Analysis by Keith Rankin.
Role: Economic historian.
Keith Rankin, 18 September 2026 – The KiwiSaver policies of both National and Labour are deeply problematic for a number of reasons. It is Labour which seems to be more intent on gaslighting and scapegoating employers; but my critique is also applicable to National, which is showing tendencies of becoming dirigiste according to some commentators (eg National supermarket shock: Why the ‘party of business’ has taken a hard left turn – Audrey Young, NZ Herald, 17 Sep 2026).
Labour’s policy is particularly tone deaf, in that it explicitly seeks to mine employers – to extract revenue from them, especially small and medium size businesses in hospitality and retail etc – without acknowledging that that’s what they are doing, and facilitating the flows of New Zealand wealth towards the darlings of the world’s equity markets; such as the Magnificent Seven. At least regular taxes get recycled back into the domestic economy, rather than leaving the country.
National is more of an equal opportunity miner than Labour; rhetorically seeking to extract more, in equal proportions from employers and employees. In reality, the burden of today’s financial mining is shared between all stakeholders in an ordinary business; regardless of the language used by the policy advocates. Extracting ever more value from businesses represents additional cost; not relief during cost crisis. The explicit contract – signed for us rather than by us when compulsion is present – is that the extracted revenue will be returned, with compound interest, to employees decades into the wildly uncertain future.
It’s worse than I have described above. It’s a policy to further drain an already substantially leaking domestic economy. New Zealanders desperately need their income, today, for their own needs.
We need to remind ourselves of some very basic economic principles.
Economy 101 Basics – The Circular Flow ‘valves’ which serve as ‘policy levers’
When I learned and later taught Economic Principles, the introductory concept of basic macroeconomics was the circular flow of income and spending. Basically the market economy works as flows of spending, production, and income. (GDP – gross domestic product – is computed by measuring these ‘flow’ measures; indeed we have statistics for GDP based, separately, on each of these measures.) Circular flow analysis, while not fashionable among today’s economists, remains a highly valid and intuitive way for lay people and economists to understand upturns and downturns.
The economy is in balance when the spending intentions (especially but not only of households) match up with production intentions (of business firms); production for sale, by definition, creates income. The circular flow is about income being spent, and spending in turn generating production and income; it’s a feedback process. It is widely accepted that optimal policy is for some growth rather than pure balance; principal policy targets are three percent realeconomic growth and two percent inflation, adding up to five percent nominal annual growth.
In the global economy, there are two forms of ‘leakage’ (unspent household income): saving and taxation. And two forms of ‘injection’ (production induced by financial borrowing or asset liquidation): investment spending by firms, and spending by governments. In individual countries’ economies – national economies – there is an additional injection (export sales) and an additional leakage (import purchases). These six forms of injection and leakage are all normal flows; issues arise when they change from normal stable patterns.
Some of these economic ‘valves’ may be understood in net terms. Thus consumer borrowing is a form of dis-saving; of negative saving. And welfare benefit payments are understood as dis-taxation; ie, as negative taxation.
Thus we note that net taxation is tax revenues minus cash benefits; an increase in benefit payments is equivalent – in circular flow terms – to a reduction in taxes. And we note that deficit spending by governments is an injection, identified in the 1930s by Keynes as the most powerful of injections into an anaemic economy; equivalent, in the more extreme cases, to giving a bleeding patient a blood transfusion or giving a diarrhetic person electrolyte-laden fluid. We may say that a failing economy is haemorrhaging; or some other comparable metaphor.
We may think of the ‘body economic’ as the physiological infrastructure through which nutrients flow. Leakages (of nutrients) weaken (ie shrink) the economy unless they are balanced by injections. To sustain a growing economy, injections should slightly exceed leakages.
These six forms of ‘injection’ and ‘leakage’, serving as the valves of the economy, represent the government’s levers to politically manage ‘the economy’; just as doctors manage patients through prescriptions of nutrition, exercise, medicines, or surgery. Some levers can be pulled or pushed directly by governments. Other policy levers work indirectly, relying on incentivised responses of households and business firms. (The Reserve Bank also has its own very blunt and poorly understood lever; interest rates, widely believed to represent the price of money.)
