When Parliament rose at the end of last year and we waved goodbye to our heroes (?) for the summer break, four topics dominated political discourse: the declining economy, the grim state of the government’s finances, the Treaty Principles Bill and the return of Donald Trump to the US presidency.
There is a version of 2025 in which these problems quietly drain away, like Wellington’s drinking water. Perhaps the economic recovery is stronger than expected, complemented by the government’s fast-track scheme, deregulation of residential building and foreign capital flowing into the country.
Salaries increase but rents and house prices continue to decline, slowing the flood of workers to Australia. Increased tax revenues take the pressure off the finance minister, who projects an early return to surplus.
No one knows what Luxonomics is, but it seems to be working. There is some noise about the Treaty Principles Bill early in the year, but it dies at second reading. The opposition parties congratulate themselves for killing a bill that was always doomed.
Trumpism continues as a tale of sound and fury but it signifies nothing: the president’s attention remains fixed on his current enemies, Canada and Greenland.
Perhaps he even throws us a free-trade deal on the back of Lydia Ko’s golfing prowess? There are no tariffs or trade disputes. Our exports to the US and China steadily increase and our currency strengthens. Also, the weather is nice.
Weak recovery
We’re more likely to see a year in which these problems recur, repeatedly bubbling up and befouling everything, like Wellington’s sewage. At the end of 2024, The Economist published a comparison of 37 wealthy nations, measuring a range of key economic and fiscal metrics: GDP, stock market performance, core inflation, unemployment and government deficits. New Zealand ranked 33rd.
Significantly, the only countries underperforming us – Finland, Turkey, Latvia and Estonia – are beset with geopolitical threats: regional wars, refugees, energy scarcity, the threat of Russian invasion.
We don’t need Putin or Isis to impoverish ourselves: we’re doing quite nicely all on our own. Treasury predicts a weak recovery in 2025, with unemployment increasing.
Our per capita recession – now entering its third year – means tax revenue is down but government costs are up. We are borrowing to pay for the groceries and will continue to do so until at least 2028/29. Debt repayment will become a larger component of public spending, crowding out core services.
The coalition cannot spend its way out of the recession because that will only deepen the fiscal crisis, and it cannot cut spending because that will deepen the recession. Instead, Finance Minister Nicola Willis is indicating a return to zero budgets, in which agencies must fund additional costs by cutting something else.
A weakening dollar may constrain the Reserve Bank’s monetary stimulus. Even the underwhelming forecasts at the end of 2024 might have been over-optimistic.
Winners & losers
Economic growth has become an unfashionable metric among the intelligentsia but the problem with negative growth is that the political economy becomes an intractably negative sum. For one group to maintain its wealth levels, another must become poorer. A sustained recession and the government’s pseudo-austerity will disproportionately affect Māori, reinforcing the perception that the system is stacked against them.
Many non-Māori experiencing business failures, rising costs and job insecurity will lose their tolerance for Māori exceptionalism. The debate about the role and meaning of the Treaty of Waitangi will become even more polarised.
If the numerous allegations around Te Pāti Māori and the Waipareira Trust are substantiated, they’ll further amplify the tensions around Act leader David Seymour’s bill.
Finally, it is now clear Trumpism is not a passing aberration; he’s a symptom of a broader political reaction against incumbents and establishment institutions.
In the first week of January, Justin Trudeau resigned as Prime Minister of Canada. He was the last in a sequence of charismatic, progressive politicians that began with Barack Obama, found a New Zealand expression in Jacinda Ardern and now appears to have exhausted itself, overwhelmed by the populist conservative counter-revolution.
That same week, Meta CEO Mark Zuckerberg announced his platforms – notably Facebook and Instagram – would end their fact-checking practices. Censoring alleged instances of hate speech and misinformation had become a central tenet of left-wing politics. The contemporary left’s dream of replacing the neoliberal framework with an expanded regulatory state ruled by an educated caste of morally and intellectually superior technocrats has lost power. It’s drifting towards the rocks like an interisland ferry.
Perhaps the best we can hope for this year is a combination of the best- and worst-case scenarios, and for politicians who can adapt to our strange new world rather than attempt to freeze the old one in place.
Last year, Te Pāti Māori distinguished itself as the most powerful voice of discontent but its status as an ethnic protest movement gives it a lower ceiling than the minor parties on the right, and it may spend much of this year answering questions about its funding and campaign practices.
National is a centrist, conservative party: its inclination is to preserve the status quo. Its first year in power was devoted to rolling the country back to 2017. Labour and the Greens are champions of institutions and credentialled experts – in a world that is losing faith in both.
If the economy continues to stagnate and Luxonomics cannot evolve from a vague optimism that things will get better by themselves, somehow, to a more coherent policy platform, National will continue to founder, losing votes to New Zealand First and Act. Both are well positioned to exploit changes in the political mood.
As this strange new, mid-2020s, world takes form, all of our parliamentary parties may find themselves contemplating a quote from Cormac McCarthy that’s become a catchphrase of the new right: “If the rule you followed brought you to this, of what use was the rule?”
