Poverty as Policy

The Economic Theory Behind New Zealand's Engineered Decline

“We’re focused on growing the economy to help Kiwis get ahead... wages growing faster than inflation... higher wages for hard-working Kiwis.” - Christopher Luxon, multiple speeches 2024 -2025

“The Treasury expects the unemployment rate to peak at the end of 2024 and start of 2025.” - Nicola Willis, Budget 2024 speech, May 30, 2024

So let me get this straight.

When Labour left office in November 2023, unemployment sat at 3.6%. Under National’s watch, it’s climbed to 5.2% - a 44% increase, and exactly as their own Budget documents predicted. The economy has shrunk by approximately 1.5% since January 2024, GDP per capita is down 3.9% since June 2023, and 27,850 jobs have disappeared.

You already know this smells wrong. You’ve watched unemployment jump. You’ve seen the economy shrink while they claimed to be growing it. You’ve watched 500,000+ people queuing at food banks every month. You’ve felt it in your own wallet as wages fail to keep up with the actual cost of living.

But what if I told you this isn’t incompetence? What if the poverty isn’t a bug in their economic plan - it’s a feature?

Welcome to NAIRU: Non-Accelerating Inflation Rate of Unemployment. It’s the economic theory that says you need a certain level of unemployment and visible poverty to keep wages down and inflation under control.

Poverty is the policy. And they told us it was coming.

What Is NAIRU? (And Why Should You Care?)

NAIRU stands for “Non-Accelerating Inflation Rate of Unemployment.” I know, it sounds like something dreamed up by economists to make simple things complicated. But stick with me, because understanding this explains everything you’ve been watching unfold.

Here’s how it works: Economic theory says there’s a “sweet spot” of unemployment that keeps inflation stable. If unemployment gets too low, workers get confident and demand pay rises that match or exceed inflation. Businesses raise prices to cover those wage increases. Inflation accelerates.

To prevent inflation from spiralling, you need to maintain enough unemployment to keep workers scared. Scared workers don’t demand higher wages. They take what they’re offered. They don’t rock the boat. They’re grateful to have a job.

Visible poverty serves two purposes: it keeps workers from demanding more, and it keeps the public believing the economy is genuinely in crisis - a crisis this government inherited and is bravely fixing with “tough decisions.” As long as people are struggling, the government can keep pointing to Labour’s spending, keep cutting public services, keep suppressing wages, all while claiming they’re being responsible economic managers.

Listen to how the politicians have, and continue to talk about this:

• Tough choices - as if deliberately engineering unemployment is somehow brave rather than cruel

• Getting spending under control - while cutting wages for teachers and nurses, hospital infrastructure, but never touching consultants’ fees or Roads of National Significance

• Labour market flexibility - which means flexibility for employers to fire you, not flexibility for workers to demand fair treatment

• Getting people off benefits and into work - by cutting jobs, tightening sanctions, and ensuring anyone with a job is too terrified to leave it

All of this is a cover for deliberate unemployment creation and wage suppression.

This is the rhetoric that allows them to claim fiscal responsibility while implementing NAIRU.

Premeditated: Removing Institutional Protections

Before implementing NAIRU, the Coalition first had to remove the institutional constraint that might have stopped them.

Labour’s 2018 reforms had required the Reserve Bank to maintain a dual mandate: control inflation while also supporting maximum sustainable employment. This meant the Reserve Bank couldn’t simply crash the labour market to control prices - it had to balance both objectives.

The Coalition’s first act upon taking office was to strip away that protection.

On December 12-13, 2023, Parliament rushed through the Reserve Bank of New Zealand (Economic Objective) Amendment Act under urgency. The bill was their first piece of legislation. It removed the requirement for the Reserve Bank to consider employment when making monetary policy decisions, leaving it free to focus solely on inflation, no matter how many jobs it cost.

Grant Robertson, Labour’s finance spokesperson, called it out immediately: “What you do when you’ve got no ideas whatsoever is you fall back to some kind of Milton Friedman style dream that actually we’re living back in the 1980s.”

Te Pāti Māori co-leader Rawiri Waititi demanded: “Where is the modelling? Where is the evidence that this repeal will have the material effect on inflation?”

1990’s here we come!

Who Benefits?

Someone is winning from all of this. It’s not you. It’s not me. And here’s the thing: it’s not your local café owner, plumber, or small retailer either.

