Finance Minister Nicola Willis speaks about the GDP figures that were released this morning by Stats NZ. Video / NZ Herald
THE FACTS
GDP shrank by 0.9% in the June quarter.
The economy is smaller than when Christopher Luxon took office, with real GDP per capita down 3.9% since June 2023.
Primary production, manufacturing, and construction led the decline.
Yesterday’s disastrous June-quarter GDP result reveals Christopher Luxon has failed in what voters say is the most important part of his job. I think his resignation is now the only sure way to avoid the catastrophe of a Labour-Green Government, reliant on Te Pāti Māori.
Despite Luxon’s Governmentlast month castigating economists as “merchants of misery”, the economy worsened by twice as much as any had forecast.
If anything, economists were too generous to the Government.
In real terms, the economy is smaller than when Luxon took office.
But despite a record 73,400 New Zealanders leaving the country in the last year and a birthrate well below replacement, immigration – mainly from India, China and the Philippines – has increased the population, hiding how bad things are.
On the real GDP-per-capita measure the Government wants to be judged by, we’re down 1.1% in just one quarter. Since June 2023, it’s down 3.9%.
Luxon can’t blame Covid, the wars in Ukraine and the Middle East or US President Donald Trump’s tariffs for the GDP crash.
Almost every country followed the same ruinous fiscal policies during Covid as the Ardern regime, and are affected by wars and new tariffs.
Yet all New Zealand’s major trading partners grew reasonably well since Trump’s Liberation Day on April 2. Among the countries we compare ourselves with, New Zealand is now at the bottom of the economics class (see table below).
This from a Government that claimed to be led by a global expert in turnaround jobs, promised to get New Zealand back on track and believed its mere election would rebuild business confidence to prompt an immediate economic boom to pay for its promises.
In fact, the economy has now completely crashed off the track.
Luxon’s excruciating economic pep talks probably make things worse by demonstrating to investors and businesspeople how out of touch he really is.
As recently as this week, he claimed a “two-speed recovery” was under way, with the South Island and provinces doing well but things “a bit harder” in Auckland and Wellington.
“There’s a real sense of optimism,” Luxon said, “thanks to strong dairy prices and resurgent tourism. Businesses are humming, retail sales are growing, and construction activity remains strong.”
Aucklanders were just “impatient”, their Prime Minister told them.
In fact, Stats NZ revealed every important sector of the New Zealand economy worsened in the June quarter.
Agriculture, forestry, and fishing were down 0.3% and exports fell 1.2%, driven mainly by dairy and meat products. Construction dropped 1.8%, with falling residential construction highlighted. For all the Government’s talk – and environmentalists’ criticism of its pro-minerals stance – mining plunged 4.1%.
Manufacturing fell a massive 3.5% for the quarter, led by declines in the production of food and beverages, transport equipment and other machinery, and metal products. Also down materially were transport, couriering and warehousing; financial and insurance services; healthcare and social assistance; and art and recreation. Retail – which Luxon said was growing – fell 0.2%.
Minister of Finance Nicola Willis and Prime Minister Christopher Luxon speak to media during Budget Day 2025. Photo / Getty Images, Hagen Hopkins
It needn’t have been this way.
The Luxon Government could have immediately stopped borrowing, instantly lowering inflation and interest rates. That would have hurt but probably no worse than we are suffering now – and without the $74b increase in gross debt since 2023 under Luxon’s watch.
Instead, Luxon’s first move forced Finance Minister Nicola Willis to borrow over $14 billion more for more welfare handouts and tax relief. Admittedly, that probably boosted the economy through 2024. But it also meant inflation remained a fraction higher and we’re paying the full price now.
Worse, all the extra cash Willis has found through her heroic savings efforts has just been spent by other ministers – mainly on health, education and welfare – rather than used to stop or even reduce borrowing. Bureaucrat numbers are creeping up again and their wages remain 30% higher than everyone else’s.
Even based on more optimistic economic forecasts than have eventuated, Willis has budgeted cash deficits of $10b last financial year, $15b this financial year and $18b in 2026-27. By decade’s end, she’ll still be borrowing over $8b cash a year – and it’s that cash deficit that must be funded through borrowing, not the ones based on accounting measures that recent finance ministers have preferred.
Luxon could then have led serious microeconomic reforms, rather than allowing Regulation Minister David Seymour to be distracted by his pointless Treaty Principles Bill and establishing yet another bureaucracy, and Resource Management Reform Minister Chris Bishop by his failing “fast-track” project for a handful of carefully selected firms.
Big talk about reforming the banking, supermarket and electricity sectors hasn’t led to anything tangible.
Similarly, despite warnings that his Investment Summit would fail unless it offered immediately investable projects, Luxon went ahead with it anyway as a PR exercise. We’ve learned this week that even some of the promised government projects are yet to be funded, further damaging investor confidence.
Overseas investors will also have noticed the announcement that New Zealand’s most astute allocator of capital, Graeme Hart, will probably close more of his New Zealand operations. If New Zealand’s most successful investor – and one based locally in Auckland – is seen to be reducing his exposure to New Zealand, how could fund managers in Singapore, Shanghai, New York, Montreal, Oslo or Frankfurt justify taking a punt with their investors’ capital?
What reforms the Government does announce, like more concerts at Eden Park and more handouts for promoters, seem more the result of lobbying activity than economic analysis.
A Prime Minister’s job is to talk up their country, the way Luxon tries, but nothing he says rings true. He has no overarching story of where he wants to take New Zealand, except to put more money in the median voter’s pocket. Even in support of that limited goal – which surely fails to respect the breadth of New Zealanders’ ambitions for their businesses and families – everything he says is shallow and trite.
There are competent ministers in his Government making progress in infrastructure, law and order, education and trade. But a successful Government also needs a leader who can pull the whole story together, and maintain business, investor and public confidence through difficult times. Luxon only worsens it.
Yet Luxon’s most serious failure is this: by creating conditions where a Labour-Green-Te Pāti Māori Government looks as likely as not, business, investor and public confidence will only keep falling until the election. He needs to go.
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