The pressure is on to change the economic narrative

Sunday, 10 August 2025

Vernon Small is a journalist and former Labour government advisor.

OPINION: Let’s not call it panic just yet.

But the level of concern in the Beehive about the country’s mood, if not the economy itself, is clearly rising.

And, for now at least, the Government has lost the media narrative, with a drumbeat of commentary criticising its failure to deliver on the two cornerstone promises from the election and from Prime Minister Christopher Luxon’s “state of the nation” address; improving the cost of living and delivering strong growth.

President Donald Trump’s announcement New Zealand would face 15% tariffs into the US market - higher than previously signalled and putting us at a competitive disadvantage with the likes of Australia - is only one of the causes, but it was a body-blow the Government could have done without, and its level of concern was immediately obvious.

Extraordinarily able and experienced trade negotiator Vangelis Vitalis was rapidly dispatched to Washington and Trade Minister Todd McClay will follow, but it is surely more in hope than expectation of a change of heart.

Labour’s trade spokesman Damien O’Connor criticised the Government’s “keep your head down” approach but if Labour thinks it knows better how to handle Trump than avoiding direct confrontation they might like to tell Europe, Ukraine and Canada.

On the face of it, this week’s headline unemployment number of 5.2% should not have been cause for major concern. No-one is going to celebrate rising unemployment, but it was below the 5.3-5.4% tipped by most economists and the Government’s own agencies.

Finance Minister Nicola Willis “noted” – not welcomed – the data and was quick to point out the number was less bad than expected and less bad than either the Budget or the pre-election economic and fiscal update had forecast.

But in this case, there was devilment in the details. Participation is dropping, employment growth is falling, and the numbers look better because outward migration is acting as a pressure valve.

Most significantly, the data showed a big deterioration in Auckland, which ought to be the powerhouse of the economy. At 6.1% unemployed, it was a big turnaround – and not in a good way – from the 4.6% unemployed in Auckland a year ago.

Compare that with just 3.5% in Gisborne and Hawke’s Bay and 4.2% in anecdotally depressed Wellington, post the public service lay-offs. Then add in the fact that on recent polling Auckland has been much more favourably disposed to the Government than the rest of the county, and the magnitude of the economic and political problem becomes clear.

Former National leader and now Auckland Business Chamber boss Simon Bridges drove the message home; things in Auckland were grim and very tough.

He said there was a real case for serious policy or fiscal stimulus around the country, particularly in the big cities, to “lift the animal spirits” of businesses and consumers. There was good in the long-term changes being put in place by the Government, but “it’s now that they need to be focused on”.

In response, Willis warned about the danger of excessive spending, buttressed by a Treasury report that shows the previous Labour government did not take official advice to dial borrowing towards the end of the Covid crisis. But she also pointed to a $10 billion Budget deficit this year as evidence the Government was stimulating the economy. (It’s even higher - around $15 billion - under the previous operating balance measure, before the Government adopted the ex-ACC measure to make its deficit look smaller.)

Minister for Auckland Simeon Brown was singing from the same page of the Budget on Friday, stressing $10b of borrowing was stimulating the economy.

Meanwhile Bridges may have an ally inside the Cabinet, but with a more regional perspective.

NZ First’s Shane Jones, the associate finance minister, told reporters at an event at Marsden Point it was time to “move on from the Ruth Richardson view of our economy that may have made sense in 1991-92”. Speaking in the context of potential special economic areas, such as at Marsden Point, he said the country needed bespoke initiatives with tax incentives and with self-consenting powers.

“I just think it's terribly naive to think that we, down on the bottom of the Pacific, can retain this sort of Ruth Richardson kind of bare austerity approach. That level of Calvinism is not delivering the economic growth that we need.”

The fact he calls for a change to the track set by a National minister 30 years ago, shows he is alive to the political risks in criticising the current government. But you’d have to assume it’s a more contemporary approach that he is targeting.

But whether it’s Bridges or Jones, they are both a long way from the Government’s message about “doubling down” on its current approach at the next Budget.

It is not clear that anything is about to change yet, but the spin is certainly shifting.

Ministers are trying to debunk suggestions of austerity or contractionary settings, and have apparently been told to trawl through their portfolios for any plans that can be touted as reducing the cost of living, even if the case is marginal.

So, in recent days we have had the abolition of PayWave fees, though no guarantee the costs to businesses will not be clawed back from consumers through higher prices. Then there was Transport Minister Chris Bishop’s announcement of universal road user charges to replace fuel taxes, which would perhaps save money if you drove a less-fuel-efficient car but could cost more, depending on the vehicle you drive.

Even changes to product labelling were sold as reducing costs for businesses that could limit wage growth. But wait there’s more. The current labelling rules curb Australian food imports, by adding repackaging costs, and in turn international companies are dissuaded from setting up here.

If it’s not panic, it smells of desperation.

The pressure is clearly being felt to change the narrative, if not the austere-adjacent policies themselves.

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