Policy Stimulus versus Policy Constriction
Policy ‘doves’ have a bias (ie leaning) towards stimulatory circular-flow political management, and policy ‘hawks’ have a bias towards constrictive circular-flow policy. Economic liberals claim to have a bias towards zero political management of these levers; which means they prefer that inflationary booms and recessionary busts work themselves out, no matter how long it takes. Hawkish policies also rely to a degree on a process of eventual self-correction. Hawks and liberals tend to accuse doves of short-termism.
The present New Zealand government is arguably the most hawkish that this country has ever had; and the economists who influence policymaking are also unusually hawkish at present. (Myself, I would be classed as a policy dove; though that does not mean I’m an advocate of unmitigated economic growth.) The only contenders for a more hawkish previous government would be the National Government of 1990 to 1993, and the Reform-United Coalition Government in 1931 and 1932.
Stimulus takes place in a country’s economy when there is an increase in injections or a decrease in leakages. Constriction – collective austerity – takes place when there is an overall decrease in injections or increase in leakages. New Zealand’s major economic problem today is that it is too constricted, too anaemic, meaning that many people – but not economic liberals – are arguing for some form of stimulus to revive it. The kinds of stimulus most favoured by policy hawks are ‘tax cuts’ and export incentives.
Let’s look at the six valves in turn; valves which serve as policy levers.
For the entire last quarter-century, the New Zealand economy has received a substantial external stimulus through the export valve. This has impacted on – and continues to impact on – New Zealand mainly in the form of rising market prices for the commodities which New Zealand sells to the rest of the world. This stimulus represents remarkably good fortune, and is not a result of any recent cleverness on the part of New Zealand businesses or New Zealand governments. This accumulated export stimulus is comparable to the stimulus Norway received from North Sea oil; New Zealand has indeed been a ‘lucky country’, arguably more so than Australia. (Australia may have managed its luck better.) Some countries’ governments offer export incentives as a stimulus; generally New Zealand doesn’t, although it promotes exports through free-trade agreements and the like.
An export-based economy does best when the export revenues take the ‘scenic route’ though the body economic (and geographic and demographic), rather than the direct route from exports to imports; just as the corporeal body works best when the nutrients take the scenic route through all the different anatomical bits, and not the direct route from the mouth to the large bowel.
The New Zealand economy has incurred a huge counter-stimulus from the import valve. Generally, the humongous import leakage has exceeded the generous export stimulus. Thus, ‘net exports’ has been a counter-stimulus for New Zealand; perhaps more so this year with higher petrol and diesel prices, though import volume growth is well down. The main drivers from 1985 to 2025 of the very high levels of imports have been both an overvalued New Zealand dollar –caused in large part by the speculative carry trade from 1985 to 2020 – and fortuitously rising export receipts.
We note that the direct restriction of imports is a valid way to stimulate a country’s economy; though not a fashionable way. Most capitalist countries recovered in the late 1930s – from the Great Depression – through import-restricting policies reviving domestic markets; this is not widely acknowledged by economists today. New Zealand, however, largely recovered from that depression before it moved in December 1938 to restrict imports; though the rationing of imports from 1938 did help to stimulate New Zealand’s post-war infrastructure growth.
New Zealand’s recovery in the mid-1930s came from other sources: essentially currency devaluation in 1933, and the early recovery of the British market facilitated by Britain’s 1931 devaluation and its evolving system of empire tariff protection. Also from an easy monetary policy in 1936, following the creation of the Reserve Bank in 1934, enabling large-scale government and private investment in housing.
The investment valve works mainly through business confidence, and represents capital rather than current spending. Increased capital spending (debt- or equity-funded) is undertaken to generate future benefits rather than present benefits. In the simple circular flow description, investment spending is undertaken by business firms. Government investment on infrastructure and housing is also an important stimulus, which is covered in basic textbooks mainly under the government spending valve (see below).
The investment valve was emphasised by John Maynard Keynes in his 1936 General Theory. Keynes coined the term ‘animal spirits‘, meaning that businesses could become spontaneously optimistic prior to an increase in spending on their products. One could say that at present, in the global economy, there’s high animal spirits in the AI industry. A few years ago, there were high animal spirits in the military-hardware industry; but now that ‘big-gun’ industry is driven by actual sales rather than by anticipation.
