In an early Simpsons episode, Homer’s plan to deal with a crisis is to “hide under some coats and hope that somehow everything will work out”. This is the popular critique of the government’s response – or lack thereof – to the nation’s ongoing economic malaise. The Prime Minister’s reply is that there is a plan, it is working, but its brilliance is not yet apparent. As is often the case in politics, this is true and false simultaneously.
One of the dirty secrets of macroeconomics is that a quick recession can be good for the economy. If you have a speculative bubble – like our residential property sector at the end of 2021 – and it bursts in the face of high interest rates, it can clear out bad investments, redirecting labour and capital towards more productive uses. Under-pressure firms look for ways to cut costs and increase efficiency, and their gains persist after the economy rebounds.
We can see this in the country’s GDP statistics: sharp recessions or downturns followed by high growth recoveries. For the right, this illustrates the dynamism and creative destruction of the market, and for the left, it depicts the amorality of capitalism: it is almost always the poorest who suffer most during these recessions and the wealthy who profit during the boom times.
From this perspective, the government has a plan: let monetary policy work. After the high interest rates and recession come the low rates and the recovery. Like the seasons, the tides and the waxing and waning of the moon, it’s the circle of life.
Christopher Luxon and Nicola Willis were so confident the timing of this cycle would work in their favour that they made lower prices and economic growth the central promises of their government – even though the mechanisms that would deliver them were largely outside their control.
Economic inaction
Now, the recovery is slow and unevenly distributed. The provinces are doing well off the global dairy boom, but the cities – and their suburbs teeming with swing voters – are stagnating. Of the 11 public polls since the budget, five have Labour ahead of National, while another has them tied (statistically, they are nearly all tied). How could a first-term government contemplating a humiliating defeat in 2026 turn things around?
A left-wing policy adviser might say: stimulus spending. Increase welfare benefits. Build shovel-ready projects. Be kind! The risk there is that the spend coincides with the recovery, overheats the economy, prices go up and the Reserve Bank is forced to trigger another recession to bring them down again. We would repeat the chaos of the past four years.
A right-wing adviser might urge tax cuts – same problem – or slash government spending: let all those unproductive workers and all that wasted money flood into the private sector. But most government spending goes towards things the public values – superannuation, prisons, teachers, hospitals – and even moderate spending cuts risk triggering a deeper downturn.
So, the coalition’s inaction in the economic sphere makes sense – if you accept that the only thing that’s wrong with our economy is high interest rates. But that is not a serious position. Consider two challenges before the government: electricity-sector reform and foreign direct investment. Both are vital to economic development, so it seems as if political parties committed to growth would have had policies in place prior to the election, ready to pass in their first 100 days. Or their first budget. Second budget?
Instead, the coalition has taken a relaxed approach to both issues. In the wake of 2024’s winter energy crisis, the government commissioned a review of the sector … beginning in February 2025. This has been sitting on Beehive desks since late June, and there seems to be no rush to any decisions.
Sheer inertia
In the meantime, the nation’s natural gas reserves are running dry, and companies that rely on gas are slowing production and contemplating closure rather than switching to electricity because prices on the wholesale market are so uncertain. Simon Bridges – a former National leader and energy minister – warns that “New Zealand has begun a slide into de-industrialisation”. The coalition have become degrowthers out of sheer inertia.
Remember the 2025 investment summit in March? Vaguely? For decades, our centre-right politicians have cited the economic success stories of Singapore, Ireland, Denmark – more recently, Poland – as models to imitate. But those nations put foreign direct investment at the core of their development strategies, encouraging global companies to make long-term commitments in infrastructure, manufacturing plants and research and development facilities. This brings in advanced technologies, better management practices, and domestic competition; it connects the host nation into global supply chains.
New Zealand is 34th out of 38 in the OECD’s international comparison of foreign regulatory restrictions (we were last a few years ago). There’s a giant moat around most of our economy, keeping investment and competition out. The legislation to reform the Overseas Investment Act wasn’t introduced until June this year; the government hopes to pass it before summer.
Why such extreme sedation in the face of an economic crisis? Because there’s a trade-off between what’s good for big business and what’s good for the economy, and this government is powerfully drawn towards favouring business. Compare its grudging reticence towards serious reform around power, banking, groceries or foreign investment with its gleeful alacrity in clawing back $12.8 billion from low-income workers progressing pay-equity claims.
Gentailers want to lock in windfall profits from the current electricity model, and many companies relish operating in shallow markets where they can keep prices high and wages down. A centre-right government could be doing concrete things to deliver economic growth “at pace”. This one prefers to hide under its metaphorical pile of coats and hope growth arrives despite it.
