It’s now Christopher Luxon’s cost-of-living crisis

Saturday, 23 August 2025

Luke Malpass is politics, business and economics editor.

OPINION: When the National Party was running into the election – and even once it took the Treasury benches – it was “laser-focused” on one thing above all others: The cost of living.

The highest level of inflation in 30 years had squeezed households. It was not just any issue – but the consequential one. It provided the scaffold on which the campaign was built.

In his 2025 State of the Nation speech, Luxon said that: “We worked hard to get the cost of living under control and we’ve made a lot of progress.”

He also said: “Cost pressures – like the Auckland Regional Fuel Tax – have been sucked out of the economy.”

He talked, too, about: “The young families in Christchurch and Hastings getting real relief from FamilyBoost, after years of battling to keep up with the cost of living.”

“It all adds up to real financial relief for Kiwis who have struggled so much, for so long.”

He then added that there was still a long way to go.

In his 2024 State of the Nation, he said: “Inflation has stayed high – the cost of living crisis isn’t over yet, with inflation here higher than Australia, the UK, the US, Canada, Japan and the EU.”

“It is only through a strong economy that we can end the cost-of-living crisis.”

In his 2023 State of the Nation, in opposition, he said: “National will curb the rising cost of living.”

“National has a five-point plan to address the cost of living crisis.”

The Prime Minister has now been singing from the same songsheet for three years. It was Jacinda Ardern’s cost-of-living crisis; then Chris Hipkins’; now it’s Christopher Luxon’s.

And that has now become a problem.

As I wrote on Wednesday, that problem is structural – there is a gap between expectations and performance – and it is not an easy one to overcome. Ministers are grumpy, Government MPs are getting it in the neck in their electorates, and National staffer-land is dispirited.

Part of it is the Prime Minister’s political management. But part of it is the Government’s playbook – which, as time goes on, looks more and more like a reheated version of John Key’s Government.

Because Key handed over to English and National dominated Labour in the 2017 election – but did not get into government – and because National only had six years in opposition, the party rightly regarded Key as an election winner, with a political strategy worthy of emulation.

This is obviously true to a degree. But the Key legacy – especially when it comes to house prices and the problem with political success derived from the wealth effect of higher house prices – is more mixed than that.

The strategy employed at the time also relied on the political talents and popularity of Key – which Luxon does not possess.

Yet this week, it felt as if both Christopher Luxon and Nicola Willis were leaning back into that old world: slow fiscal consolidation to begin with, while lower interest rates would spur growth, get the housing market going again, and people would begin to feel a bit wealthier.

But this is not the early 2010s, and Christopher Luxon is not John Key. Nor does he have a big majority with some smaller minor parties. Instead, he is in a fully-fledged coalition because National fell over 11 percentage points short of winning a majority in the House.

The victory laps the Government has increasingly taken with each interest-rate cut have looked increasingly desperate. Any cuts from now on may be popular, but they also essentially celebrate the fact that this is a slow-growth economy that requires lower interest rates.

Also, although most voters spend much of the time being pretty disengaged from the political process, people who have a mortgage do keep on top of that. And most people that interest rates directly affect do know that it is the Reserve Bank that’s responsible, not the Government.

This doesn’t mean that being happy or grumpy about it doesn’t show up in the Government’s approval ratings – both those things will – but it does mean that the Government pointing to it as “the economic plan working” is not going to wash with voters.

The problem is that Luxon sold himself as the man who could fix the cost of living issue. But costs are high. They’re not getting lower. It will take incomes a long time to catch up to what people think is a reasonable cost for things. It was always going to be like this.

Council rates are going up, insurance continues to rise, and key grocery staples have increased in price – although that is a mixed bag. The prices of some staples have come down – but not red meat and dairy.

In a way, this is an expectations problem. One that was seeded a number of years ago, partly due to the then-new National Party leader’s inexperience.

It was never going to be as simple as “the other guys are incompetent” and “the big business guy comes in and runs things properly”. National’s branding was prioritised. And the reality has bitten in several ways.

First, fiscal consolidation is politically unpopular and practically difficult without cutting entitlements and money going into health, welfare, education or superannuation.

Second, the fiscal cost of superannuation is rising, making each Budget more difficult to put together than the last.

Third, the Government is either believing its own branding – or just trying to con New Zealanders about costs.

Take announcing the end of Paywave surcharges, for example. That cost doesn’t go away – people just pay it elsewhere (and they still pay transaction fees online, for instance).

Think about local councils, rate caps, and Three Waters. Do a lot of councils seem to cry poor while spending money on some nuts stuff? Sure – but so does the central Government. Setting up some sort of rates cap doesn’t make council costs go away; it just crimps councils’ ability to manage them.

The same with Three Waters.

Having gone around the country and helped rile up councils about how Labour was going to “steal their infrastructure and give it to the local Māori”, it turns out that those same councils aren’t very keen on voluntarily amalgamating their water assets. And the lack of consolidation remains the central problem for sub-scale councils with sub-scale rating bases and water infrastructure. It’s a huge driver of costs.

And lastly, anything difficult is difficult to do in a three-way coalition with divergent political interests, in which the leaders are all wary of one another.

Put another way: everything costs money, you can’t restructure your way out of that fact, and the economy isn’t growing enough to get the country living within its means without cutting things hard any time soon.

And these problems are exacerbated by the fact that the Prime Minister – and other ministers – continue to have a fundamentally early-2000s communications approach, with a big dose of social media stapled on the side. The idea that iron and inerrant message control is key, and that if you repeat messages enough they’ll work.

That may have been true when everyone watched the 6pm news and listened to the same radio and read the same newspapers. But it isn’t true now. The Donald Trumps of this world trade not in bromides, but in authenticity – flawed as it may be.

This is not something that Christopher Luxon possesses as part of his political persona. Going around pretending that everything will be a really important thing to help fix the cost of living – and a handful of other issues – because that’s what your focus groups spit out, is simply not going to be the right strategy for National to be a plus-40% party. Not now, not in 2025. People aren’t mugs.

If this Government wants to be re-elected – and National does not want to be returned with what currently looks very likely to be a smaller share of the vote – it would do well to toss that aside and start talking a lot about how it is going to be very tough for quite a while, but that the plan will work.

This is something Nicola Willis tried to do more of earlier in the term. And it was notable this week that, after her return from overseas, the Government got back a bit of its shape as Willis hewed back to National’s core issues. Her presence during a tough sitting week was significantly missed.

There are lots of changes this Government is making that will bear fruit – planning law changes, in transport, building, resources, and getting Government to run more efficiently (it’s a third of the economy; if it delivers services even a bit better, the economic pay-off is substantial). But most of those will only really be felt running into a third term, not a second one.

It is still most likely that the coalition gets returned next election. There is a reason that one-term governments are rare: voters come back and simply don’t want to vote for the same faces they tossed out three years ago. It’s not very political.

Nevertheless, it feels like the Government needs some sort of circuit breaker now. This was meant to be the year of growth. But growth has been hard to come by, costs are high, and it’s been a hard winter.

Something has got to give.