Business surveys in New Zealand suggest that business confidence remains low (albeit uneven) in New Zealand. The reporting of business confidence is problematic, because, when business confidence is very low, it may nevertheless be increasing. We tend to report whether it is increasing or decreasing, not whether it is high or low. On balance, business confidence in New Zealand today is acting as a constriction or counter-stimulus on the New Zealand economy. The business investment valve works through increased business borrowing (or spending of retained earnings, or sharemarket floats); generally, by businesses incurring more debt or other liabilities which they plan to service out of future sales.
Looking at the saving valve, high levels of saving are a leakage; by definition, more saving means less spending. Saving means ‘non-spending’. So, a choice by households to decrease present spending leads to a process of austerity or constriction – a diminished flow making the national waka (‘economic ship’) leak more, not less; a set of choices more appropriate for an obese economy than for a lean economy. More saving can only be beneficial in: (a) an overstimulated economy; or (b) in an economy where the extra saving is matched by more spending through one of the other valves, where extra leakage is matched by extra stimulus.
We may note that a policy making it easier for people to withdraw KiwiSaver money before savers are aged 65 is a form of stimulus; it’s dissaving when people respond to that incentive, and spend their savings early. A policy to raise the ‘retirement age’ to say 67 is a leakage policy (a counter-stimulus), in that it means that more savings – savings of 65 and 66 year-olds – are deducted from the circular flow. We note that many New Zealand households counter the austerity of KiwiSaver by borrowing more funds (eg from credit cards, or parents) to pay for consumer goods otherwise unavailable to them.
Compulsory non-spending creates bad financial habits, by requiring households to counter this restriction by incurring more debt. Borrowing money to counter the austerity of forced saving is the antithesis of true financial literacy and freedom. KiwiSaver is a device through which ‘Kiwis’ become two-time customers of the finance industry, both by putting money into KiwiSaver accounts, and by borrowing more money to pay outstanding bills resulting from contractually-deducted savings.
The first-tier of extraction is the higher level of profits to financial businesses made possible by governments granting them a captive market. The second-tier is represented by the eventual destination of those funds.
Repaying debt is a form of saving; sometimes contractual saving, sometimes discretionary saving. Increased debt repayment is additional leakage from the circular flow of the economy; a counter-stimulus. Paying interest – servicing debt – is a funds transfer from debtors to creditors; that process amounts to a leakage from the circular flow – from the body economic – if the interest payments diminish overall spending, meaning that the recipients of that interest save it rather than spend it.
Reduced saving – dissaving – is a stimulus, and it can take place in ways we don’t often appreciate; for example, through increased consumer debt, increased withdrawals from savings’ accounts, retirement of term deposits, or from the sale of assets such as shares, bonds, gold, or real estate. The so-called wealth-effect, which provided buoyancy to the New Zealand economy in the late 2000s and in the 2010s, arose from households incurring more debt, borrowing more. More consumer debt secured against rising real estate prices, was the form of dissaving which kept the New Zealand economy in stimulus.
Additional spending through the government valve is a stimulus; ‘unfunded’ government spending is directly injected into the circular flow, unmatched by funding tax increases. This most likely happens through government borrowing, which initially increases government debt; debt which is serviced and repaid by the revived circular flow.
(Japan, with around 250% of GDP as government debt, has government deficits every year, yet its government-debt-to-GDP ratio is falling. Italy is even more striking. From 2020 to 2023 its government debt ratio fell from 154% to 134%, yet in each of those years its fiscal deficit- its additional borrowing – was between 7% and 10% of GDP. Subsequent to getting close to fiscal surplus, after 2023, Italy’s government debt increased to 137%. A government policy of ‘getting to surplus’ commonly increases that government’s indebtedness.)
Commonly, government spending is split – in an important accounting sense – into government investment (capital spending such as physical infrastructure), and government consumption (such as spending on administration, education, healthcare, military capacity, and on prisons and courts). The divide can be artificial; for example, education is often cited as the acquisition of human capital; though we should note that the actual purpose of human life is not simply to be an increasingly productive labour input into the national economy.
Conventionally, the main purpose of debt is to fund capital spending. As most government spending is properly understood as capital spending, governments should not be shy about debt finance. The boost to the circular flow from such spending induces substantial amounts of taxation revenue. But spending on wars of aggression should be financed through direct taxation; that would make capricious wars less popular. Bombing other countries does not generate government revenue in the way that boosting education and healthcare does.
