
NZ suffered a great reset under the thieving hands of Roger Douglas, and his accomplices, but it has come to the end of the line. The mumbling mysticism of an Ideological Treasury was never credible, but it can no longer be pretended that they offer NZ anything beyond a tired litany of excuses.
New Zealand’s choice is simple – a soft reset, with a degree of civility, or a hard reset replete with the settling of scores against the thieving arseholes who have impoverished and continue to impoverish our nation.
The property bubble is over, and palliatives like working for families need to be completely reworked. We are essentially bankrupt, and once the blood funnels of the parasites responsible have been prised from the body of their victim, we must begin to rebuild. The rebuild begins with education – what we can spare must be invested in the next generation. It is not a business model we need – they are the problem. Education must be resourced until it succeeds, not pared down to the point of failure. The same is true of health and social welfare. Serious consideration must be given to shrinking Parliament – representation has not improved by a proliferation of MPs.
Might as well scrap Treasury – if they can’t average 3% they don’t know enough to be worth paying.
Govt. needs to discourage capital hoarding through stiff capital and land taxes, and heavy bank regulation.
Sigh.
This whole mess was entirely predictable the moment this Coalition got into power.
The right wing governments always do this kind of insane destructive “reforms”. Every. Single. Time.
Wealth tax now, please. We don’t have time for any kind of bs incremental CHT. Tax the rich right now.
Otherwise there will be pitchforks.
https://www.ted.com/talks/nick_hanauer_beware_fellow_plutocrats_the_pitchforks_are_coming?utm_campaign=tedspread&utm_medium=referral&utm_source=tedcomshare
Sorry if the TED link didn’t work; here’s the YouTube version.
It’s well worth a watch – an oldie but a goodie
https://www.youtube.com/watch?v=q2gO4DKVpa8