OECD warns New Zealand electricity prices are structurally too high and calls for a firming market to break the gas link
The Organisation for Economic Co-operation and Development released its 2026 Economic Survey of New Zealand on Thursday, calling on the country to push through energy market reform, deepen its capital markets and lift KiwiSaver contributions if it wants to break out of a sluggish recovery. The survey is the first since 2024 and lands at a moment when wholesale power costs are again the dominant story for industrial users, and when households are absorbing higher network charges.
The headline economic numbers are familiar but worth recording. The OECD now expects gross domestic product to grow 1.4 percent this year and 2.3 percent in 2027. Inflation is forecast to rise to 3.4 percent in 2026 before easing back to 2.4 percent in 2027. Unemployment is projected to stay above 5 percent until late next year. The Reserve Bank’s last Statement of Employment showed the rate at 5.3 percent for the March quarter, with wage growth at a five-year low.
Energy is the part of the report that will get the most political attention. The OECD says outright that “electricity prices are structurally too high” and traces the problem to falling Maui and Pohokura gas supply combined with underinvestment in firming capacity since the dry-year crises that began earlier this decade. Wholesale power has spiked into the hundreds of dollars per megawatt-hour during dry-year stress and forced industrial demand response from Tiwai Point through to the Kinleith pulp mill.
The OECD’s structural recommendation is a transparent firming and flexibility market, sitting alongside the existing wholesale spot market, that contracts in advance for a portfolio of independent and reliable non-gas supply. It says this would break the link between wholesale gas prices and electricity prices, which is the mechanism that has been pushing household power bills up even as residential demand has been flat. The report also leaves the door open to a minority Crown stake in non-gas generation, on the basis that the four big gentailers do not have an obvious commercial reason to firm each other’s portfolios.
The capital markets section is just as direct. The OECD notes that there has been no initial public offering on the NZX main board since 2021. It recommends a more lightly regulated public growth equity market, designed for smaller firms to raise capital without the full cost of a main board listing, alongside continued growth in the venture capital market that has emerged around New Zealand Growth Capital Partners. The argument is that without a deeper local capital market, productive companies will keep raising money offshore, listing offshore or selling to overseas buyers, and the productivity benefit stays offshore with them.
KiwiSaver is the third pillar. The OECD recommends continuing to raise default contributions, which moved to 3.5 percent from 1 April under the Budget changes, and gradually shifting the tax treatment of private pensions from contributions and earnings towards withdrawals. That shift is what the United Kingdom and Australia have done, and the OECD’s view is that it materially raises long-term private pension accumulation and lifts retirement income adequacy from what it calls a low base for an OECD member.
The longer fiscal picture in the report is the one that should worry the Beehive. Aging is expected to push health and pension spending up by close to 5 percentage points of GDP by mid-century on existing settings. The OECD recommends linking the age of eligibility for New Zealand Superannuation to life expectancy, as Denmark has done and as Australia is part way through. It is the kind of recommendation that has been politely noted and shelved by successive governments since the 2010s, and there is no sign that this one will land any differently.
The survey is more cautious on the financial stability picture. It says banks remain well capitalised and have ample liquidity buffers, but flags that highly indebted households and small-and-medium enterprises are still the channel through which any further dry-year power shock or global trade slowdown would be felt. It backs the Reserve Bank’s continued use of loan-to-value and debt-to-income limits.
There are useful framings in the report for how to read the next two years. The OECD describes the recovery as fragile and uneven, with elevated energy costs eroding household incomes and dampening domestic demand even as exports recover. Net migration has dropped sharply from the 2023 peak and is no longer doing the demand-side work it did in the previous cycle. Business investment is being held back by uncertainty about energy costs, and on the OECD’s reading that is solvable by policy rather than by waiting for the cycle to turn.
You can read the OECD’s press release and the full 2026 Economic Survey of New Zealand on the OECD’s website. Interest.co.nz and the NZ Herald have additional coverage of the KiwiSaver and superannuation recommendations.
Which of the OECD’s recommendations should the Government act on first. Energy market reform, deeper capital markets, or KiwiSaver and superannuation changes. Have your say in the comments below.