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Insights 36: 26 September 2025
New Research Note: Monetary Policy Without Mates, 23 September 2025
 
Newsroom: Dr Eric Crampton on criticising the Reserve Bank for doing its job
 
NZ Herald: Dr Oliver Hartwich on how New Zealand blocks its own growth
The wrong target
Dr Oliver Hartwich | Executive Director | oliver.hartwich@nzinitiative.org.nz
New Zealand’s economy shrank 0.9 per cent in the June quarter. A chorus of commentators, politicians and economists are blaming the Reserve Bank for this poor performance. They claim the RBNZ choked the economy with interest rates that were too high for too long. 

To be clear, the RBNZ’s mistakes during Covid caused the inflation spike in the first place. But that does not make it right to criticize the RBNZ for correcting its past mistakes. 

The Reserve Bank has one core job, assigned to it by the government – to keep inflation within a 1 to 3 per cent band. So, when inflation rocketed to 7.3 per cent in June 2022, the Bank faced a genuine crisis. 

More dangerously, surveys showed that people and businesses expected inflation to remain high, risking a return to the wage-price spirals of the 1970s. 

While the Bank’s pandemic-related money printing contributed to the loss in price stability, once inflation had taken hold, it had no choice but to act forcefully. Its strong medicine worked, and inflation is now back under control. It did exactly what its contract with the government required it to do. 

The real story since the pandemic is not of monetary policy error but of policy misalignment. The Bank was battling inflation while the government pushed its foot on the fiscal accelerator. 

Budgets in 2022, 2023 and 2024 pumped more spending power into the economy at precisely the wrong time. Budget 2024’s $3.7 billion in annual tax cuts are but one example. 

The International Monetary Fund explicitly warned against this decision, highlighting New Zealand’s structural deficit of 2.8 per cent of GDP – among the largest in advanced economies. The tax cuts worked directly against the Bank’s efforts to curb inflation. 

With the government overstimulating the economy, the Reserve Bank had no choice but to keep interest rates higher for longer than would otherwise have been necessary.  

The two arms of policy working at cross-purposes was not helpful for bringing inflation under control. In fact, it made the RBNZ’s job harder.  

Blaming the Bank for doing its job is a regrettable exercise in blame-shifting. 

The government must prioritise developing a credible plan for fiscal consolidation that reduces ill-justified spending and brings debt back to a prudent level. Monetary policy needs a partner in government, not a critic working against it. 

The question is not why the RBNZ held rates so high, but why it was forced to.  

New Zealand’s growth potential will remain constrained until its fiscal and monetary authorities stop pulling in opposite directions. 

Read our latest research note “Monetary Policy Without Mates: Why the Reserve Bank is Right to Focus on Price Stability” here. 
Not-so-killer acquisitions
Dr Eric Crampton | Chief Economist | eric.crampton@nzinitiative.org.nz
A lot of changes are coming in competition policy. Last week, the government announced a package of reforms that, overall, set the Commerce Commission on a more activist tack.  

One proposed reform will align New Zealand more closely with Australia’s regime, guarding against so-called ‘killer acquisitions’.  

Competition authorities worry that large tech companies might buy start-ups not to build on their ideas but to shut them down. If a start-up threatens an incumbent’s business model, the incumbent supposedly deals with the threat by buying it and killing it. 

It is not impossible for a company to try that. But how often does it really happen? 

A new working paper by economists Florian Ederer, Regina Seibel, and Timothy Simcoe looks at 1,190 acquisitions by eight big tech firms: Amazon, Apple, Facebook, Google, Microsoft, Cisco, Intel and Qualcomm.  

Their study focused on start-ups active in patenting – so not all acquisitions were included in the study.  

But what they found challenges the ‘killer acquisition’ narrative. Overall, big tech companies buy start-ups to build on their technology rather than kill it. 

For example, big companies tended to acquire smaller companies active in areas where the bigger firms were themselves active in research. That is the kind of thing a big company would do if it needed help progressing its own work. 

And, after a start-up with expertise in an area is acquired, patenting in that start-up’s area tended to continue or rise, rather than fall – and especially if the big company bought more start-ups in that area. If buying a start-up hurt research in the start-up’s area of expertise, the opposite would happen. 

Buying smaller firms one after another will face greater scrutiny under another proposed New Zealand reform around ‘creeping acquisitions’.  

The work by Ederer and coauthors suggests that large tech companies’ creeping acquisitions in an area look more like building capability.  

Finally, they find that a start-up’s patents wind up being cited more frequently by other patents after the start-up is bought by a larger tech company. That is also hard to square with stories of acquisitions killing innovation.  

None of this means that there has never been or could never be a case of a real ‘killer’ acquisition. 

But it does mean that the Commission needs to be cautious, lest its pursuit of killer acquisitions wind up killing productive innovation. 
When the clowns look sane
Dr Benno Blaschke | Research Fellow | benno.blaschke@nzinitiative.org.nz
New Zealand has always tolerated a bit of theatre in local politics. This year, in Wellington though, it is more like the theatre tolerating the politics. The city’s mayoral race reads like a casting call, not just because an actual clown is on the ballot. 

Pennywize the Rewilding Clown promises moa-mounted commuters and wants to turn the Basin Reserve back into a swamp. The Silly Hat candidate suggests lazy rivers down Courtenay Place. They will also improve the weather by redirecting the wind to Upper Hutt. He is running because “the clowns currently running this country lack what it takes to deliver.” Fine. It is part of Wellington’s political lore. 

The real problem is not clowns posing as politicians but supposedly serious candidates auditioning for the same genre. One promises a three-year rate freeze, funded by cutting unspecified “waste.” Another withdrew after proposing to fire 800 staff and transform Wellington into the “AI centre of the South Pacific.” 

Meanwhile, Scott “Scoot” Caldwell, a genuine candidate, is also, well, a little theatre. He only visited Wellington for the first time in June and still talks up “Auckland solutions for Wellington problems,” complete with campaign shots that look north of the Remutaka Ranges. He makes a confident pitch for someone who appears to live in Auckland.  

Here lies the problem. When a real candidate can sound this not-from-here yet plausible, the line between costume and policy blurs again.  

Out of place Andrew Little captures this perfectly. A former Labour leader and Cabinet minister. He is now standing next to candidates joking about alternate worlds or discussing economically fantastical scenarios. You can see it in his eyes, that “how did I get here?” look. This is someone who once managed billion-dollar budgets, now debating moa transport networks. 

Parody candidates are becoming harder to distinguish from real ones. The capital once prided itself on being quirky. Quirky was wind, earthquakes and trying to be the coolest little capital. This feels more like what happens when quirky drinks too much craft beer and decides to run for office.  

There is a difference between vision and fantasy.  

The lesson is not to ban whimsy from politics. It is to prize savvy policy over whatever this is. Those prepared to put in the effort, look past the costumes, and read the numbers may still find a few credible adults in the room. 

Wellington does not need a new storyline. It needs a working script and a council that can actually read it. 

Either way, Wellington gets the democracy it deserves. 
 
On The Record
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