There’s a simple puzzle at the heart of modern New Zealand.

We are educated.
We work hard.
We export food, energy, timber, talent.
We are not poor.

And yet:

Houses cost a fortune.
Infrastructure creaks.
Hospitals ration.
Councils are broke.
Young people leave.
Everything feels strangely “out of reach”.

It’s not a mystery of effort.

It’s a mystery of design.

Over the last thirty-five years, New Zealand hasn’t really been governed by Parliament alone.
It’s been governed by a set of fiscal and monetary rules that quietly decide what governments are allowed to build.

No one voted for these rules as a constitution.

But in practice, that’s what they became.

A hidden operating system.

If the ruler is bent, everything you measure looks wrong.
If the pipes point the wrong way, the water fills the wrong places.

That, more or less, is where we are.

The core thesis

Since govt started passing merchant banker friendly laws in the the 1980-90s, New Zealand has run under a fiscal–monetary settlement that:

• restricts sovereign credit creation
• treats Treasury and Reserve Bank doctrine as binding
• prioritises private and foreign creditors in capital allocation
• and frames public investment as “debt” rather than nation-building

The effect isn’t smaller government.

It’s reduced state capability.

We didn’t slim down.

We sold the toolbox and now rent back the hammer.

How the system actually works

(mechanics, not motives)

This isn’t about villains.

It’s incentives and architecture.

Systems do what they’re designed to do.

1. Measurement — the scales are off

Government decisions depend on measurement.

But our main instruments quietly misstate reality.

• CPI excludes land and construction costs
• HLPI shows materially higher costs for ordinary households
• Super is indexed to CPI, not wages
• productive investment is counted only as “debt”
• the state is treated like a household borrower

If you under-measure the cost of living, you underfund people.

If you treat investment like a credit-card bill, you stop building.

Measurement becomes policy.

In practice, it becomes constitutional.

False weights and measures don’t just describe the world.

They decide it.

2. Credit — the plumbing points the wrong way

The Official Cash Rate, set by the Reserve Bank of New Zealand, controls the price of money.

But private banks decide the quantity and direction.

So where does most lending go?

Houses.

Not factories.
Not infrastructure.
Not productivity.

Houses.

Which is how you get asset inflation without asset creation.

Money is water.

Right now our pipes fill property portfolios faster than hospitals.

During QE the state proved it can create liquidity instantly.

But most of that liquidity landed on bank and asset balance sheets.

So the constraint isn’t financial physics.

It’s design.

3. Assets — the commons became rent streams

• privatisation of public assets
• user-pays conversion of essentials
• weak royalty capture
• transfer pricing and profit repatriation
• offshore funding dependence

Over time, public wealth becomes private toll booths.

We didn’t lose the farm.

We just pay rent on it now.

4. Institutions — capability quietly hollowed out

• Treasury/RBNZ doctrine treated as untouchable
• New Public Management fragments delivery
• local government locked into debt vehicles
• watchdogs underfunded
• media concentrated

Before Parliament debates anything, the available choices are already narrowed.

Democracy still votes.

It just chooses from a thinner menu.

What shows up in real life

None of this is theoretical.

You can see it:

• housing unaffordability
• infrastructure deficits
• falling capital formation
• productivity stagnation
• foreign ownership of strategic assets
• rising household leverage
• intergenerational strain

This is what capability loss looks like.

Not laziness.

Not culture.

Capability.

The elephants (structural realities)

These are just observed facts:

• NZ is the most complete New Public Management experiment
• NPM struggles with complex public goods
• fiscal constraint + NPM → capture lock-in
• mortgage credit dominates bank lending
• CPI understates lived inflation
• Super indexation compounds extraction
• QE proved financial capacity exists

The outcomes follow incentives.

Systems behave exactly as built.

Proof that public investment works

Whenever the state directly mobilises capital for assets, delivery happens.

Historically:
• state housing
• rail and energy
• wartime mobilisation

Recently:
• Crown Infrastructure Partners co-invested fibre rollout
• Kāinga Ora rebuilt public housing capacity

No magic.

Just capital + mandate + execution.

When we build, we succeed.

When we outsource everything, we write reports and generate debts.

Why the system persists

Not conspiracy.

Career incentives.

• officials stay inside doctrine
• consultants work within mandates
• politicians fear ratings agencies
• incrementalism is safest

So every review tweaks procurement…

…but nobody checks the plumbing.

The architecture reproduces itself.

Design problem.

Not moral failure.

What fixes it

(restore mechanics, not ideology)

This isn’t radical.

It’s normal developmental practice used across the OECD.

Five concrete steps:

1. Recognise fiscal–monetary doctrine as a de facto constitutional constraint
2. Restore sovereign investment capacity via a public credit institution
3. Fix measurement (CPI/HLPI/indexation) — honest weights and measures
4. Capitalise resource rents into a permanent sovereign fund (National Dividend)
5. Commission a full review of economic governance architecture

Plus:

• development bank / credit window
• sovereign investment fund
• resource rent capture
• beneficial ownership transparency
• funded watchdogs
• public-interest media
• national capability dashboards

Comparable to institutions like KfW or Norway’s sovereign fund.

This isn’t revolution.

It’s maintenance.

Transition

Year 1:

• measurement review
• development bank pilot
• windfall capitalisation
• capability dashboard

Term 1:

• scale infrastructure lending
• accelerate housing
• fix indexation
• capture resource rents

No shock therapy required.

Just change the rules that quietly steer outcomes.

In plain terms

We didn’t run out of money.

We ran out of permission.

We let accounting rules pretend the government is broke while banks create credit all day.

We called investment “debt” and speculation “growth”.

Then we wondered why nothing gets built.

History is clear:

When the state uses public credit to build assets, wealth compounds.

When private credit dominates, liabilities compound.

One builds bridges.

The other builds mortgages.

Conclusion

New Zealand’s constraint isn’t talent or effort.

It’s design.

Credit, measurement, and fiscal doctrine quietly limit what elected governments can do.

Fix the scales.
Fix the plumbing.
Restore the toolbox.

Then wealth builds life again.

Which is how a normal country works.

 

 

 

 

 

Tadhg Stopford is a historian and teacher. Support change by purchasing your CBD hemp CBG at www.tigerdrops.co.nz