Waitangi Day this week marked the 185th anniversary of our nation's founding document. Our treaty agreement birthed a nation built on trade, enterprise, and shared prosperity. In 2025, that economic spirit needs rekindling as we face perhaps our most significant test since the reforms of the 1980s.

The latest OECD report[i] on New Zealand's economy reads like a sobering wake-up call. With GDP growth limping at 0.6% in 2024 and productivity in free fall since 2021, we're facing more than just a temporary slowdown – we're staring down the barrel of structural economic challenges that demand bold solutions.

The Economist has New Zealand's economy ranked 33rd out of 37[ii] in an international comparison.  Economies were ranked on GDP, stock market performance, core inflation, unemployment and government deficits.

But before we rush to embrace economic nationalism as a cure-all, we need to take a clear-eyed look at what's really holding us back and what will genuinely move us forward.

The OECD's findings are crystal clear – we’ve been using immigration as a band-aid for deeper structural issues, and that band-aid is now peeling off as we witness a significant exodus of our citizens.

At the heart of our economic malaise lies our productivity crisis. Despite recent upticks, labour productivity growth has plummeted since 2021. This isn't just a number on a spreadsheet – it's a fundamental indicator of our ability to create value and maintain our standard of living.

The comfortable narrative that we can simply import our way to prosperity is crumbling. While migration has its place, sustainable economic growth requires something more fundamental: a nationwide commitment to productivity enhancement.

We need to be treating our productivity crisis with the same urgency we'd apply to any national emergency - by deploying strategic action. Here's how:

1.      Fixing our Broken Electricity Market

New Zealand businesses are paying too much for electricity, and it's killing investment in our future.

Right now, our big power companies both generate electricity and sell it to consumers – imagine being both the wholesaler and retailer. This setup isn't working, and it goes deeper than just high prices.

This market structure is actively blocking the transition to modern, distributed energy systems. Local communities and businesses wanting to install solar panels and create neighbourhood power-sharing networks face unnecessary hurdles. The big power companies have little incentive to make it easy for Kiwis to generate their own electricity or share it with neighbours – it would eat into their profits.

The OECD says we need to split these companies up so there's real competition. It's not just about cheaper power bills – it's about giving businesses the confidence to invest in everything from new digital systems to clean technology, and empowering communities to build their own sustainable energy solutions. Without this change, we're effectively shackling our own industries and holding back New Zealand's clean energy future.

 

2.      Digital Banking Liberation

We need to tear down the barriers preventing digital banking platforms from entering our market. This isn't just about convenience; it's about injecting competition into a sector that underpins every aspect of our economy.

 

3.      Education as Economic Infrastructure

The OECD's call for education reform, particularly in STEM subjects, isn't just about better test scores. It's about building the human capital pipeline we desperately need.

Every student who graduates without strong mathematics and science skills represents a missed opportunity in our high-skilled labour force. Investing in the better education of rangatahi is quite literally an investment in our nation’s future.

 

4.      Strategic R&D and Capital Investment

While tax credits for research and development are important, we need to get smarter about how we support innovation.

Targeted grants for industry-research collaborations, with strict evaluation criteria, could help ensure we're not just subsidizing research but actually driving productivity-enhancing innovations.

1. Accelerated Depreciation Reform

We should take a page from Australia and Austria's successful fiscal playbooks.

During the Covid crisis, these countries implemented aggressive accelerated depreciation schemes that allowed businesses to immediately write off new capital investments. This functionally incentivises the rapid capital investment that drives productivity growth.

By allowing businesses to immediately deduct the full cost of new equipment, machinery, and technology investments, we could trigger a wave of productivity-enhancing capital expenditure. The initial fiscal cost would be partly offset by the immediate receipt of GST and outweighed by the long-term benefits of a more productive, competitive economy.

 

Beyond Economic Nationalism

The siren song of economic nationalism – whether it's MAGA or its local variants – might seem appealing when growth is sluggish. But New Zealand's path to prosperity doesn't lie in isolationism or protectionism. We need smart, strategic engagement with the global economy while building our domestic capabilities.

What we need isn't economic nationalism, but economic realism.

The Reserve Bank’s projection of unemployment rising above 5.4% by March 2025[iii] [iv]should serve as a warning. We need pragmatic, evidence-based policy focused on building real economic capability – including bold fiscal measures like accelerated depreciation that have proven successful in comparable economies.

The three-party coalition 'Triumvirate' now faces its greatest test. As we commemorate 185 years since the signing of Te Tiriti o Waitangi, we're reminded that transformative change requires both vision and courage. Just as our forebears forged a new nation through partnership and bold action, today's challenges demand similar resolve.

Implementing these reforms will require significant political courage to push what is needed:

·         The electricity market reforms alone will face fierce resistance from entrenched interests.

·         Educational reforms will need to weather pushback from multiple stakeholders.

·         Tackling productivity through market liberalisation will inevitably ruffle feathers across various sectors.

Our coalition government, with its unique three-way power-sharing arrangement, has a historic opportunity. Their diverse perspectives and shared commitment to economic revival could provide the perfect platform for pushing through these essential but challenging reforms.

Much like the spirit of unity that underpins Te Tiriti, success will require genuine collaboration and a shared vision for prosperity.

Getting New Zealand back on a war footing for economic growth isn't about choosing between global engagement and domestic capability. I's about doing both smarter. We need to leverage our international connections while building the domestic infrastructure, both physical and human, that will drive sustainable growth.

The challenges are clear, but it will require our coalition Triumvirate to show unprecedented unity and resolve. They'll need to weather the inevitable storms of protest from those comfortable with the status quo. As the saying goes, you can't make an omelette without breaking eggs – and New Zealand's economic future depends on their willingness to crack those eggs.

 

 

·         Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay and Wellington based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. Article no. 393.

·         The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz

 

[i] https://www.rnz.co.nz/news/business/535816/nz-s-electricity-market-a-problem-for-productivity-oecd

[ii] https://www.rnz.co.nz/news/business/537075/nz-ranks-low-in-global-economic-comparison-for-2024

[iii] https://businessdesk.co.nz/article/economy/december-quarter-jobs-data-will-keep-rbnz-on-track-to-cut-by-50bps

 

[iv] https://www.rbnz.govt.nz/hub/publications/financial-stability-report/2024/nov-2024/fsr-nov-24-chapter-1#:~:text=Figure%201.5%20chart%20text%20alternative,with%202009%20following%20the%20GFC.&text=Source:%20RBNZ%20Bank%20Balance%20Sheet,%2C%20registered%20banks