New Zealand’s present predominant political-economy narrative is that more government borrowing and more government spending is in some sense ‘bad’. That narrative – which, in isolation, promotes anti-growth constriction rather than pro-growth stimulus – doesn’t adequately spell out where offsetting stimulus should come from. (Though, implicitly, the favoured offsetting stimulus is usually a mix of ‘tax cuts’ and private borrowing.)
The final ‘valve’ – the final policy lever in the body economic – is that of net taxation. Increases in taxation are constrictive; decreases in taxation are stimulatory to the extent that they are spent rather than saved. Under present taxation structures in most countries, the principal beneficiaries of taxation reductions are those households in the top income deciles. The stimulus of such tax cuts is blunted by the fact that people already with lots of purchasing power often do not spend much of their increased disposable income.
There’s a more nuanced (but very significant) problem. When already-rich people receive pecuniary windfalls, they spend extra on luxury goods rather than on wage goods. Wage goods are the kinds of goods and services purchased by everyone and produced at scale. Industrial capitalism is predicated on mass-production; on the process of keeping unit costs low through economies of scale. When we increasingly rely on the very rich to maintain the circular flow of spending and income, they buy personal services, luxury travel and hospo (‘hospitality’), and bespoke jewellery and fashionwear. When the new rich buy disproportionately more bespoke stuff, which is not produced at scale, increased luxury spending undermines the industrial system which made the lovers of luxury rich in the first place.
A more practical and equitable version of stimulus by reducing net taxes would be to raise benefits. This would be an easy matter if there is a UBI (or other form of universal income) in place; just borrow, raise the level of universal income payable, and collect the resulting income and expenditure taxation revenue. Otherwise, this stimulus is a complex matter of navigating disjointed social income mechanisms, such as Superannuation, Job-seeker Benefits, Student Allowances, Working for Families and/or Accommodation Supplements.
Today New Zealand needs a second stimulus, in addition to reliance on rising export prices. If New Zealand households increases their KiwiSavings, a constriction to the body economic, then New Zealand needs an extra additional stimulus to counter what would otherwise be an increasingly leaking domestic economy.
A Fourth Pair of Valves
In relation to countries’ foreign transactions, there are two more ‘valves’ – opportunities for leakage or injection – in addition to exports and imports: foreign financial inflows and outflows. These are commonly called ‘foreign investment‘, but they are quite different from the investment valve described above.
When New Zealanders sell assets (especially financial assets such as shares or bonds) to foreigners, it’s an inflow to New Zealand’s circular flow; a stimulus, an injection, for New Zealand. The must ubiquitous example for New Zealand was this country’s participation in the carry trade from 1985 to 2020; it was the carry trade which caused New Zealand to have permanent annual deficits on net exports, despite highly favourable export prices.
When New Zealanders buy such assets from foreigners, it’s an outflow from New Zealand’s circular flow; a counter-stimulus, an anti-stimulus. An increase in purchases of foreign assets represents a domestic leakage. This is what both Labour’s and National’s KiwiSaver policies promise to do; they promise to haemorrhage the present New Zealand economy.
There’s a counterpoise. When assets generate a yield – for example, interest – there is a flow in the opposite direction. An increase in interest (and similar) payments to foreigners represents a leakage; an increase in interest payments from foreigners represents an injection. This last part today relates to present yields from international financial investments made in the past. Interest payments to foreigners are treated in the accounts as equivalent to imports; interest receipts are treated as exports.
KiwiSaver foreign financial investments are expected to compound overseas for decades. Meaning that the advertised counter-inflows into the New Zealand economy are expected to peak in the 2060s. And those inflows might not happen. British and French holders of Russian bonds in 1914 did not receive any interest at all, let alone compound interest; rather, they received practically noting at all on the liquidation of their ‘investments’.
(We should note that much of the present portfolio of the New Zealand Superannuation Fund – New Zealand’s sovereign wealth fund – is equivalent today to such Russian bonds in the 1900s. And on the matter of compound interest, I heard last Monday Sam Stubbs (of Simplicity Finance) – refer Sam Stubbs reacts to Labour’s KiwiSaver policy, RNZ 14 Sep 2026 – mentioning “the power of compound interest” in his argument that Labour needs to extract even more than it is promising to do; Stubbs’ comments were divorced from the economic growth fundamentals which make the real realisation of compound interest possible in some circumstances.)