Look at the numbers: 49,200 businesses closed in just two months. Small and medium businesses are collapsing at record rates. Why? Because NAIRU creates the exact conditions that destroy businesses dependent on domestic consumers:

• Suppressed wages = customers with no money to spend

• Rising unemployment = fewer customers walking through the door

• Economic contraction = collapsing demand

• High interest rates = crushing debt servicing costs

Who really benefits?

Large corporations that can:

• Weather the downturn with cash reserves

• Buy up collapsed competitors and their assets at fire-sale prices

• Consolidate market share as small players disappear

• Benefit from lower wage costs without depending on local consumer spending

Export-focused businesses that:

• Don’t rely on domestic demand

• Benefit from suppressed wages (lower production costs)

• Sell to international markets unaffected by NZ’s domestic collapse

Specific favoured sectors:

• Roads of National Significance contractors

• Mining and extraction companies

• Large property developers buying distressed assets

• Infrastructure PPP partners

Asset holders and investors who:

• Acquire businesses and property at rock-bottom prices

• Consolidate ownership while everyone else is desperate

• Benefit from the creative destruction of their competition

This isn’t capital vs labour - it’s large capital vs everyone else. The small business collapse isn’t collateral damage. It’s part of the mechanism. Every café that closes, every tradie who goes under, every small retailer that liquidates - they join the pool of desperate workers competing for jobs that no longer exist.

This is neoliberal consolidation: the economy contracts, small players collapse, large capital swoops in and buys everything at a discount. The coalition isn’t governing for the economy or even businesses broadly - they’re governing for a specific class of large capital holders and extraction industries.

When business leaders finally noticed something was wrong and 20 economists publicly urged the government to change course? Too little, too late. The mechanism is already running. And for the large players who benefit from consolidation? Everything is working exactly as planned.

The question isn’t whether they’re using this theory. The question is: how many mechanisms have they deployed to make it work?

Turns out, at least four.

The Four Mechanisms of Wage Suppression

Mechanism One: Unemployment & Underemployment

The official unemployment rate tells only part of the story. Unemployment jumped from 3.6% to 5.2% in 18 months - but that 5.2% figure is just the tip of the iceberg.

Labour underutilisation data reveals the real picture: approximately 400,000 New Zealanders are either officially unemployed, underemployed (wanting more hours), or have stopped looking for work entirely. That’s roughly one in ten working-age adults competing desperately for jobs and hours.

The job cuts have been systematic:

• 15,000+ public sector jobs eliminated

• 27,850 total jobs lost in one year

• 49,200 businesses closed in just two months

Mechanism Two: Benefit Cuts & Restrictions

Remember Luxon’s promise?

“To young people who don’t want to work, you might have a free ride under Labour, but under National, it ends.”

He promised to reduce jobseeker beneficiaries by 50,000.

The reality:

• December 2023: 189,798 people on Jobseeker

• Current: 213,321 people

• That’s an increase of 23,523 people (+12.4%)

Imagine how many people would be on a jobseeker benefit if the government hadn’t brought in the sanctions they have! Since August 2024, the government has rolled out an escalating traffic light system of sanctions. Between July-December 2024, benefit sanctions increased by 126%¹.

So, they’re cutting jobs while simultaneously making it harder for people who’ve lost those jobs to survive. Willis’s Budget 2024 speech made it clear: agencies must show “restraint in public sector wage increases” and “adjust themselves to New Zealand’s limited fiscal means.”

Mechanism Three: The Immigration Double Squeeze

While cutting 15,000 public sector jobs and watching businesses liquidate, the government has been expanding the Accredited Employer Work Visa (AEWV) system. They call it addressing skills shortages.

Here’s what it does:

The employer benefit:

• Not paying KiwiSaver saves $4,334 per worker over 3 years, or up to $9,630 over 5 years

• Workers often pay their own $1,540 visa fee

• Visa holders tied to employers for 3-5 years²

This creates a perfect two-tier labour market:

• Local workers can’t demand higher wages because employers can threaten to hire migrants who cost less

• Migrant workers can’t demand better treatment because they face deportation if they lose their jobs

• Employers pocket thousands in savings per worker while keeping wages suppressed across the board

The visible unemployment keeps local workers scared. The visa system keeps wages low even where there are jobs.

Mechanism Four: Stripping Workers’ Rights

But what if workers try to organise? What if they collectively demand better wages? What if they use legal protections to push back?

