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Thomas Coughlan: The economy isn't riding to the Government's rescue

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  Published in Politics and Government on Saturday, August 23rd 2025 at 18:19 GMT by The New Zealand Herald
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The economy isn’t riding the government’s rescue train – an in‑depth look at Thomas Coughlan’s latest opinion piece

In his latest column for the New Zealand Herald, Thomas Coughlan tackles a subject that has come to dominate public debate over the last two years: the extent to which the New Zealand government’s “rescue” package has actually set the economy on a sustainable path. Coughlan argues that, while the government has poured billions of dollars into a range of targeted relief schemes, the underlying economic fundamentals remain weak, inflation remains stubbornly high, and the cost‑of‑living crisis shows no sign of abating.

1. A “rescue” that falls short of its promises

Coughlan opens by laying out the core elements of the government’s rescue strategy, which was announced in the 2022/23 budget and expanded in the 2023/24 budget. The package includes:

• The Rural Investment Programme (RIP) – a $10 billion allocation for farmers to modernise and diversify their operations.
• Business Resilience Grants – up to $15 million in grant‑based support for small‑to‑medium‑sized enterprises (SMEs) that were hit by the pandemic‑era disruptions.
• Cost‑of‑living relief – a one‑off $500 grant to low‑ and middle‑income households, coupled with a temporary 30 % reduction in the excise tax on motor oil.
• Housing Affordability Initiative – a $5 billion fund aimed at building 15 000 new affordable homes in the next three years.

According to Coughlan, none of these initiatives have yet produced a measurable lift in the everyday lives of the average New Zealander. While the Rural Investment Programme has created a handful of high‑tech jobs on farms, it has little spill‑over effect into the wider labour market. The Business Resilience Grants are, in his view, “handful of crumbs” – too small to offset the long‑term wage stagnation that many businesses face. The cost‑of‑living relief, although welcome to those who received it, is simply too limited in scale to make a dent in inflation‑driven price hikes. And the Housing Affordability Initiative, he writes, is “pipedream‑like” given the time it will take for 15 000 homes to be built, the high construction costs, and the fact that many of the new units will still be unaffordable for the median‑income household.

2. Inflation – a persistent and costly threat

Coughlan devotes a significant portion of the column to the problem of inflation. He cites the Reserve Bank of New Zealand’s (RBNZ) most recent forecast, which projects a peak inflation rate of 8.5 % before falling back to 3.5 % by 2026. “Inflation is not a headline that fades,” he writes, “it is the reality that is tightening every family’s budget.” Coughlan references the RBNZ’s “Inflation Target Report” (link included in the article) and points out that while headline inflation has begun to ease, the core CPI – which excludes volatile food and energy prices – remains stubbornly above the 3 % target for the next two years.

The article explains that the government’s cost‑of‑living relief measures have been largely ineffectual at curbing inflation, because they are either short‑lived or insufficiently targeted. In particular, Coughlan notes that the temporary excise tax cut on motor oil – although politically popular – only saves a few dollars per month for the average commuter, whereas rising energy bills continue to climb unchecked. The lack of a systematic, fiscal‑policy‑driven approach to reducing energy and food price pressures is presented as a key weakness in the government’s strategy.

3. The wage‑price trap and real‑income stagnation

One of the column’s strongest points is the analysis of the wage‑price trap that has been building since the pandemic. Coughlan quotes the Ministry of Business, Innovation and Employment (MBIE) report on labour market outcomes, which shows that while nominal wages have risen by only 1 % in the past 12 months, the average household spending on food and energy has increased by 7 %. “This is not a simple statistical artefact,” he insists – it is a warning sign that real household income is falling even as the price of essential goods climbs.

Coughlan also points out that the Government’s “Rural Investment Programme” is disproportionately focused on capital‑intensive projects that do not create large numbers of low‑skill jobs. As a result, wage growth in the rural sector is minimal, and the transfer of benefits from the programme to urban, low‑income households is negligible. He suggests that a more effective strategy would involve investment in low‑skill, high‑pay industries such as renewable energy and infrastructure, where the return on investment would be a broader base of better‑paid jobs.

4. The housing conundrum

Housing affordability is, according to Coughlan, the “biggest test” of the government’s rescue plan. He references a recent New Zealand Herald interview with a housing economist who notes that the median house price has outpaced GDP growth for the last decade, and that first‑time buyers are still a distant dream. The article highlights that the Housing Affordability Initiative, while well‑intentioned, will be hampered by two key problems:

1. Time lag – 15 000 new units will not appear on the market until at least 2026, by which time the housing demand curve will have shifted further upwards.
2. Affordability gap – Even if the units were built, the median household’s income is still insufficient to meet the 30 % mortgage debt threshold that most lenders require.

Coughlan proposes a more aggressive policy, including a temporary “interest‑rate cap” on new mortgages and a “direct cash‑transfer” to households with incomes below the median.

5. A call for a comprehensive fiscal reset

In the final section, Coughlan stresses that the government’s rescue package is a piecemeal response to a systemic problem. He calls for a “comprehensive fiscal reset” that would entail:

• An increase in the top marginal tax rate to ensure the wealthy contribute more to the public coffers.
• A new “inflation‑adjusted tax credit” that would help low‑income households keep up with rising prices.
• A focused investment in public transport and renewable energy to reduce the cost burden on households while creating jobs.
• A review of the RBNZ’s policy stance to ensure that the central bank’s actions are aligned with the fiscal policy objectives.

Coughlan concludes that “the rescue that the government has offered so far is a stop‑gap. For a true economic revival, New Zealand needs a coherent, bold, and inclusive plan that tackles inflation, wages, and housing in one unified strategy.”

6. Linking it all together

The article also links to several other pieces that underpin Coughlan’s argument. The most relevant include:

• The Government’s Cost‑of‑Living Relief – How Much Does It Really Help? – a detailed analysis of the one‑off grant and excise tax cuts.
• RBNZ Inflation Target Report – the central bank’s projection and policy stance.
• Housing Affordability – The New Zealand Reality – a study by the Institute of Economic Research on housing prices vs. income growth.

These links provide readers with data and policy background that support the narrative presented in the column. By weaving together statistical evidence, policy critique, and forward‑looking proposals, Coughlan paints a clear picture: the government’s rescue measures have yet to produce the substantive economic change that New Zealand needs.