Gordon Campbell On A Clueless Government Running A Jobless Economy
August 8, 2025
One of the whoppers told regularly by Nicola Willis and Christopher Luxon is that National inherited a terrible, no good economy from Labour, with rampant inflation and sky high interest rates that they have since -allegedly- brought under control. In reality, Labour had already got inflation under control. The inflation rate had fallen during the last quarter of 2023 to only 0.5 %. The annual inflation rate was 4.7% in December 2023,heading downwards from the 5.6% reached in the September 2023 quarter.
In other words, what National inherited was the bog standard inflationary bubble that every developed country in the world experienced in the aftermath of measures taken during Covid to protect jobs and save firms and entire sectors (eg tourism) from plunging into what would otherwise have been the worst recession since the 1930s. At the time, business was calling for these inflationary support measures to be bigger, and to be kept in place for longer. To repeat: by the time the Luxon government took office, inflation was already in decline.
Meaning : for Willis to be still blaming this week’s terrible unemployment figures on the previous government is truly desperate stuff. People are out of work at levels unseen since the pandemic because of the ideologically-driven mistakes made by Willis and her Cabinet colleagues.
For starters…Willis and Co (a) needlessly sacked tens of thousands of public servants (b) virtually shut down the construction industry at the estimated cost of 14,000 to 17,000 jobs in this sector alone and (c) pursued austerity measures when the weakening economy was actually in need of a government stimulus, which would have been the orthodox response to an economy teetering on recession.
Instead, Willis slammed the brakes on. In desperation, the government is now turning for salvation to the Reserve Bank, and expecting the Bank to do the opposite, and stimulate the economy (and household spending) with interest rate cuts. Rate cuts are unlikely to do the trick. When people are being randomly sacked, are fearful of losing their jobs and are having the real value of their wages cut, it will take a lot more than a 25 point or 50 point rate cut to get them back spending up large in shops, cafes and restaurants.
Retailers hanging on for a consumer-led recovery might be better advised to cut their losses and move to Australia. Because the policies of this allegedly “business friendly” government are burying them alive.
Counting the costs
Here are the grisly details. Unemployment is running at a seasonally adjusted rate of 5.2%, the highest rate since the pandemic in 2020. That means roughly 158,000 New Zealanders are out of work. Tens of thousands more are under-employed. These are the people working in part time jobs while wanting more, or people who have simply given up looking for jobs that no longer exist. At the same time, Social Development Minister Louise Upton is flogging them with benefit sanctions if they fail to persist in this fruitless exercise.
The jobs outlook is dim. As Stats NZ figures indicated this week, underemployment is accelerating :
The underutilisation rate, a measure of untapped labour market capacity which includes people who are unemployed or underemployed, was 12.8% in the June 2025 quarter. It was 12.4% in the March 2025 quarter and 11.9% in the June 2024 quarter.
At the same time, the ratio of people in paid work is falling :
The employment rate was 66.8%, down from 67.1% in the March quarter and 68.3% a year ago.
Wages are also in decline:
Annual wage inflation was 2.4%, compared with 4.3% in the June 2024 quarter.
Young people (and others) have read the signs and are leaving for a better life in Australia and beyond. What trained graduate with a big student loan wouldn’t do likewise? In Auckland, the jobless rate is estimated to be over 6%. Wellington’s jobless rate has risen from 3.4% twelve months ago to 4.8 % now, after Willis took a chainsaw to the public service, to the detriment of the Capital’s retail economy. The few signs of life are out in the regions, where the benefits of high commodity prices on global markets are trickling into provincial towns and cities. Thanks to foreigners.
The domestic battle against rising costs is being lost. Annual inflation is currently running at 2.7% i.e. ahead of the 2.2 % wage growth in June 2025, which was the lowest reading since June 2021. Wages are set to sharply deteriorate further – given the 1% wage offers being put on the table for teachers, and the 3% (over two years!) pay offer to nurses.
There is an ugly term for the ugly condition being created by the raft of contradictory government policies: stagflation. It occurs when efforts to stimulate growth get cancelled out by policies to keep inflation in check. Businesses facing rising costs lay off staff, and when demand falls, they lay off more in a negative spiral that they then try to counter by raising their prices. Costs and job losses mount in tandem. The result is stagflation: a condition marked by high prices, slow growth, high unemployment and prolonged economic stagnation. It can last (eg Japan in the 1990s) for a very long time.
We shouldn’t be in this mess. Basically, the Luxon government had one job to do. It had to continue the battle against inflation that was already being won in late 2023, at the time when they took office. It has bungled that job, spectacularly. (So much for the myth that centre-right governments are better at running an economy.) To cap things off, the coalition government may be re-losing the fight against inflation as well. The latest ANZ Roy Morgan poll makes grim reading on that point :
Inflation expectations lifted 0.2 pts to 5.1%, the highest since April 2023. Food price inflation of 4.2% y/y probably has a lot to do with it.
Footnote : Incidentally, that’s a thing to keep in mind about the averages in official statistics. The headline news has been that inflation is back within the RBNZ’s target range of 1-3%. That offers little consolation to households where people are losing their jobs, the real value of wages is falling and food prices are still increasing at over 4%. That is also not a scenario in which a consumer-led recovery is going to break out anytime soon.
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