Enter Workplace Relations Minister Brooke van Velden, who has spent two years systematically dismantling every tool workers have to fight wage suppression. She’s axed Fair Pay Agreements, gutted personal grievance rights, killed 33 pay equity claims, extended 90-day trials to all businesses, and removed worker representatives from WorkSafe³.

She did most of this either under urgency (pay equity) or with minimal consultation, while refusing to even meet with unions.

The chilling part? The pay equity changes alone saved $12.8 billion, that’s $12.8 billion in wages that won’t go to predominantly female workers like teachers (where we have skills shortages!), nurses, and care workers. That money stays with employers and the government instead.

And here’s where you can see it playing out in real time:

Right now, teachers and nurses are being offered pay increases far below the rate of inflation. When inflation is running higher than your pay increase, you’re going backwards. You’re getting poorer while still working full-time in essential services.

This is NAIRU in action: strip away every tool workers might use to demand more. Because frightened, stretched-thin workers without legal protections don’t have the energy, security, or power to demand what they’re worth.

What This Means

This isn’t incompetence. It’s not chaos. It’s not even hidden - Willis literally told us unemployment would rise, right there in the Budget documents.

This is policy working exactly as designed. For capital, not for people.

Luxon promising high wages while forecasting high unemployment seems like a contradiction - but when you understand NAIRU, you realise the unemployment is the real policy, and the ‘high wage economy’ rhetoric is just a cover. The strategy is wage suppression through unemployment, dressed up as economic responsibility.

The question now is: what are we going to do about it?

Because they’ve shown us the plan. They’ve told us what they’re doing. They’ve documented it in their own Budget speeches and policy documents. They’re not even hiding it anymore.

Poverty is the policy. The question is whether we’re going to accept it.

Here’s the kicker

Alternative ways to control inflation (without increasing unemployment):

• Supply-side solutions: Increase production capacity and reduce supply chain bottlenecks

• Targeted fiscal restraint: Reduce government spending without cutting jobs

• Address specific price drivers: If housing or energy costs are driving inflation, target those sectors directly

• Progressive taxation: Reduce demand at the top income brackets without suppressing wages

• Competition policy: Break up monopolies and address price gouging

• Investment in productivity: Improve efficiency through technology and infrastructure

• Trade policy: Reduce barriers to imports to lower costs of goods

The Coalition chose unemployment and poverty as their primary tool - not because it was the only option, but because it serves their preferred economic model.

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Key Facts

Food insecurity: 500,000+ New Zealanders rely on food banks monthly (up from 454,000)

Child poverty: 157,048 children in material hardship (+9,000 since 2018)

Financial distress: 474,000 people behind on payments (12.64% of credit-active population)

Household debt: 176% of disposable income (was 32% in 1992)

Economic reality:

• Economy shrank 1.5% from January 2024 to June 2025

• GDP per capita down 3.9% since June 2023

• Two consecutive years of falling real incomes

• Real wages up only $1,100 since election while inflation ate far more

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Sources and Further Reading

Government Documents and Speeches

Budget 2024:

• Nicola Willis Budget Speech (May 30, 2024): https://www.beehive.govt.nz/speech/budget-2024-speech

• Budget 2024 Economic and Fiscal Update: https://www.treasury.govt.nz/publications/efu/budget-economic-and-fiscal-update-2024

Budget 2025:

• Budget 2025 documents: https://www.treasury.govt.nz/publications/efu/budget-economic-and-fiscal-update-2025

Economic Data

Stats NZ:

• Gross Domestic Product data: https://www.stats.govt.nz/indicators/gross-domestic-product-gdp/

• Labour Market Statistics: https://www.stats.govt.nz/topics/labour-market

Reserve Bank of New Zealand:

• Gross Domestic Product series: https://www.rbnz.govt.nz/statistics/series/economic-indicators/gross-domestic-product

Trading Economics:

• New Zealand GDP Growth Rate: https://tradingeconomics.com/new-zealand/gdp-growth

• New Zealand Unemployment Rate: https://tradingeconomics.com/new-zealand/unemployment-rate

Employment and Benefits

Ministry of Social Development:

• Benefit statistics: https://www.msd.govt.nz/about-msd-and-our-work/publications-resources/statistics/benefit/

Social Security Amendment Bill:

