Do You Believe In Magic? OCR Announcement Magic?

Here’s a thing: I’ve always loved magic. It lets me suspend disbelief and experience the world in a different way.

So yesterday I went to see the third film in the Now You See Me franchise - that’s the franchise with the Four Horseman magicians. (And yes there are now eight horsemen, they are both men and women, and the magic is staged illusion and not fantasy magic).

And yes, I know, I know - its not exactly high culture - but bear with me.

Because whether you like those movies or not, they contain something genuinely useful: and that’s the Four Horsemen’s explanation of how magic tricks actually work.

And that explanation is also a lesson in politics, media, and - as it turns out - in a boarder sense - about today’s OCR announcement.

The Horsemen say all magic relies on a simple three-part philosophy: attention, expectation, perception.

Those elements provide a manifesto about illusions - but also about framing.

Here’s how they put it:

1. “The closer you look, the less you see.” Misdirection. Get the audience to obsess over the wrong detail so they miss the real move.

2. “Look closely… because the secret is right in front of you.” The trick is rarely hidden; it’s simply presented so you interpret it incorrectly.

3. “Magic is taking something ordinary and making it do something extraordinary.” The power isn’t in the props — cards, ropes, locks — but the story built around them.

4. “It’s not about the trick. It’s about why you think the trick works.” Magic is misinterpretation, gap-filling, and narrative control.

The movies make this so clear: magic works because the audience looks where it’s told to look — and believes what it’s primed to believe.

And that is exactly how politics works.

It’s also how today’s OCR announcement worked.

The OCR: Today’s Act of Political Stagecraft

Today the Reserve Bank delivered an OCR cut of 0.25%.

Cue the instant political responses:

• Nicola Willis: “Today’s Official Cash Rate shows monetary policy doing its job… welcome news to mortgage-holders and businesses… more money in the hands of families.”

• Barbara Edmonds: The cut is “a direct response to the economic damage caused by Christopher Luxon… he promised to make it better, but he’s made it worse.”

We’ve all seen this show before: interest rates go up or down, and parties scramble to claim credit or assign blame. It’s predictable, partisan, and — to borrow from the Horsemen — it’s misdirection.

Because while we’re watching the politicians argue over 0.25%, the real action is happening elsewhere.

The real trick?

A Magic Number Called NIM

NIM stands for Net Interest Margin. It’s a measure of how profitable a retail bank’s core lending business is.

And here’s the actual revelation:

• NZ average NIM ≈ 2.34%

• Australian average NIM ≈ 1.85%

• Difference = 0.49%

That margin difference — 0.49% — is almost double the percentage amount of today’s OCR cut. (Note: this comparison is not apples with apples to be fair, but it is important)

This is important because NIM is where the real money is. What this difference does show is that the real “money flow” in the banking system - what banks earn in margin - is far more significant and persistent than any single OCR move the Reserve Bank makes.

How Big Is the 0.49% Difference?

(So this next part is based on some back-of-the-envelope maths - robot assisted, human reviewed. All my own errors. I’m really just wanting to show the scale of these smallish margin differences between banks in Australia and the same banks in New Zealand. Because in %age terms they look small but actually they really do hurt us. There’s some rough more detailed calculations at the very bottom showing how these scenarios were built)

Ok, enough of that, lets get back to it:

What this means is banks in New Zealand compared to Australia earn an extra 0.49%. In NZ that’s off an interest-earning asset base of around $650 billion. So NIM works out to ≈ $3.21 billion every year

Extra.

On top of already healthy profits.

And the thing to note here is that number is around 0.8% of New Zealand’s entire economy.

So that little 0.49% is equivalent to:

• $1,600 for every household every year

• $2,500–$2,700 for every mortgaged household per year

• 2% of all government spending, and

• The full-time wages of 45,000–50,000 workers

Or, to put it more plainly:

It’s the annual economic output of a city the size of Whanganui.

Every. Single. Year.

This is not a rounding error.

This is city-sized money that is being paid out.

And we don't really talk about it.

And Here’s An Extra Thing. It Doesn’t Just Hurt Us Today - That Cost Compounds.

