Short notes on economic matters which do not make a full column.
Wellbeing
It is true that wellbeing is a fuzzier concept than, say, GDP. We can make it less fuzzy by discussing and researching the notion but because it is multidimensional and about actual people, I expect it to always be a bit problematic. But as Keynes may have said, ‘It is better to be roughly right than precisely wrong.’*
The Dual Mandate
I can well understand why most people are bored about the ‘dual mandate’ debate – that is whether the Reserve Bank should target unemployment as well as prices. Labour wants the dual mandate in the RBNZ legislation; National does not.
The dual mandate is quite orthodox. For instance, the US central bank – the Federal Reserve – has a dual mandate in its legislation. The Ardern-Robertson Government legislated the dual mandate in an amendment to the 1989 Reserve Bank of New Zealand Act; the Coalition Government repealed the amendment. I am not sure it made much difference to RBNZ monetary policy decisions when it was in it (although the RBNZ did a bit of welcome research on the labour market). It might matter if there was a big economic and financial shock.
My position is that the government should make it clear that price stability is a means to an end, whereas low unemployment is a part of wellbeing which is the end.
Government Spending
We are entering the silly season when the more political of the commentariat display their ignorance in order to make a political point. Consider this by a prominent commentator. ‘Labour is promising to keep [government spending] to 33% of GDP – so one third of the entire economy would be consumed by the central state.’
Labour’s fiscal strategy for the 2026 election targets core Crown spending and revenue at approximately 33% of annual GDP. As every Econ101 student (who passes) knows, ‘spending’ is not the same as ‘consumption’.
Government spending includes transfers such as social security benefits. (Under some conventions, statisticians also include public spending on personal services such as education and healthcare.) **
If we were to treat all government spending as consumption, it would include purchases by someone who spent from their New Zealand Superannuation as government spending. That’s stupid.
From the context you can guess that the person who claimed government spending was consumption supports the Coalition Government. For the record, Crown expenses were 32.6%, 32.6% and (projected) 32.6% of annual GDP in the three Coalition budgets – near enough to ‘approximately 33%’. (According to the 2026 budget the government plans to get the figure down to 30.3% in 2030.)
Local Authorities
The treatment of New Zealand local authorities by the central government is reminiscent of Trump’s bullying. As far as I can see there, is little or no consultation. Any directions are in the central government’s interest without much consideration of the local interest. No wonder there is the claim that Wellington has a Ministry Against Local Government (It is currently in the new Ministry for Cities, Environment, Regions and Transport).
The bullying is instructive, for it reveals an ugly trait of too many of our political leaders. I am never surprised to hear of another one caught bullying office personnel and public servants (and I know from the latter’s personal accounts it happens more often than it gets reported). As we are at the margins of the world, there is hardly anyone else for our politicians to bully. If we did it to our Pacific neighbours, they would turn elsewhere (as Canada is turning to the EU and China).
The directions to local bodies to amalgamate are instructive. I favour local body amalgamation into localities which are organic communities rather than obsolete consequences of historical decisions. But the initiative should come from the localities.
The Wellington bullies have not thought the issue through. Wayne Brown, mayor of Auckland, is arguably the second most powerful politician in the country. He was elected with more votes in 2025 than either NZF or TPM got from their total list votes in 2023. Auckland has already bloodied the government’s nose on some policy issues. The amalgamations, if they occur, will mean fewer and bigger councils. There could be two mayors – of Christchurch and Wellington – with almost the political weight of Auckland’s, while their counterparts in Hamilton, Tauranga, Hawkes Bay and Otago could also be stroppier. The Mayors’ Forum will become more politically powerful.
At some stage the PM will get the message that appointing a junior (or weak) Minister for Local Authorities won’t work; that a senior appointment is necessary.
Estimates of the costs of amalgamating the councils in the Wellington Region range from $236m to $326m, depending on which model is selected. These are almost certainly underestimates and will go directly onto the rates. (The same report projected a net financial benefit of $1.1-1.2b or ratepayers over a 25-year horizon which is probably overestimated – that’s the way such reports go.) Central government has announced a 4% cap on the annual increase in local authority rates (apparently there was no consultation). Presumably that includes covering amalgamation costs.
The Mayor’s Forum should insist that whenever Central Government directs them to do something, it should also cough up the costs the local authorities incur doing it.
Forty Trillion Dollars of US Government Debt
The announcement in August 2026 that US Government debt had passed $US40 trillion – about 125% of US annual GDP – sent shivers through international financial markets.*** Just 54 months earlier it was $US30tr so it is climbing fast – paying interest on that debt is accelerating the climb.
Trump’s Secretary of the Treasury, Scott Bessant, has recently been trying to reduce the cost of the interest by converting the longer-dated (say 30 years) and more expensive government stock to shorter-dated (say 6 months) less expensive stock. Unfortunately, that adds to the liquidity in the monetary system. That will make the next financial crash even worse.
But Bessant is not addressing the cause of the rising debt – the US Government deficit (which is financed by selling the stock). The Trump loyalist appears committed to the consequences of Trump’s Big Beautiful Bill. Bessant’s, in my opinion feeble, defence is that the AI revolution will give the productivity gains which will resolve the deficit pressure (there is a bit of hand waving here).
In the interim the rapidly rising debt adds to the volatility of financial markets and raises the possibility that US Treasury securities may no longer treated by global investors safe havens – refuges in a financial storm but there are no obvious alternatives.
Trade Wars
Donald Trump is taking on Canada in what must be the strangest trade war of his erratic regime, given that the two countries have had a strong partnership built on shared geography and economic and security cooperation – perhaps the strongest in the world. The trade across Ambassador Bridge, between Ontario and Michigan, alone is equal to all trade between the US and Japan. Trade wars are like conventional wars; a lot of economic damage occurs. As far back as 1909 Norman Angell, in his book The Great Illusion, showed that even victorious wars cost far more than they can possibly yield in tribute. Fortunately trade wars do not kill many people.
* The truism was coined by philosopher Carveth Read.
** The public accounts would be more transparent if they were to separate out transfers from government consumption. This could be easily done with a supplementary table.
*** The New Zealand Government’s Gross Debt is about 50% of NZ annual GDP. We usually talk about ‘Net Government Debt’ which was 22% of annual GDP at the time (including the NZS fund) or 42% (excluding it). Note that the two valid measures provide a lot of opportunity for politicians to confuse the public.