Luxon betting economy will provide the 'lollies'

The Kākā by Bernard Hickey

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Luxon betting economy will provide the 'lollies'

PM rules out election year 'lolly scramble,' hoping instead more voters will 'feel the benefits'of' 2026's economic recovery; Breman rebuked; Auckland Densification backtrack confirmed

Bernard Hickey

Jan 19, 2026

Luxon responding to my questioning at his post-speech ‘stand up’ new conference yesterday. Photo: Lynn Grieveson / The Kākā

Briefly in Aotearoa’s political economy on Tuesday, January 20:

The Lead: PM Christopher Luxon unveiled a new election slogan in his State of the Nation set-piece speech yesterday, as expected, and doubled down on the Government’s strategy of running tight budgets and letting the economy do the work of getting it re-elected. It didn’t work in 2024 and 2025, but he hopes better economic signals in recent weeks will mean voters ‘can feel it’ by the election, which may be just 290 days away, on November 7.
The Sidebar: The problem for Luxon is his Government is relying on a 1990s and mid-2000s strategy of businesses and households stepping forward to spend their savings and borrow more to invest and spend in shops, car dealerships and in the housing market. Back then, the private sector replaced the Government’s stimulus because spenders were younger and less-indebted, interest rates were cut by more, and businesses used to borrow from banks to expand. Neither have done that since 2019. Hear and see more detail and analysis below and in the podcast above.
Elsewhere in the news: Luxon confirmed the Government was back-tracking on Housing, Infrastructure and RMA Reform Minister Chris Bishop’s ambitions for densification to generate capacity for an extra two million homes in Auckland, while Finance Minister Nicola Willis said she’d spoken to Reserve Bank Governor Anna Breman to say Breman should have rung her and MFAT at 3am for advice on whether to sign a joint central bankers’ letter backing Fed independence.
In the Scoop of the Day: Jared Savage reports for NZ Herald-$ that the price of meth has fallen 55% in inflation-adjusted terms to a record low over the last eight years, citing a Massey University survey.
In the Chart Pack of the Day: The Government’s claims the economy’s recovery was blocked last year by a tariff shock to the global economy were not borne out the IMF’s latest forecasts overnight showing an improving global outlook, although it’s clear many economies are struggling with K-shaped recoveries where poorer workers and renters are feeling real wage cuts and aren’t benefiting from massive asset value inflation.
Today’s Deep-dive of the Day is Katie Todd’s latest in her series for RNZ: ‘Gold Rush: Who's Cashing In on Queenstown?,’ which looks at how a quarter of Queenstown’s homes are ‘ghost houses,’ and are hollowing out its economy, with workers unable to afford to both live and work in the boom town.

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Luxon has faith the economy will save his Govt

I went to the new-car-smelling International Convention Centre in Auckland yesterday for the first big event held there: Christopher Luxon’s Election-Year State of the Nation Address. My apologies to those who dialed in to my live analysis on Substack, which had no sound. Won’t be doing that again. For those wanting that analysis with sound, I’ve done that in the podcast above.

As I wrote yesterday, his main message was that National was “fixing the basics and building the future,” but it was clear from his speech and the news conference afterwards, where I asked a few questions, that the Government’s strategy is to plough on with its tight budgets and cross its fingers and hope that households and businesses starting borrowing up a storm to spend, invest and employ make everyone feel better.

That’s the strategy adopted by both flavours of Government over the last 35 years. It worked in the early 1990s, the early 2000s and the early 2010s because it was much easier to grow Aotearoa’s economy with a young and not-so-indebted population benefiting from sharp falls in interest rates.

Musical Chairs via BlueSky: “There is no doubt that reducing debt-servicing costs is stimulatory - more money to spend, more jobs, more profits etc. And, if you're releasing 13% of GDP at pace, that's a *huge* shot in the arm. Compare that to the last couple of years when we have released less than 4% of GDP!”

Musical Chairs via BlueSky: “Note RBNZ & other central banks have racheted down debt costs since the 90s - giving economies the odd shot in the arm? Look at the size of the shot in the arm in 1991, 1998, 2008. And now? We've used our headroom and we opted for a solo recession. Welcome to twenty-twenty-sucks.”

That strategy didn’t work in 2024 and 2025 to fire up the economy, but Luxon is hoping is does this year, and in time for many more voters to feel it before he has to ask for re-election. Here’s the key sections from his speech:

"I have to tell you, I feel more confident than ever that the recovery has now arrived and Kiwis can look forward to a year which is brighter than the last few."
“There were calls at the time (early in 2025) for a big fiscal stimulus and to open the immigration gates and pump up house prices. As I spoke about last year, we can’t risk repeating the sugar-rush economics of the past.
“New Zealand simply has to get its finances in order if it is to achieve a long-term improvement in its economic prospects. That’s why there will be more savings in this year’s Budget and no room for extravagant election promises.”
“Let’s be straight up with each other. Any party that wants to ramp up spending is being economically irresponsible. Because the only way to spend more money is to borrow it or to raise taxes.” Christopher Luxon in his SOTN speech .

Later, he was challenged by event host Auckland Chamber of Commerce CEO Simon Bridges for reassurance on the economic recovery. Here’s Luxon’s key comments (bolding mine):

“When you’re doing a turnaround job though, you’ve actually got to take action and you’ve got to get things implemented and you’ve got to get them executed so that people can feel the difference and actually see the difference.
“We’re starting to see some leading statistics and results improving. Now we need to see people feel it in their personal lives and more of them across the whole of the country as we go through the beginning part of the year and I think that is coming.” Luxon in the ‘fireside chat’ with Simon Bridges after the speech.

Here’s the full speech, fireside chat and news conference, where I asked questions about what ‘feeling it’ would look like (he didn’t say), whether Anna Breman had been ‘outside her lane’ (he wouldn’t say) and why he was scaling back plans to add housing when he had said he wanted to avoid going back to ‘sugar rush’ housing-led recoveries (he said some things that didn’t address the question).