• Legislation details: https://www.legislation.govt.nz/bill/government/2024/103/latest/LMS923471.html

• NZ Doctor coverage: https://www.nzdoctor.co.nz/article/undoctored/social-security-amendment-bill-passes-law

Workers’ Rights Changes

Fair Pay Agreements:

• Coalition government announcement: https://www.interest.co.nz/business/125638/coalition-government-will-expand-90-day-trials-and-get-rid-fair-pay-agreements

Pay Equity Changes:

• RNZ: What officials said about pay equity changes: https://www.rnz.co.nz/news/political/568749/what-officials-said-about-pay-equity-changes

• Equal Pay Amendment Act 2025: https://www.legislation.govt.nz/act/public/2025/0012/latest/LMS923471.html

Employment Relations Changes:

• RNZ: Employment Relations Act amendments: https://www.rnz.co.nz/news/business/564361/employment-relations-act-amendments-aimed-to-boost-labour-market-flexibility

• 1News: New rules for the workforce: https://www.1news.co.nz/2024/12/13/new-rules-for-the-workforce-what-they-might-mean-for-you/

WorkSafe Changes:

• RNZ: WorkSafe board no longer has worker representative: https://www.rnz.co.nz/news/political/577114/worksafe-board-no-longer-has-any-worker-representative-ctu

• The Standard: Van Velden pressures ERA: https://thestandard.org.nz/van-velden-pressures-era-to-reduce-worker-compensation-payments/

Union Engagement:

• Newsroom: Van Velden turns down union meetings: https://newsroom.co.nz/2025/02/04/van-velden-turns-down-union-meetings-in-unprecedented-lack-of-engagement

Benefit Sanctions

1News Coverage:

• Government increases benefit sanctions (August 2024): https://www.1news.co.nz/2024/08/12/government-increases-benefit-sanctions/

• New sanctions take effect (October 2025): https://www.1news.co.nz/2025/10/20/new-sanctions-take-effect-under-benefit-traffic-light-system/

• More beneficiaries to face sanctions (February 2024): https://www.1news.co.nz/2024/02/11/more-beneficiaries-to-face-sanctions-under-new-govt-minister/

RNZ Coverage:

• JobSeekers already being warned of benefit cuts: https://www.rnz.co.nz/news/national/525086/jobseekers-already-being-warned-of-benefit-cuts

• More sanctions announced: https://www.rnz.co.nz/news/top/540724/more-sanctions-for-those-on-benefits-announced-by-government

• Watch: Government further increases sanctions: https://www.rnz.co.nz/news/political/524919/watch-government-further-increases-sanctions-for-beneficiaries

Immigration and AEWV

Immigration New Zealand:

• Accredited Employer Work Visa information: https://www.immigration.govt.nz/new-zealand-visas/visas/visa/accredited-employer-work-visa

Economic Analysis

International Coverage:

• CNBC: New Zealand sinks into recession (December 2024): https://www.cnbc.com/2024/12/19/new-zealand-sinks-into-recession-more-rate-cuts-coming.html

• International Banker: Second recession in less than 18 months: https://internationalbanker.com/finance/second-recession-in-less-than-18-months-subdues-new-zealands-economic-outlook/

• CTOL: New Zealand faces worst recession in decades: https://www.ctol.digital/news/new-zealand-worst-recession-gdp-falls-2-percent-six-months/

RNZ:

• NZ’s economy took ‘developed world’s biggest hit’: https://www.rnz.co.nz/news/business/539891/nz-s-economy-took-developed-world-s-biggest-hit

• GDP falls 0.2%: ‘Effectively a recession’: https://www.nzherald.co.nz/business/economy/nz-economy-narrowly-escapes-recession-gdp-falls-02/6JECNIBZJZHCHEXQMPOEVURELM/

Westpac Analysis:

• First Impressions: NZ GDP September quarter 2024: https://www.westpaciq.com.au/economics/2024/12/nz-first-impressions-gdp-q3-2024

• First Impressions: NZ GDP March quarter 2025: https://www.westpaciq.com.au/economics/2025/06/first-impressions-nz-gdp-mar-quarter-2025

Food Security and Poverty

Food bank statistics sourced from: NZ Food Network and RNZ reporting

Child poverty data sourced from: Stats NZ Child Poverty Statistics

Community Contributors

Special thanks to Redditors u/KahuTheKiwi and u/official_new_zealand from r/NZPolitics for their insights on NAIRU economic theory and AEWV visa cost structures that helped inform this analysis.

