Published in Quadrant magazine (Sydney), 26 February 2025
New Zealand is the best country on Planet Earth,” Christopher Luxon keeps telling everyone. Indeed, he has been saying this since before becoming Prime Minister. It is a marketing message, of course. And this should surprise no one. For New Zealand’s Prime Minister, a former chief executive of Air New Zealand and Unilever executive, marketing comes naturally.
Yet Luxon’s State of the Nation speech last month suggests a gradual shift in his messaging. Gone are the references to his corporate career. Instead, he presented an economic reform agenda. The question is whether this new approach can deliver real change—and whether it can succeed without addressing New Zealand’s deeper fiscal challenges.
The context in which Luxon delivered his speech could hardly be graver. New Zealand’s economy contracted in 2024, suffering its worst recession since 1991 outside the pandemic. Productivity growth remains anaemic. Young New Zealanders continue to depart for Australia’s higher wages. Public debt is rising towards 47 per cent of GDP, while Treasury forecasts show structural deficits persisting well into the 2030s.
These problems are not of Luxon’s making. When Jacinda Ardern resigned in early 2023, she left behind a country in which practically every aspect of the economy required reform. Core government spending had risen from 27 per cent of GDP before the pandemic to over 33 per cent. Regulatory barriers were choking investment and growth. The public service had expanded by a third while delivering deteriorating outcomes.
Luxon’s government made a good start, dismantling signature Ardern policies from light rail to co-governed water entities. Yet until now, there has been little sign of a coherent growth framework to replace Labour’s interventionism.
Luxon’s speech changes that equation—at least on paper. At its heart are two major initiatives: a dedicated agency to promote foreign investment, and changes to New Zealand’s science framework.
The new foreign investment agency, called Invest New Zealand, will act as a one-stop shop for foreign investors, following models used successfully in Ireland and Singapore. New Zealand ranks as the OECD’s most restrictive country for foreign direct investment. Creating a dedicated investment promotion agency makes sense. The current system requires foreign investors to navigate numerous agencies, each with effective veto power. A typical project might need approvals from the Overseas Investment Office, local councils, various environmental authorities, and Maori groups. The process can take years—if it succeeds at all.
International firms looking at New Zealand see a market that combines high regulatory costs with a small domestic economy. When similar barriers exist in larger markets like Indonesia or Brazil, firms tolerate them for market access. In New Zealand’s case, they often simply invest elsewhere. The result is unsurprising: New Zealand has the lowest stock of foreign direct investment relative to GDP in the OECD. Even within permitted sectors, investment flows remain anaemic. Luxon’s one-stop shop might help, especially if accompanied by fundamental regulatory reform.
Luxon’s second big initiative is an overhaul of New Zealand’s science system. The country’s Crown Research Institutes will be reorganised into four public research organisations focused on commercialisation. Perhaps even more significantly, universities will be required to give researchers a greater share of intellectual property proceeds. Both these measures address long-standing barriers to innovation. Whether another reorganisation will deliver results remains to be seen, but it is clear that the current system practically ensures commercial failure.
University technology transfer offices, chronically understaffed and risk-averse, typically demand majority ownership of any intellectual property. Researchers also face byzantine approval processes and minimal rewards for commercialisation. Little wonder that New Zealand’s universities generate only a fraction of the spin-off companies created in other countries. Denmark, for example, successfully reformed their research institutions and effectively changed their whole culture. Performance metrics shifted from academic publications to practical outcomes. Technology transfer offices became enablers rather than gatekeepers. Research funding followed results. Luxon wants to see the same in New Zealand.
What stands out most is Luxon’s shift in tone regarding regulation—any regulation. Through examples like Auckland’s Eden Park stadium—where council restrictions prevent concerts that would boost the local economy—he signalled a fundamental change in approach. His message: New Zealand must move from reflexively saying “no” to finding ways to say “yes”.
This would represent a profound challenge to New Zealand’s regulatory culture. For decades, various agencies have enjoyed effective vetoes over economic activity. Planning rules make housing unaffordable and delay vital infrastructure such as port expansions. Health and safety requirements impose costs far exceeding their benefits. Genetic modification restrictions lock out productive technologies.
Luxon now signals he is ready to confront these barriers. His government will replace the Resource Management Act, New Zealand’s complicated planning law. Health and safety rules will be streamlined. Restrictions on genetic modification will be relaxed. These reforms cost little yet could deliver substantial economic benefits.
Yet this deregulation agenda rests on shaky foundations. The government is spending more than it earns, facing a structural deficit of 2.7 per cent of GDP. Core expenses—essentials such as health, education, and social services—stand at 31.5 per cent of GDP, four percentage points higher than before the pandemic. The fiscal future is grim according to Treasury’s projections. Even the government’s optimistic forecasts show only minimal reduction by 2028. Meanwhile, debt servicing costs rise inexorably as previous deficits compound. Treasury’s forecasts assume everything goes right: no recessions, no natural disasters, no banking crises. They also assume future governments maintain spending discipline that few have managed historically. Yet even under these rosy assumptions, net debt continues rising relative to GDP until 2027.
Luxon must get his fiscal house in order to support his pro-growth reforms. To understand why, we only need to look at those successful countries that Luxon cites as role models. Take Ireland. Its transformation from European laggard to Celtic Tiger involved more than just its Industrial Development Authority, which New Zealand now wants to copy. The Irish maintained corporate tax rates at 12.5 per cent while running budget surpluses. They streamlined planning processes, reformed education and crucially sustained these policies despite changes of government. When multinational firms looked at Ireland, they saw not just tax advantages but a comprehensive commitment to business-friendly policies. Indeed, it worked so well the Europeans still complain about it.
Or take Singapore, another of Luxon’s examples. Its Economic Development Board succeeded because it operated within a framework of fiscal discipline and regulatory efficiency. When Singapore attracts investment, companies know they will face consistent rules and stable policy settings. The state maintains significant commercial interests but runs them with ruthless commercial discipline—unlike New Zealand’s multiple objectives for state-owned enterprises. Singapore’s regulatory system focuses on enabling rather than blocking activity, backed by a civil service that prizes effectiveness over process. Imagine that.
Then there is Denmark. Perhaps the key part of the Danish research reforms was that they were not managed top-down. The Danes resisted the temptation to micro-manage and instead granted universities genuine autonomy in exchange for clear performance expectations.
In New Zealand, the political pressure for results is mounting. A recent poll showed Luxon’s Nationals falling behind Labour for the first time since early 2023. Economic concerns dominate voter priorities, with the cost of living and stagnant growth far outweighing other issues. Luxon also faces a challenging balancing act between his coalition partners: ACT demand faster fiscal consolidation, New Zealand First are pushing for more intervention.
These political realities could make reform harder. And reforms in New Zealand are hard—or at least they have not happened for a long time. The last comprehensive reform program occurred in the 1980s and early 1990s, when crisis forced radical change. Subsequent governments attempted piecemeal reforms but often gave up (or did not even try) when they faced entrenched interests.
Not all of Luxon’s initiatives make sense, however. His plan to “power up” the state-owned Kiwibank seems unlikely to generate meaningful banking competition. His “Roads of National Significance” program often prioritises political considerations over rigorous cost-benefit analysis. Some interventionist instincts in the Nationals have deep roots.
Luxon’s pro-growth agenda deserves support. Once his reforms are delivered and results materialise, Luxon can then return to his marketing strengths. By then he might have something to justifiably boast about: a New Zealand that truly works.
