Economic development - a casualty of Luxon's cabinet reshuffle?
Is Nicola Willis' new Economic Growth portfolio a new direction or just a rehash of the unimaginative neoliberal past?
On Sunday Prime Minister Christopher Luxon announced his cabinet reshuffle.
On the surface, Luxon’s decision to hand the economic development portfolio to Nicola Willis and rename it economic growth looks like a minor change.
Political journalists, such as Claire Trevatt (2025), interpreted this as a promotion for Willis as she will now have greater sway and oversight over the economy, overseeing both economic mega-ministries, the Ministry of Business, Innovation and Employment (MBIE) and the Treasury1.
But at the level of ideas, it could signify something different - a move back to empowered version of the Treasury which believes only it, and the ‘market’ should have anything to do with economic policy. As the Forth Labour Government (1984-90) instigated a major programme of radical neoliberal reforms, Treasury increased its power and influence over government, marking the ‘homework’ of other ministries, suggesting everything become “contestable” - apart from its own advice.
As a matter of philosophy, National was never that keen on the notion of economic development. Such a policy implied the state should have a role in the development of the economy. The economic ‘drys’ in the National caucus, influenced by the economist Milton Friedman and the slogan “all economic regulation is stupid”, reject the notion of ‘economic development’ out of hand.
A bit of history
In the leadup to the 1999 election, the Alliance published a policy paper called Partnership 2000 which subsequently helped guide a new approach to economic policy under the Labour/Alliance government. This paper called for the establishment of a Ministry of Economic Development (MED) to “take over the economic development policy functions of Treasury and implement a range of active economic development policies.”
Part of the motivation for the new ministry was to develop an alternative source of economic advice to Treasury. Many New Zealand Prime Ministers and Finance Ministers, including Gordon Coates and Norman Kirk, had created their own ‘kitchen cabinets’ of independent economic advisers for similar reasons. Taking office as the Minister of Economic Development in December 1999, Alliance Leader Jim Anderton also sought his own economic counsel, employing the economist John Lepper as a key member of his ministerial staff.
As Anderton noted in his speeches at the time, active economic development represented a clear break from the neoliberal policies which had dominated economic thinking since 1984.
“There are some unique contributions that only central government can make. When I announced the establishment of the Ministry of Economic Development and Industry New Zealand, I said the era of "hands-off" for central government is over. I make no apology for saying that a new era is beginning. It's an era of genuine partnership. What New Zealand has lacked is a supportive Government and an economic development dimension to New Zealand's economic policy planning. We intend to provide that dimension in partnership with local authorities and the private sector. We intend to utilise existing structures, as well as opening new mechanisms to harness the creative potential and innovation of New Zealanders” - Jim Anderton2
In July 2000, as the Economic Development (Industry New Zealand and Ministry of Economic Development) Bill made its way through the house, National Regional Development spokesperson, John Luxon, said it was 30 years out of date. ACT MP Owen Jennings damned the bill as “pathetic and stupid”3.
Despite this cynicism, the portfolio of economic development had some real successes over the next few years. A $2 million government grant helped to kickstart the Waikato Innovation Park. A wood processing strategy was developed alongside the industry and unions. A grants scheme for film and television helped spark the development of the local screen industry and assisted in the attraction of large international film projects. The numbers employed in the New Zealand screen industry rose from 9,100 to around 14,000 by 20184.
Interestingly, the suggestions from National and Act that government grants could lead to cronyism, where the government financially rewards its political friends, became a wider concern once National5 and NZ First gained the economic development and regional development portfolios themselves.
Economic Development under National
Taking office in 2008, at first the National government paid less attention to economic development, passing the portfolio to Gerry Brownlee. In 2012, the Ministry of Economic Development was subsumed into the Ministry of Business, Innovation and Employment (MBIE), alongside the Ministry of Labour, The Department of Building and Housing and the Ministry of Science and Innovation. As the Minister of Economic Development remained the lead minister for MBIE, this provided a wider powerbase for Steven Joyce.
‘Active government’ received less emphasis. Additionally, the decision of Joyce to fold the Ministry of Labour into MBIE could also be taken as supporting the view employment is the primarily the domain of business, in contrast to a tripartite model where workers, business and the government all have a role in developing employment relationships.
Joyce also expressed a wish to create ‘better linkages’ between labour market policy and microeconomic policy. The change in focus of the ministry from ‘Labour’ to ‘Business’ could help explain why the MBIE was reportedly a strong opponent of Labour’s moves to reintroduce industry level bargaining in the form of fair pay agreements.
Perhaps the best indicator of the current government’s lack of enthusiasm for the economic development portfolio is the appointment of the lowly ranked Melissa Lee as minister in November 2023. She was subsequently stripped of her Media and Communications portfolio in April 2024, and removed from the cabinet altogether in the current reshuffle, largely on the grounds of poor performance.
Luxon tries to talk up a sagging economy
Luxon may outline more about the government’s ‘economic growth’ focus in his State of the Nation speech on Thursday. Yet it remains to be seen whether ‘economic growth’ will just end up another Luxon buzzword, hovering over a reheated version of neoliberalism. The invisible hands will do wonders, as hands off makes a comeback.
Joyce may be in a position to exert some influence here, as he continues to obtain lucrative political appointments from the government. Last year, Joyce was paid $4000 a day to chair the Government’s “expert advisory panel” on infrastructure.
In September 2018, Joyce published an article called ‘Economic Regulation is Still the Issue’, highlighting the importance of microeconomics- the firm level of the economy - claiming that “Politicians as a species are often quite poor at handling microeconomic policy”6. Joyce warned that government intervention threatened business confidence and could influence the decisions of firms to invest, echoing themes often stressed by neoliberal economists.