Benefit Sanctions Timeline

1. Traffic Light System (launched August 2024):

• Green: Meeting obligations - no change to benefit

• Orange: First or second breach - additional requirements (more check-ins, job workshops)

• Red: Third breach - financial penalties, benefit suspension, or non-financial sanctions

Non-Financial Sanctions Rollout:

August 2024:

• Money Management: Half of benefit on MSD payment card limited to “essentials” (groceries, transport, healthcare, education) for 4 weeks

October 2024:

• Upskilling Sanction: Must attend employment training minimum 5 hours/week for 4 weeks

• Report Job Search: Must complete and report 3 job-search activities weekly for 4 weeks

May 2025:

• Community Work Experience: Must participate in voluntary/community work 5+ hours/week for 4 weeks

• Mandatory Jobseeker Profile: Must complete online profile before benefit granted

• Extended Failure Tracking: Obligation failures now count for 2 years (previously 1 year)

July 2025:

• Six-Monthly Reapplication: Jobseekers must reapply every 26 weeks (previously 52 weeks)

Financial Sanctions:

• Benefit reductions up to 50%

• Benefit cancellation after 13 weeks of continuous sanction

• 18-19 year olds with parents earning over $65,000 lose eligibility entirely (approximately 4,300 affected)

Results:

• July-December 2024: 15,600 additional sanctions issued (126% increase vs same period 2023)

• 97% of sanctions applied to Jobseeker Support recipients

• Main reasons: Not attending appointments or “failing to prepare for work”

AEWV Cost Breakdown

2. Visa Costs:

• AEWV application fee: $1,540 (often passed to worker)

• Employer accreditation: $775 (one-time)

• Visa length: 3-5 years

Annual Minimum Wage:

• Full-time (2,080 hours): $48,152

Employer Savings (KiwiSaver not paid to visa holders):

• 3% KiwiSaver over 3 years: $4,333.68 saved per worker

• 3% KiwiSaver over 5 years: $7,222.80 saved per worker

• 4% KiwiSaver over 5 years: $9,630.40 saved per worker (when increase takes effect)

Additional Employer Benefits:

• No notice period risk - workers tied to employer for visa duration

• Reduced bargaining power - workers face deportation if fired

• If visa cost passed to worker: Additional $1,540 per worker

Total Potential Employer Benefit:

• Up to $11,170 per worker over 5 years (KiwiSaver savings + visa cost passed on)

Market Impact:

• Creates downward pressure on wages for local workers (threat of replacement)

• Suppresses wage demands from migrant workers (deportation risk)

• Increases profit margins while maintaining appearance of addressing “skills shortages”

Van Velden’s Workers’ Rights Changes (Chronological)

3. December 2023:

• Axed Fair Pay Agreements legislation - removed sector-wide collective bargaining rights

• Extended 90-day trial periods to all businesses (previously limited to businesses under 20 employees)

May 2025:

• Passed Equal Pay Amendment Act under urgency

• Discontinued 33 active pay equity claims affecting hundreds of thousands of workers

• Made all review clauses under settled pay equity claims unenforceable

• Raised threshold for proving historical undervaluation in female-dominated workforces

• Savings to government: $12.8 billion over forecast period

June 2025:

• Introduced Employment Relations Amendment Bill removing protections for workers earning over $180,000 - no unjustified dismissal claims allowed

• Changed personal grievance remedies:

  • Removed eligibility for reinstatement and compensation where employee behaviour “contributed”

  • Allowed remedy reductions of up to 100% based on employee behaviour

  • Increased threshold for procedural errors by employers

December 2024:

• Introduced Employment Relations (Pay Deductions for Partial Strikes) Amendment Bill - allowing employers to deduct pay for partial strikes or refusal of extra duties

August 2025:

• Appointed new ERA members and publicly stated expectation they would reduce compensation awards to workers

• Removed all worker representatives from WorkSafe board - replaced with employer representatives

Ongoing:

• Overhauling Holidays Act to shift from entitlement to accrual system

• Making annual leave and sick leave pro-rated (hours-based) for part-time workers

• Changed WorkSafe focus from “strict enforcement” to “collaboration with businesses”

• Refused substantive meetings with unions - only one dedicated meeting with Council of Trade Unions since taking office