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| Dr Bryce Wilkinson | Senior Fellow | bryce.wilkinson@nzinitiative.org.nz | ||||||||||||
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It has cut the official cash rate nine times in just 16 months. We will know the decision on 18 February. This is its next scheduled review date. Last Friday’s inflation announcement was bad news. The CPI was up by 0.6% in the December quarter, 3.1% in the year. That put inflation above the Bank’s 1-3% target range for the first time since June 2024. The Bank had forecast in November that the rise would be only 0.2% for the quarter, 2.7% for the year. That forecast likely influenced the Monetary Policy Committee to cut the Bank’s Official Cash Rate to 2.25% in November. This difference is troubling. Will the pending February decision reverse that cut? That would hurt, particularly in a general election year. Higher cash rates lead to higher interest rates for borrowers and depositors. Mortgage holders feel high rates straight away. Home owners fear lower house prices. Businesses and others blame the government for causing the recession. People ring talkback radio, Government politicians squirm and others demand relief. In contrast, the benefits of stable prices come later and are widely spread. Their source – sound monetary policy – is not widely understood. Support is less intense and vocal. For more than two years, to August 2024, the Reserve Bank had fought to bring inflation down. It raised its cash rate seven times to 5.5%. It held commendably firm throughout all the pain and criticism. It moved quickly to cut the cash rate as soon as it was clear that inflation was back into the target band. Borrowers have been happier, and the government has been purring. These lop-sided public and political pressures commonly cause central banks to ease off on inflation too early. Jarring policy reversals are then needed. A US Federal Reserve study last year looked at every attempt to bring down inflation between 1960 and 2019 across many countries. Successes were the exception. Most attempts failed because central banks eased too early. New Zealand’s system guards against these lop-sided pressures by scheduling regular reviews of the cash rate for public scrutiny. (Seven are scheduled for 2026.) The Committee’s February announcement will receive close attention. |
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| Nick Clark | Senior Fellow | nick.clark@nzinitiative.org.nz | ||||||||||||
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But spare a thought for an important but seemingly forgotten Bill to extend the term of Parliament to four years. Five months have passed since the Justice Committee reported back. The Bill has not moved. This matters because the Government's stated intent was to hold a referendum on a four-year parliamentary term at this year's election. The Ministry of Justice told the Select Committee in August that a separate Referendums Framework Bill – enabling legislation that creates the legal mechanism for any referendum – needed to pass by the end of September 2025. An Order in Council would then need to trigger a four-year term referendum by the end of March 2026, allowing time for a public information campaign before the 7 November election. September came and went, and now it is late January. The March deadline is now less than nine weeks away, and neither bill has had its second reading. They are languishing at 34 and 35 (out of 45) on Parliament’s Order Paper. The irony is hard to miss. A bill designed to give governments more time to implement policy is being strangled by the very time pressures it was meant to address. The Select Committee did its job. It fundamentally rewrote the Four-Year Term Bill, stripping out an unnecessarily complex variable-term mechanism and select committee proportionality requirements. What emerged was a clean proposal: a straight four-year term, subject to referendum, with the question put plainly to voters. The Committee even noted the "very small window" for public education if a 2026 referendum were to proceed. That window has now nearly closed. If the Government genuinely wanted a referendum this year, it would have prioritised these bills. It has not. Unless it moves with urgency, the referendum will slip to 2029 – assuming a future government chooses to proceed at all. Why? Coalition dynamics may have stalled it – ACT did not like the Bill as reported back. The appetite for constitutional reform that animated the coalition agreements may have cooled. Or the Government may simply have too many other priorities competing for limited parliamentary time. My submission for The New Zealand Initiative supported a four-year term. I argued that New Zealand's unusually short three-year term creates real constraints on effective governance, and that voters should have the chance to decide whether change is warranted. That chance is fast slipping away. |
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| Dr Michael Johnston | Senior Fellow | michael.johnston@nzinitiative.org.nz | ||||||||||||
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Our politicians are back at work too – and they have an exciting year ahead. As our more politically astute readers may be aware, 2026 is an election year. Like New Year’s resolutions, the promises made before the last election have also faded into distant memory. Politicians count on it. If voters remembered all the things they had promised but failed to deliver, there might be consequences for their reelection prospects. So, as a fan of political accountability, I thought it would be timely to remind readers of one of the government’s big promises back in 2023 – road cone reduction. Before the last election, PM Christopher Luxon opined that there were “far too many road cones in the country.” He promised that a National-led government would cull their numbers significantly. Like any complex policy area, developing a road cone reduction strategy took time. But by mid-2025 the government had a plan. It established a ‘road cone hotline.’ Motorists were invited to ring in and report incidents of excessive cone use. The hotline attracted more than 200 calls in its first four days. But Auckland Mayor Wayne Brown, self-styled enemy of road cones, was unimpressed. He called the hotline ‘hot air.’ Brown may have had a point. More than a hundred complaints from Wellingtonians in June 2025 resulted in the removal of just two cones. Nationwide, for every complaint to the hotline less than a single cone was banished from our roads. The best we can say for the initiative is that, compared with a similar approach in UK, it was a roaring success. Back in 1991, a British road cone hotline resulted in just one cone removal for every 3,400 calls. New Zealand’s hotline was quietly terminated just before Christmas, a favoured time for putting failed policies out of their misery. Workplace Relations and Safety Minister Brooke van Velden put a brave face on it. "We now understand what's really causing the excessive use of road cones,” she said. Apparently, the culprit is local councils. "The real issue lies with the councils signing off on needing excessive use in the first place,” van Velden claimed. That reminds us of another thing we can expect a lot of in election year – blame shifting. |
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