These transactions – relating to financial capital crossing international borders, crossing from one currency into another – are neither leakages nor injections for the world as a whole. For the global economy, there are just four circular flow ‘valves’: investment (in its economic rather than its financial meaning), saving (meaning ‘non-spending’), spending by governments, and taxation by governments.
When the global circular flow is in some semblance of balance, more saving by Kiwis means more spending by some other party – in New Zealand or overseas. Such other parties may be households, businesses, or governments.
KiwiSaver Compulsion
Both Labour and National are advocating larger KiwiSaver deductions which will become fully compulsory; today KiwiSaver deductions are only compulsory for the majority of the population who have previously opted in. This makes such deductions tantamount to a tax which is paid to funds’ managers rather than to the Treasury.
The basic (fiscal) social contract is that income-shares extracted by the collective (ie government) as taxes are paid to the collective, for the purpose of collective well-being.
Tax-equivalent extractions paid to funds’ managers break this social contract. They represent the worst of both worlds. These circular flow leakages from households do not go to government; in all likelihood they don’t facilitate business investment either. Increased net investment requires positive ‘animal spirits’; significantly positive business confidence. These income deductions largely go into the pockets of people selling assets, funding the consumption of upper income decile households; with perhaps half of these already-rich consumers not being New Zealand residents.
Bernard Hickey’s recent Kaka podcast on YouTube – Hickey being a widely respected independent financial journalist in New Zealand – contains a chart (8′ into podcast) labelled “61% of KiwiSaver contributions invested overseas”. The chart shows a big jump in overseas ‘investments’ in June 2026 compared to March 2026. Hickey goes on to note that “it’s worth remembering here that that’s a large chunk of money which will no longer be invested or spent into the New Zealand economy … we are looking at [61% of] $24 billion dollars. … When you withdraw that money from New Zealand circulation it needs to be replaced by something else, or you’ll get a depression [my emphasis] or at least a contraction in your GDP.” That’s three percent of New Zealand’s present GDP; a massive counter-stimulus.
Much of this substantial circular flow leakage represents purchases of assets on the world’s primary markets; meaning that it will be spent as new business spending (especially by the Magnificent Seven who are the darlings of the world’s sharemarkets – such as SpaceX building rockets to fly to Mars and AI hyperscaling, or Super PAC election bribery in the United States, including the huge Crypto-funded PAC Fairshake and the Leading the Future AI sponsored Super PAC mentioned on Al Jazeera’s Let’s Focus, What makes these midterms so pivotal? 15 Sep 2026, from 7′ into video). And on hyperscaling, note this What’s at stake in AI’s trillion-dollar gamble? David Rotman, MIT Technology Review, 15 Sep 2026.
In other words, New Zealand’s KiwiSaver contributions are increasingly ‘feeding the beast’; or the ‘beasts’ that are United States’ big tech in particular and the world’s stockmarket bubble in general. A growing number of financial commentators see a major global financial crash coming soon; compulsory levies which feed the beast – such as KiwiSaver deductions – forestall such a crash, but only exacerbate it when it happens.
A small part of this new ‘foreign investment’ by New Zealand households will be advanced to foreign governments seeking to boost their national economies. Much new government borrowing – especially in the Global South – is non-discretionary; it’s to keep ‘the lights on’ or the schoolteachers paid. While many poor countries’ governments borrow money from the world’s financial markets, often at excessive interest rates, the poorest countries – and the richest countries – are net ‘foreign investors’. Funds are increasingly leaving New Zealand because of the lack of domestic borrowers willing and able to compete for these funds; New Zealand is increasingly behaving like a poor country lacking investment opportunities outside of the export-oriented sector.
So
A lack of domestic borrowing in New Zealand – except for distress borrowing by overstressed households, and speculative borrowing – is the missing piece of the New Zealand narrative. Too many New Zealand businesses are practically insolvent – a balance-sheet recession – and central government chooses to minimise borrowing, preferring to preside over an increasingly leaky body economic; favouring a sinking waka with a bit of top-end glitter over a proud sailing waka.
KiwiSaver expansion increasingly represents the symptoms of a failing economic nation. But New Zealand is changing fast; and will recover, as an increasingly Asian nation state, hopefully still with its underlying personality intact.
About the writer:
Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.