Since the Reserve Bank began cutting interest rates in August last year, the Herald has noted economic forecasts for 2026 have looked favourable to an incumbent right-wing Government looking to defend a record of sound economic management. Next year was meant to be a year of low consumer price inflation, stable growth, lowish unemployment (at least by recent standards), and rising house prices.
Those numbers don’t look far away from the economic conditions that saw John Key’s Government win three elections, particularly the combination of low inflation and rising house prices. The latter makes the two-thirds of households that own homes feel like they’re getting richer, and the former helps convince them that wealth is real.
It’s not necessarily healthy. Kiwis’ economic affection for real estate has not inaccurately been compared to an addiction. But for politicians, it certainly works. Addicts might know they need to quit, but they probably won’t vote for it.
If you needed any more evidence of how important house prices are to our economic psyche, the Treasury made tracking the correlation between house prices and household wealth the subject of one of its Hyefu special topic boxes.
This particular box showed how closely the two were correlated (expressed as a multiple of annual earnings). As prices went up, households, on average, got richer; as prices went down, things went the other way.
Bad luck, of course, to the third of households who rent, but let’s face it, they’re unlikely to be the coalition’s marginal voters.
Since last August, the recovery has been delayed and delayed again. Back then, it was forecast to be well underway by now, giving voters a year of good vibes to enjoy before heading to the polls.
Finance Minister Nicola Willis delivering her Hyefu presentation. Will the green shoots of recovery be enough to secure the Government’s re-election? Photo / Mark Mitchell
The Treasury’s latest forecasts suggest the election will be fought not against the backdrop of a recovered economy, but instead a recovering one.
Green shoots, that rancid political-economy cliche, have emerged. There was some positive news for the Government in Stats NZ’s food price data, showing the pace of price increases starting to slow, driven by seasonal produce. Prices were up 4.4% in the year to November, an increase well below the 15.5% notched up in the year to June 2023.
But is that news good enough? Prices for staples continue their precipitous rise; milk was up 15.8% over the year, sirloin beef steak up 26.7% and white bread, that staple of summer barbeques, up 53.2%. These price rises would be bad in an ordinary year; after four years of above-average inflation, they’re intolerable.
This won’t be enough on its own to satisfy voters.
Conventional political wisdom says voters need a good long while of positive economic news before they start to feel better about the Government. Yet there’s a sliver of evidence that voters are beginning to thaw.
The latest ANZ-Roy Morgan consumer confidence survey, although hardly a ringing endorsement of the status quo, suggests consumers are starting to feel happier. Consumer confidence, while still low, is at its highest since September 2021.
The most solid retail indicator in that series, the proportion of households thinking it’s a good time to buy a major household item, rose to net -1%. That’s a pretty poor result, but one which looks slightly better when you consider that index hasn’t printed a positive number in about four years.
Again, while this suggests the economy is heading in the right direction, it doesn’t raise hopes that it will have reached recovery by polling day.
Recovering, rather than recovery, is a very challenging position.
The Government is pulling out all the stops to make the case for the economy that will be, if not the economy that is.
In an interview with the Herald that will run over the summer, Finance Minister Nicola Willis reveals that she has asked the Treasury to assess the impact the Government’s Resource Management Act reforms will have on the economy and “consider what upward pressure that could put on growth in coming years”.
The Treasury agrees that “better converting our natural resources into economic activity, reducing the cost and complexity of that, creating more certainty about consenting conditions are positive for growth”.
Willis concedes it’s an “open question” whether this translates into plumping up the growth forecasts, and the Treasury is typically conservative when it comes to adjusting economic forecasts to account for policy changes. The fact that the Government has asked to score the change at all shows the lengths to which it will go to make a case for itself.
Te Pāti Māori’s challenges show no sign of stopping. Photo / Mark Mitchell
And what about the parties of the opposition?
Te Pāti Māori wobbled again this week with its former lawyer, Tania Waikato, announcing she’ll be a Green candidate at the next election. Waikato is a good get for the Greens but, in another world, she might have cast her name in the hat for the party she’d worked for until recently.
A party is only as good as the candidates it attracts, and if Te Pāti Māori (TPM) cannot attract candidates who actually worked for it, it needs to ask itself some serious questions.
Hours after Waikato’s announcement, Hana-Rāwhiti Maipi-Clarke, TPM’s great hope, posted to social media a teaser of an announcement she plans to make with Green MP Tamatha Paul at Waitangi next year. It appears the announcement isn’t a defection to the Greens, but that hasn’t stopped the post from adding fuel to the extant rumour that it might be on the cards.
If that is the case, then a big story of 2026 may well be the rise and fall of this version of TPM, which began in spectacular fashion with co-leader Rawiri Waititi’s against-the-odds victory in the Wairiki seat in 2020. It may all end there too: Wairiki is high on the list of seats in which Waikato may stand.
And what of Labour? Well, most polls rate it the most popular party in New Zealand politics at the moment. The party has been tactful this week, speaking at length on bad news like Hyefu, and making itself scarce on GDP day.
Labour heads into 2026 with an uncontroversial if uninspired policy slate that includes a capital gains tax by which the public seems unperturbed, and oddities like the Future Fund that seemed designed to neutralise policy from National rather than achieve anything themselves.
Much of Labour’s pitch to voters is an offer to turn back the clock to simpler, happier times, giving the Ardern-Hipkins Government the third term it was denied. It’s an appealing pitch when times are as rubbish as they are now.
For now, it’s working. If the economy takes the same circuitous road to recovery in 2026 that it took in 2025, the strategy may well carry Labour back to the Beehive. The big risk is that, if the economy improves, its small-target, turn-the-clock-back strategy may leave it high and dry.
The Prime Minister has had a bumpy end to the year. His reset was well-received at first, but undermined in subsequent days when he seemed to forget the “I’m listening” message.
Can the old dog learn new tricks in 2026?
Perhaps. Leaving Wellington this week, Christopher Luxon did something he’d apparently never done before in his life.
He flew Jetstar.
Thomas Coughlan is political editor at the New Zealand Herald. He loves applying a political lens to people’s stories and explaining the way things like transport and finance touch our lives. He joined the Herald in 2021.