The Rate Cut Reality Check: Too Little, Too Late
Next Wednesday's anticipated 25 basis point cut to 3%[i] represents more than monetary policy adjustment—it's an admission of New Zealand's economic fragility, yet likely inadequate given our challenges. While markets celebrate cheaper money, this modest response highlights policy inertia.
The Reserve Bank's hand has been forced by unemployment climbing to 5.2%—the highest since 2016—and wage growth softening to its slowest pace in years. Private sector wages have decelerated to just 2.2% annually, whilst underutilisation has surged to 12.8%[ii]. Yet the expected quarter-point response appears tepid when economic data screams for decisive action.
As former Finance Minister Ruth Richardson commented, Treasury's warnings about New Zealand's fiscal sustainability aren't mere technical observations—they're alarm bells signalling "greater pressure on the fiscal position than we have in the last 20 years"[iii].
Higher starting debt, unfavourable interest rates, adverse growth trends, and long-term pressures from aging and climate change are converging into a perfect storm. Despite claims of $44 billion in savings, government has reallocated spending rather than shrinking it [iii].
It's hard for hope not to fade when our government appears to lack the mettle to take the bull by the horns. The "price of butter" facade may have fooled some, but not many. Butter is a product that hasn't changed in eons—full cream milk, add salt and churn. No smoke and mirrors or PR spin, just butter. Yet politicians obsess over its retail pricing whilst avoiding hard decisions on fiscal consolidation that might actually address underlying inflation pressures.
The Great Capital Migration
Capital flows as freely as people in an interconnected world. Just as 230,000 Kiwis have voted with their feet over two years seeking better opportunities offshore[iv], smart money increasingly looks beyond our borders for superior returns.
The recent emigration shows a damning verdict on New Zealand's economic trajectory. These are productive citizens, who see limited prospects in a country determined to tax productivity whilst subsidising speculation. Human capital flight and financial capital mobility share parallels—both respond to incentives and seek the best risk-adjusted returns.
Housing Market Dysfunction Remains
Our housing market remains in purgatory, with prices stubbornly elevated while transaction volumes are sluggish. Latest data shows ‘days to sell’ extending and prices slipping nationally for six of the past seven months[v]. Wednesday's modest rate cut is unlikely to break this deadlock.
Young Kiwis are emigrating, recognising their homeownership prospects have been systematically destroyed by policies prioritising incumbent wealth over economic dynamism. The social contract promising hard work would lead to homeownership has been broken: 72% of Kiwis without a home believe buying a property is beyond their reach[vi]. Yet, many Kiwis remain dangerously over-exposed to residential real estate.
Rethinking Investment
The traditional Kiwi approach of leveraging into property and hoping for the best is dangerous where house prices may stagnate whilst debt service costs remain higher.
Global equity markets continue to climb, with the S&P 500 delivering 5-year annualised returns of 15.71%. Meanwhile, New Zealand's NZX50 has delivered a dismal 1.8% annualised return over the same period [vii].
The performance gap is devastating. A $100,000 investment in the S&P 500 over five years would have grown to $208,000, versus approximately $109,000 in the NZX50. This $99,000 difference[vii] is a documented reality for investors who remained domestically focused while global opportunities compounded wealth at dramatically higher rates.
Complexity extends beyond simple asset allocation. Tax implications vary dramatically between domestic and international investments. Currency hedging decisions can make or break returns. Liquidity needs must account for potential emigration scenarios—a consideration rational investors now embrace.
A skilled financial adviser becomes essential for protecting and growing wealth whilst navigating emotional challenges of investing against your home country's prospects.
Economic Crossroads Ahead
New Zealand stands at an economic crossroads between fiscal irresponsibility leading to Japanese-style stagnation, or making hard decisions to restore economic dynamism. Next Wednesday's timid rate cut suggests we're choosing the former.
For investors, the message is clear: adapt or suffer consequences. Capital, like talent, flows to where it's best treated. The 230,000 Kiwis who've recognised this reality are canaries in the coal mine. Smart investors should ensure their wealth enjoys the same mobility their fellow citizens have embraced.
The coming rate cut won't be cause for celebration—it will be a symptom of deeper malaise and policy impotence facing structural decline.
[i] https://www.interest.co.nz/economy/134636/kiwibank-economists-say-all-key-data-released-ahead-reserve-banks-official-cash-rate
[ii] Statistics New Zealand - Labour Force Report, June 2025 quarter https://www.stats.govt.nz/information-releases/labour-market-statistics-june-2025-quarter/
[iii] Newstalk ZB Radio Interview - Ruth Richardson (Former Finance Minister, Chair of Taxpayers Union) interviewed by Heather du Plessis-Allan, 8th August 2025 https://www.newstalkzb.co.nz/on-air/heather-du-plessis-allan-drive/audio/ruth-richardson-former-finance-minister-says-nicola-willis-needs-to-face-up-to-the-latest-treasury-report/
[iv] Statistics New Zealand - International Travel and Migration Statistics, Monthly releases 2023-2025: Net permanent and long-term migration data showing departures of New Zealand citizens seeking opportunities offshore.
[v] Craig's Investment Partners - "Onboard" podcast, Episode 291, August 10th, 2025: Mark Lister, Investment Director, discussing OCR expectations, labour market data, global equity performance, dairy prices, currency movements, and central bank policy decisions.
[vi] MPA Mag – “Most Kiwis Say Homeownership is Out of Reach” https://www.mpamag.com/nz/news/general/most-kiwis-say-homeownership-is-out-of-reach-report/545632
Good Returns – “Gloomy Home Ownership Results” https://www.goodreturns.co.nz/article/976524736/gloomy-home-ownership-results.html
[vii] S&P Dow Jones Indices - S&P/NZX 50 Index factsheet, July 31, 2025: 5-year annualized total return data. State Street S&P 500 Index fund performance data showing 5-year annualised returns for comparative analysis. Calculation: $100,000 invested at 15.71% annually over 5 years = $208,000 (S&P 500) vs $100,000 invested at 1.8% annually over 5 years = $109,000 (NZX50). Performance gap: $99,000.
Nick Stewart
(Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha)
Financial Adviser and CEO at Stewart Group
Stewart Group is a Hawke's Bay and Wellington based CEFEX & BCorp certified financial planning and advisory firm providing personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions.
The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
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