18-07-2025
Government ponders radical power reforms as prices rise
Back then, the person leading the prosecution was none other than Willis herself, and she was ruthless in her disallowance of Grant Robertson's excuses.
Pressing Robertson on skyrocketing mortgage costs, Willis asked the following: 'Is it seriously his position that international factors are to blame for this growth in a core component of New Zealanders' cost of living?'
The answer then, as it is now, is sadly yes.
The international factors that were responsible for a third or more of the post-Covid inflation spike, according to Treasury research, are much the same as the factors weighing on Willis' growth prospects in 2025. These have caused Treasury to revise its forecasts for GDP growth in the coming year from an impressive and possibly election-winning 3.3% to a less impressive 2.9% at the most recent Budget.
That follows revisions to its GDP estimates for the year to the end of June, which Treasury tweaked from a gloomy 0.5% growth to a decidedly grim 0.8% contraction.
Voters may be slightly more forgiving of first-term Willis than they were of second-term Robertson – but only slightly. Like frustrated parents, voters tend to care less about who made the mess than they do about who will clean it up.
National, a party elected on a mandate of getting New Zealand 'back on track', will begin the election year presiding over an economy that's on the same high inflation, slow growth track voters rejected in 2023.
There's not a lot of space for the Government to move. Witness the performative outrage over butter prices, which Willis will raise in a meeting with Fonterra boss Miles Hurrell when she meets him next week.
These high prices are the result of a good thing: high commodity prices that are buoying rural economies. The problem is that incomes are so low people cannot afford to pay them.
The Government knows these prices are a good thing (Willis certainly does, having spent five years at Fonterra) and so does most of the Opposition. As recently as April, it celebrated them, with Prime Minister Christopher Luxon then telling the Taranaki Chamber of Commerce the economic recovery was being led by farming.
'What has been exciting to see is dairy prices are hitting an all-time high,' he said.
Finance Minister Nicola Willis applauds the regional economic recovery but has to manage the high consumer prices that have followed it. Photo / Mark Mitchell
Fonterra may be being naughty, potentially fattening the margins of its consumer products to make that side of the business attractive for sale, but the key driver of those prices is the high value of commodities at the moment – and that's a good thing for the country.
You can slightly forgive the Government for not saying this. Celebrating high butter prices does have a Marie Antoinette-ish aspect to it. However, they perhaps did not need to point the finger so vigorously in the other direction.
The problem with affordability is only half to do with prices. The other half is wages. While it seems an affront to our identity that people of a dairying nation like ours cannot afford butter, the more serious question is why New Zealand incomes struggle to keep up with those of international consumers who are willing to pay for our products.
There's a reason why everyone turns their guns on Fonterra and the farmers for high prices, and that's because it's easier to blame producers than it is to solve the manifold crises that have held back New Zealanders' wages.
Act Party leader and Deputy Prime Minister David Seymour at a rally last weekend. Photo / Alex Burton
This browbeating of corporate New Zealand is becoming a coalition issue. Deputy Prime Minister David Seymour had a go at critics of the supermarkets and banks in his rally speech last Sunday.
'It would be the easiest thing in the world for me to give a speech saying they're crooked and need to be punished somehow. They should be taxed somehow, have their businesses broken up, or be watched over by even toothier watchdogs. It's the curse of zero-sum thinking,' he said.
The remarks were not just directed at Labour and the Opposition, but at the rest of the coalition, which, since coming into office, has engaged in enthusiastic supermarket bashing.
In the backdrop to all of this is a looming cost-of-living decision that will likely be made in the next few months and could have a big influence on the election campaign.
In February, Energy Minister Simon Watts and his Associate Minister Shane Jones selected offshore economics consultancy Frontier to be the lead reviewer of the electricity market (the review was announced in November 2024).
The terms of reference are bold, saying the firm needed to look at foundational parts of the market such as generation investment incentives, efficiency, and effective wholesale and retail markets.
The report came back some weeks ago and is sitting on the desks of ministers. Watts has told media a decision can be expected before the end of September.
One idea is to revive Contact Energy's 2021 Thermal Co plans. Frontier has worked with Contact before, writing evidence on the firm's behalf for its proposed acquisition of Manawa.
That idea would be for a company, 'Thermal Co', to own, operate and eventually retire the major power companies' thermal generation assets. The price of thermal energy sets the price for the rest of the electricity market. This new entity, potentially with a large Crown stake, would have a large influence over prices and over the incentive for firms to bring forward renewable generation, the only long-term fix to the predicament of high prices.
The move would be incredibly interventionist, which is perhaps why NZ First seems so keen on it and why no one in the Act Party seems to know the report is back.
National is caught in the middle. It knows something is wrong in the market but wonders whether radical reform is quite what's needed to fix it. After all, six years of radicalism from the oil and gas ban, to the 100% renewable electricity generation target, to Lake Onslow are at least partly responsible for the mess the market's in at the moment.
Those decisions were unhelpful. Labour's own appointed working group told the Government in 2019 the 100% target would lead to 'large increases in retail electricity prices from today's levels' and would undermine decarbonisation efforts by putting up prices – advice that turned out to be prescient. Do we really want another few years of radicalism?
National may seek to make a virtue out of mild, stable reforms that bring stability to the market and encourage private investment in more generation.
The challenge here is that this new generation needs to be in firming and, in the short to medium term, there's a good chance this will involve fossil fuels (Jones floated the idea of a new coal station in the House this week). That's going to be unpopular.
Other ideas floating around the coalition include changing ETS settings to reduce the Government-imposed cost of burning coal, a cost that is reflected in the wider electricity price. That might fix one broken market by undermining another.
Something needs to happen and not just because high prices are weighing on households.
The coalition, or at least the National and Act parts of it, appears ready to campaign on asset sales at the next election. That argument is going to sound a lot less persuasive if the gentailers, part-privatised in the last major asset selloff, are squeezing consumers.
Treasury papers gush about the fact that the mixed-ownership companies, Air NZ, Genesis, Mercury, and Meridian, are basically the publicly-owned companies that are performing well. Consumers, feeling fleeced by all of them, probably disagree.
And that's the trouble with this economic recovery. It might look okay from the Beehive – even good. The recovery is under way and it's a good one. For once, we are seeing an economic recovery driven by exports and not immigration and house prices, which continue to fall.
As Chris Bishop said this week, New Zealand would be a better country were it to 'destroy' the idea that the economy is linked to growing house prices. He's right, the country would be better off if we did.
Sadly, the record of the electorate is that house prices, where two-thirds of New Zealand households have stashed the vast bulk of their wealth, seem to be the main indicator they care about.
The Key Government, often remembered as a time of relative economic prosperity, presided over years of high unemployment. The unemployment rate didn't fall below 5% until the quarter before that Government was voted out of office. Inflation, however, was almost always below 2% and house prices were rising.
House prices made people feel richer. It wasn't good, but it worked – and it wasn't just Key, the Ardern Government turned a blind eye to unsustainable house prices too.
Unfortunately for National, this is probably the 'track' many households are keen to get back on – and not the one currently being taken by the coalition. You can hardly blame them for feeling the surest sign of economic recovery is in their own balance sheets. The Government's challenge is to persuade people that its own 'track' is the better one.
