It is a striking admission. Even ministers now recognise that policy unpredictability has become a genuine investment risk.
This is not the kind of sovereign risk once feared, like Governments repudiating sovereign debt or nationalising industries without compensation.
But a more subtle form of sovereign risk has crept in: growing doubts about regulatory and policy predictability, the security of property rights and the stability of long-term investment settings.
This erosion of stability did not begin with the current coalition Government. Over the past decade, policy whiplash has become a recurring feature of New Zealand public life.
Nor are our macroeconomic foundations as secure as they once seemed.
Treasury’s draft 2025 Long-term Insights Briefing warns that New Zealand now has “less capacity to respond” to future shocks.
Net Crown debt, once below 20% of GDP, is now about 40%. Without major reform, it could exceed 100% by 2060.
Ageing demographics, rising healthcare costs, and climate pressures will constrain future options.
Meanwhile, the rule of law – another cornerstone of sovereign stability – is under quiet strain. Recent Supreme Court decisions increasingly depart from settled legal principles.
Left unchecked, this judicial activism risks undermining parliamentary sovereignty, legal predictability and public trust in the courts.
The symptoms of sovereign risk are now hard to miss.
The 2018 offshore oil and gas exploration ban, announced without consultation, upended a sector built on long investment horizons.
Three Waters reforms proposed to transfer billions of dollars of council-owned water infrastructure into new centralised entities – a move some described as a confiscation of local assets without genuine ownership rights.
Resource management law, the framework for planning and development, has been in a state of almost constant upheaval for decades.
The last Labour Government replaced the Resource Management Act (RMA) with labyrinthine new laws. The current coalition Government quickly repealed the replacements to start again.
While many – including the New Zealand Initiative – have applauded this step, investors must wonder when stability will ever return.
Against this backdrop, the current Government’s focus on restoring predictability and improving regulatory quality is welcome. It is developing a property rights-focused planning framework.
It has eased labour market regulation, created a new Ministry of Regulation, and proposed a Regulatory Standards Bill to lift the quality of future lawmaking.
Yet for all this progress, some signals remain concerning.
In March, Finance Minister Nicola Willis mused aloud that breaking up New Zealand’s two supermarket chains was “on the table” as a way to foster greater competition.
She made the comment while launching a formal request for information about what it would take to enable a third national grocery chain.
The willingness of a senior minister to raise the prospect of structural separation – a form of compelled divestment — risks signalling to all major businesses that their ownership structures could be vulnerable to political whim.
The Government’s treatment of airports provides another troubling example.
Just weeks after Auckland Airport secured Commerce Commission approval for its $6.6 billion capital upgrade under the existing regulatory regime, the Ministry of Business, Innovation and Employment (MBIE) blindsided the sector with a fresh regulatory review.
Investors are entitled to wonder: if large, long-term infrastructure investments can suddenly find their regulatory environment reopened, what certainty does any project have?
These mixed signals matter. Investors value few things more than stability and predictability. Uncertainty about future policy increases the cost of capital.
Higher costs mean fewer investments proceed. A country reliant on foreign capital to fund infrastructure and growth cannot afford to chill investment.
The risk is not hypothetical.
After the offshore oil and gas ban, exploration companies quietly exited New Zealand, redirecting capital to more predictable jurisdictions.
In other sectors, investment plans are delayed or deferred whenever major regulatory reviews or possible interventions are floated without clear direction.
Nor is New Zealand alone. Australia’s attempt to impose a mining super-profits tax in 2010 — launched without consultation – provoked a fierce backlash from the industry and contributed to the downfall of a Prime Minister. In Canada, unpredictable approvals for energy projects have cost billions in lost investment.
Small countries such as New Zealand cannot assume capital will forgive our missteps. Once sovereign risk perceptions shift, they can be hard to reverse.
Some volatility is inevitable. Our MMP system and short electoral cycles amplify policy swings, encouraging Governments to replace rather than build on their predecessors’ work.
Yet stability is a choice. Where possible, parties should work toward cross-party continuity in critical areas such as infrastructure, Treaty settlements and climate policy.
What matters most is not stasis, but discipline: recognising that how policies are changed can matter as much as what policies are changed.
It is equally important to resist populist temptations. Big businesses – banks, supermarkets, airports – make easy targets.
But heavy-handed interventions signal that the ground can shift beneath any investor’s feet. This echoes far beyond the targeted sectors.
New Zealand’s prosperity was built on a reputation for good governance, secure property rights, fiscal prudence, and regulatory stability. That reputation remains an invaluable national asset – but it is not immune to erosion.
If the coalition Government wants to foster growth and investment, it must ensure that its actions consistently reinforce New Zealand’s standing as a safe, predictable place to do business. The alternative is to court a sovereign risk problem of our own making.