Imagine instead that this extra $2,500 a year per mortgaged household was going into KiwiSaver or other retirement funds.

If it did - earning normal investment returns - that average family would be able to potentially retire with $200,000–$280,000 more in savings.

Multiply that across households:

• ~1.2 million mortgage-holding households

• × ~$200,000 lost lifetime savings

• = $240 billion in missing future wealth

This isn’t ideology.

It’s math.

So Forget OCR Announcements. Ask Where Are Our Banking Reforms?

A parliamentary inquiry has happened. Some recommendations have been accepted. Regulators are working on parts of it.

That’s all fine. Its a start.

But, right now, NIM has not fallen.

Competition has not meaningfully increased.

And the structural NIM gap compared to Australia remains.

We report OCR moves breathlessly every six weeks - but almost no one reports the far more consequential number quietly draining billions from kiwi households every year.

If we care about cost of living, productivity, retirement security, and economic sovereignty, we should be asking why New Zealanders keep paying this premium.

So my reckon: we should be asking whether we’re looking in the wrong place - exactly as the magicians would want. Where is our banking reform?

—————————

Appendix: Envelope Maths

What Does Our Higher NIM Cost NZ?

Starting numbers:

NZ average NIM ≈ 2.34%

Australian average NIM ≈ 1.85%

NIM difference (NZ – AU) = 0.49 percentage points = 0.0049

NZ banking sector interest-earning asset base ≈ NZ$655 billion

NZ nominal GDP ≈ NZ$414.9 billion

NZ GDP per capita ≈ NZ$78,233 per person

STEP 1: Calculate the extra net interest income from the higher NIM

We apply the NIM difference (0.49% = 0.0049) to the NZ interest-earning asset base (NZ$655b).

Extra net interest income = Asset base × NIM difference

= 655,000,000,000 × 0.0049

= 3,209,500,000

Result: Extra net interest income ≈ NZ$3.21 billion per year

STEP 2: Express this as a share of New Zealand’s GDP

Use NZ nominal GDP of NZ$414.9b.

Share of GDP = Extra NII ÷ GDP

= 3,209,500,000 ÷ 414,900,000,000 ≈ 0.007736

Convert to percentage: 0.007736 × 100 ≈ 0.77%

Result: The extra NIM accounts for ≈ 0.77% of NZ’s GDP (about 0.8%).

STEP 3: Convert that amount into an equivalent “city size” (population)

We treat the extra NZ$3.21b as if it were the GDP of a hypothetical city.

Use GDP per capita ≈ NZ$78,233.

Equivalent population = Extra NII ÷ GDP per capita

= 3,209,500,000 ÷ 78,233

≈ 41,025

Result: The extra NIM is equivalent to the annual economic output of a city of about 41,000 people. Thats roughly the size of Whanganui

Lost Retirement Funds

STEP 1: What we already know

Extra NIM vs Australia ≈ $2,500–$2,700 per mortgaged household per year.

This is the additional amount NZ households effectively pay because NZ bank margins are ~0.49% higher.

STEP 2: KiwiSaver return assumptions

Long-run average annual returns:

Conservative fund: ~3–4%

Balanced fund: ~5–6%

Growth fund: ~7–8%

Most mortgage-age households use Balanced or Growth funds.

Use 6% as a conservative long-term assumption.

STEP 3: Average mortgage lifetime

Typical mortgage duration is 25–30 years.

Forgone KiwiSaver contributions compound over the same 25–30 years.

STEP 4: Opportunity cost calculation

Assume:

Annual lost contribution: $2,500

Investment return: 6%

Time: 30 years

Formula:

FV = C × ((1+r)^n – 1) / r

FV = 2,500 × 79.058 ≈ $197,645

Result: Lost retirement savings ≈ $198,000 per mortgaged household.

Using an 8% return (growth fund): ≈ $280,000 lost.

STEP 5: Population-level impact

Mortgaged households: ~1.2 million

Lost wealth per household: ~$200,000

Total long-term loss:

1.2m × $200,000 = $240 billion

This is roughly twice the size of New Zealand’s entire current KiwiSaver system.