Election season has turned the cost of living into an auction. Every party has a bill it promises to shrink, whether that is power, groceries, card fees or rates. Bryce Wilkinson, senior fellow at The New Zealand Initiative, has written the most useful corrective of the campaign so far, and it comes down to a distinction voters are being encouraged to blur.
Price is not cost
“Some political parties are relying on voters to confuse price with cost,” Wilkinson writes, taking aim at a party whose cost of living action plan leans on subsidies, price caps and market regulation. “Forcing a price down does not reduce the cost of supply. The public must fund the cost of supplying what it consumes regardless of price. Otherwise, it will not be supplied.” (NZ Herald)
That is the whole argument in four sentences. A subsidy moves the bill from the checkout to the tax return. A price cap moves it onto the supplier’s margin, which eventually shows up as less investment, thinner stock or a business that quietly exits. Neither makes a litre of milk or a kilowatt-hour cheaper to produce.
The engine that stopped turning
The only durable way to make things cheaper in real terms is to produce more per hour worked. On that measure New Zealand has been going nowhere. Stats NZ data shows labour productivity in the measured sector grew an average of just 0.1% a year from 2020 to 2024. In 2024, Treasury noted whole-economy productivity had averaged 1.4% a year between 1993 and 2013 but only 0.2% over the following decade.
Wilkinson’s arithmetic makes the stakes brutal. At the productivity growth of the early 2000s, real wages can double in about 54 years. At 0.1%, it takes nearly 700 years. No subsidy scheme closes a gap like that.
The squeeze has been felt directly. Back in 2024, BERL economist Nick Robertson calculated that GDP per capita had fallen 4.3% from its September 2022 peak, calling tax cuts a bandage when the economy needed stitches. And Treasury’s October 2025 analysis found New Zealand’s slowdown has been more severe than in many peer economies, so this is not just a global hangover.
There is one honest caveat. Stats NZ’s latest release shows a new growth cycle began in 2024, with labour productivity up 0.8% in the year to March 2025. That is a genuine improvement and worth acknowledging. It is also still well below the historical norm, and one decent year does not repair a lost half-decade.
Price controls punish the wrong people
The political appeal of caps rests on the idea that someone is pocketing the difference. The evidence has not been kind to that story. A 2023 BusinessNZ study found that of the 14% rise in prices over the three years to December 2022, 71% came from input cost increases, 15% from labour and only 14% from gross profit. Its verdict was that greedflation was “an imported narrative not supported by the evidence”.
If prices mostly track costs, a cap simply forces businesses to absorb costs they cannot control. For owners in retail, energy, food production and services, that means delayed capital spending, fewer hires and less of exactly the investment that lifts productivity. The policy ends up feeding the problem it claims to fix.
The fixes are known, just unglamorous
None of the remedies are secret. The IMF’s 2025 review of New Zealand pointed to better education outcomes, R&D tax credits, more public research investment and closing infrastructure deficits, with a particular warning about digital infrastructure. In 2024, The Conversation noted that since the Productivity Commission was set up in 2011, productivity growth had averaged just 0.2% a year, among the worst in the OECD.
Politicians know this too. In 2024, then-Finance Minister Nicola Willis spoke of “the corrosive impact of low growth and low productivity” on the government’s books. The problem is that competition reform, planning liberalisation, skills and infrastructure take years to pay off, while a power bill subsidy shows up before polling day.
What to listen for on the campaign trail
Wilkinson’s challenge to voters is simple: be wary of parties that only pay lip service to productivity, and ask which policies are likeliest to keep ambitious young people from leaving. Business owners should apply the same filter. Every cost-of-living promise has a funder, whether that is taxpayers, suppliers or future borrowers. The ones worth backing are those that lower the cost of producing things, not the sticker price. Anything else is just moving the bill around the table while the 700-year clock keeps ticking.
Sources
- NZ Herald: Cost of living crisis won’t be solved by subsidising prices – Bryce Wilkinson (2026-10-21)
- Stats NZ: Productivity statistics 1978-2025 (2026-04-23)
- BERL: Tax cuts a bandage, but stitches needed to address productivity (2024-07-08)
- BusinessNZ: Greedflation in New Zealand? (2023-05-23)
- IMF: New Zealand’s Productivity Challenge, Selected Issues Paper No. 2025/075 (2025-04-29)
- The Conversation: NZ’s productivity stagnation requires a long-term plan from politicians (2024-06-30)
- RNZ: What’s productivity and why do we keep hearing about it? (2024-10-24)
