After five years of stagnation, falling living standards and a cost-of-living crisis that ground down households and businesses, New Zealanders wanted nothing more than a return to normality: a bit of growth, stable prices and the relief of things finally getting better.

At the start of 2026, it looked like that might be happening. The green shoots were there.

The war in the Middle East has shattered that hope. We face spiking oil prices, potential fuel shortages, rising inflation and slower growth.

Government borrowing costs are surging on public finances already stretched. The stock market has plunged. The New Zealand dollar has weakened sharply. Petrol is heading past $3 a litre.

Unsurprisingly, there are loud calls for the Government to act, to cut fuel duty, support the economy, help Kiwis haemorrhaging money at the pump. In an election year, the temptation to be seen riding to the rescue is obvious, but the Government must resist it.

There is a truth that governments find almost impossible to say out loud: when a crisis like this hits from outside, the country gets poorer overnight. Oil that cost $70 a barrel three weeks ago spiked past $112.

The price of oil has since fallen back, but supply disruptions do not end when the shooting stops. Damaged infrastructure, rerouted shipping and nervous insurers keep prices elevated long after the headlines move on. Everything we import costs more, and no policy, no subsidy, no amount of borrowed money can change that.

Governments hate admitting this. When the oil shocks hit in the 1970s, the Kirk Government tried carless days. Muldoon took the impulse further, borrowing and regulating his way around reality. Think Big, the wage-price freeze, the whole apparatus of intervention. New Zealand spent a decade paying for it.

When COVID struck, the Government reached for the same playbook. It borrowed tens of billions. The Reserve Bank printed tens of billions more. In the first terrifying weeks, that response was defensible. But by mid-2020, the real problem was that the economy could not produce enough, not that people had stopped spending. Pouring more money into it was precisely the wrong medicine.

Yet the spending continued. Inflation hit 7.3 percent. Interest rates had to be jacked from near zero to 5.5 percent to clean up the mess. House prices were first inflated to absurd levels, then crashed when rates rose. Government debt more than doubled as a share of the economy. We are still paying that bill today.

Now, the cupboard is bare. A government with low debt and a healthy surplus can absorb a shock without breaking its stride. We do not have that Government. Our Government is running deficits, with debt above 40 percent of national income and borrowing costs far higher than anyone had budgeted for. The COVID spending spree caused inflation, but worse than that, it stripped away the room to move that we need now.

The Iran crisis is the same kind of shock. The flow of goods is disrupted, oil is dearer and the Strait of Hormuz, the narrow channel through which much of the world’s oil passes, is closed. Everything we buy from abroad is more expensive and there is less of it to go around.

Throwing government money at that reality does not create more oil. It does not end the war. It just gives people more to spend on a shrinking pool of goods. That is how you get a spiral of wages chasing prices and prices chasing wages, each driving the other higher. That way lies prolonged inflation, not recovery.

Cutting fuel duty would be a smaller, tidier version of Muldoon’s mistake. It is expensive. Most of the benefit flows to higher-mileage, higher-income drivers. And it removes the very pressure that forces the economy to adapt.

When petrol costs more, people drive less, combine trips and look for alternatives. Nobody enjoys that, but suppressing the price with a subsidy only delays the reckoning and adds to the debt.

If the Government wants to help those who genuinely cannot absorb the hit, and it should, the welfare system already exists. Targeted payments to low-income households are cheaper and fairer. They also let prices do their job.

Beyond that, the Government should cut low-value spending to absorb its rising debt costs and strip away the rules and consenting delays that hold businesses back.

But there is something else the Government owes New Zealanders, and it may matter more than any spending decision. It owes them the truth, and “we are monitoring the situation” does not count.

What counts is a plain account of what has happened, what government can and cannot do, and why some of the solutions that sound tempting would make things worse.

We live in an unpredictable, dangerous world. This will not be the last crisis to hit New Zealand from abroad. If we use up what is left on the wrong response now, we will face the next crisis with nothing in reserve.

The Government cannot pretend the pain away. But it can level with the public and make sure we come out the other side with enough left to face whatever comes next.

To read the article on the NZ Herald website, click here.