Cam Bagrie: Election year economic thinking

The silly season has begun early in 2026. We’re already seeing the whole spectrum of election year economic thinking from our politicians and commentators: from scare-you-nomics to promise-you-nomics, and even some conventional economics thrown in too. 

As I see it, the basic economic headline for this election is relatively easy to write. The economy is improving. We are seeing it across a barrage of the timely indicators. Don’t be deceived by the yet-to-be-released gross domestic product figure for the June quarter - that’s likely to be soft. But we’re in the third quarter now, and momentum is building.

The Reserve Bank publishes a “GDP Nowcast” - a collection of timely economic gauges that allow it to predict economic performance in the future. The latest GDP Nowcast prediction for the September quarter is 0.9 percent growth with Canterbury, Southland and Otago leading the charge. Conversely Auckland and Wellington are expected to remain the economic laggards.  

The biggest and most positive outtake from this is that we are seeing an export-led recovery not a housing-inspired one.

But with good news comes bad news. The Reserve Bank is lifting interest rates. Interest rates are currently south of neutral, which means they are in the stimulatory zone. With growth strengthening and inflation above target, the Official Cash Rate should be around 3-3.5 percent.

When tails get to wag dogs 

Back to the silly season. The traditionally strongest parties (Labour and National) now secure around 60 percent of the vote according to polls.  That means the rest have 40 percent.  That 40 percent means tails try to wag dogs. 

A similar dynamic is apparent around the globe. Just witness the emergence of Reform UK, or One Nation in Australia.

This election reminds me of the days when Social Credit was at its peak in the 1980’s and secured two seats under our old first-past-the-post voting system. I’m not sure Social Credit voters really knew what they were voting for, it was more of a vote against the establishment. In 2026, we could be seeing the same thing again.

We’re seeing quite large interest groups developing that remInd me of the 1970’s when Rob’s Mob, the ordinary working people, fell in behind Rob Muldoon.

I can see three Rob’s Mob equivalents in 2026 lining up behind NZ First, TOP and ACT.  They are older conservatives who favour limiting immigration and nationalising assets. There’s the young who struggle to get on the property ladder and are most mindful of climate change. Then there are the baby boomers who want to keep NZ Super intact, despite all the evidence saying the status quo is not affordable and the next generation will end up paying the price. 

So, we head into this election watching Peters’ Pack (NZ First), Q’s Crew (Qiulae the TOP leader), and Henry’s Hoard (Paul Henry, ACT’S celebrity candidate). I’m keeping a special watch on TOP, who are taking votes from all sides of the political spectrum.   

Taxing times

The election debate is already in full swing when it comes to tax. 

Every political party wants to present themselves according to three common gauges: fiscal credibility (return to surplus); investment in infrastructure; and delivery of essential government services (especially health - currently expensive and getting worse as the population ages). Lacking a productivity miracle, you can’t deliver all three.  

I call it the impossible trinity for any government. The maths only adds up if you are prepared to increase taxes, otherwise government spending needs to shrink as a share of the economy. Shrinking government spending relative to the economy happens in two ways: we either get that productivity miracle (deliver more with less money) or services are reduced.

Both major parties are delivering broadly similar economic forecasts. One party is saying revenue will be around 31% of GDP in 2030 with the expenses around the same. Another is saying 33% for expenses, which assumes revenue needs to be the same.

I don’t know any economist who could validate one number being superior to the other.

And so we get to tax policies. One major party says no tax increases. The other doesn’t. It’s hard to know which is more credible. If tax increases are set to wreck the economy, why didn’t tax relief in the past three years make the economy boom? Tax relief was modest and if we do end up paying more tax over the coming years my bet is that it will be modest too. 

The bottom line

For the past thirty years, we have been in an era of monetary dominance.  Economic policy was all about inflation and interest rates. Governments were most successful with a political and economic style of leadership that was mostly centralist.

We took the easy road to growth, selling more expensive houses to each other, promoting immigration and tourism. Time is up on that model. 

It stretched the laws of economics - and houses became unaffordable. The legacy of that era is today’s increasingly populist politics, mixed with increasing acceptance that the time has come for real reform. 

Welcome to an era of government and fiscal dominance. This new era will see acceptance of the need for genuine reform and a focus on getting the books in order, intertwined with populism and the reality of an ageing population. Competition policy needs to be at the epicentre of reform and guess which party is talking about it. TOP.

Hold onto your hat heading into this election. There are now so many permutations it’s resembling the battle for the National Provincial Rugby Championship with an even level of competition and heaps of teams in the mix.