When it comes to discussions about economic growth National and ACT are a bit of a two-trick pony. Deregulation or tax cuts are offered as a solution to any problem. Yet, with all the signs that the economic slump is likely to continue, with Gross Domestic Product (GDP) recording its largest fall7 since 1991 in the September 2024 quarter8. New Zealand requires a government that is both more imaginative and more active.
Wither Willis?
Willis insists the new ‘Economic Growth’ role is not just a name change and would be less constrained than the economic development role. ”I now have a mandate to lead a group of ministers across government with a singular focus: how do we grow the economy faster: I intend to set very clear expectations for when changes will be delivered, how we will prioritise, and make sure the resources of government are going where we can make the biggest difference”9 she said.
But why could she not do this already as Minister of Finance, typically the second most powerful role in a government, where power over the budget process provides significant leverage over other ministers?
If Willis thinks she currently lacks a mandate, perhaps she needs to look closer to home, starting with the question as to why she cancelled the iRex ferry deal, stumbled for nearly a year, only to hand the issue over to Winston Peters when she failed to find a replacement?
There is another possibility. The creation of a ‘Minister of Economic Growth’ could provide a face saving means of demoting Willis from the Finance portfolio if the economy continues to go south. If the iRex cancellation continues to rebound on the government, with the only option being a ‘Toyota’ ferry at a ‘Ferrari’ price, Luxon could decide to cast Willis adrift.
With Nicola Willis now holding the Finance and Economic Growth portfolios, how long will it be before it is suggested that it would be more ‘efficient’ to fold the economic development functions of MBIE back into Treasury?
Climate change presents a good example of why active economic policies are still needed. Last month, the Climate Commission (2024) warned that the world is not on track to limit warming to 1.5°C and that other countries are doing more than New Zealand to meet this target10. The Commission called on the Government to update the 2050 target, saying that action needs to start now11 in order that the necessary changes are imbedded. In dismissing active economic policies for ideological reasons, the government is also dismissing valuable levers it could use to speed the transition to a lower carbon economy.
While Jim Anderton could be described as a reluctant greenie, he was right when he said there are some things that only central government can do.
Trevatt, C. (2025, Jan 19), Claire Trevett: Christopher Luxon showed some ruthlessness in demoting Shane Reti in reshuffle but did he go far enough?, NZ Herald, https://www.nzherald.co.nz/nz/politics/claire-trevett-christopher-luxon-showed-some-ruthlessness-in-demoting-shane-reti-in-reshuffle-but-did-he-go-far-enough/DTGUBGH32ZBE3BOITL2IR32MVQ/
Anderton, J. (2000, Mar 17), Jim Anderton - towards an era of partnership, The Jobs Letter no. 120, http://www.jobsletter.org.nz/jbl12010.htm
NZPA (2000, Jul 28), Job bill too little too late, The Dominion, p 2.
Ministry of Business, Innovation and Employment (2024, Feb 28), Economic trends in the New Zealand Screen Sector - February 2024, https://www.mbie.govt.nz/business-and-employment/economic-development/screen-sector/economic-trends-in-the-screen-sector/economic-trends-in-the-new-zealand-screen-sector-february-2024
Edwards, B. (2024, Apr 1), Steven Joyce’s revolving door entry into a $4000/day govt appointment, Democracy Project.
Joyce, S. (2018, Sep 3), Economic Regulation is the Issue, Linkedin.com, https://www.linkedin.com/pulse/economic-regulation-issue-steven-joyce/
Edmunds, S. (2024, Dec 19), NZ back in recession - but economists expect greater Reserve Bank interest rate cuts, RNZ, https://www.rnz.co.nz/news/business/537162/nz-back-in-recession-but-economists-expect-greater-reserve-bank-interest-rate-cuts
Excluding the Covid-19 lockdown.
Dexter, G. (2025, Jan 25)), PM Christopher Luxon retains confidence in Shane Reti despite sacking him from the health portfolio.
Climate Change Commission (2024, Dec 5) , Commission delivers first review of the 2050 target and advice on the forth emissions budget, https://www.climatecommission.govt.nz/news/commission-delivers-first-review-of-the-2050-target-and-advice-on-the-fourth-emissions-budget/
Gibson, E. (2024, Dec 11), New emissions plan still not on track to meet 2031-35 climate targets, RNZ, https://www.rnz.co.nz/news/environment/536284/new-emissions-plan-still-not-on-track-to-meet-2031-2035-climate-targets
I am not sure that the government's economic policy can even be dignified by the title of "a rehash". Willis was on RNZ this morning proposing more foreign investment, more immigration and more tourism as the path to growth. In other words, more of what has caused many of New Zealand's present woes, with not a single new idea on offer. Sure, there may be some "growth" in the economy if tens of thousands of new immigrants and tourists arrive on our shores. Every person that comes over the border needs to be fed, housed, and moved around. You have a captive market, and even the most hapless economy will see an uptick in business with an increasing population. Yet this is a crass policy. It can only make a dumb economy dumber.
Interesting Joe. The current manoeuvres - let’s call it that - have a whiff of panic about them. Unfortunately, a shuffling of desk chairs and ministers and even ministries still fails to grapple with a nation in linear decline. Arresting falling living standards and funding a stable society is going to require some Leonardo Da Vinci level thinking, and frankly, with the mob currently in control, I’m not feeling like any of the ‘codes’ required to unlock prosperity are going to be deciphered anytime soon. More of the same…here we come.