Deutsche Bank Research: NZ Election Update

Deutsche Bank Research: NZ Election Update

Economic Note (New Zealand)

NZ Election Update

Analysis

Recent polls have shown a consistent closing in the gap between the parties of the left (Labour and the Alliance) and the parties of the right (National and ACT).

The closing in the gap between left and right increases the prospects of NZ First holding the balance of power after the election. Recent comments by Winston Peters, the leader of NZ First, suggest that rather than entering into a coalition, NZ First might offer support to a minority government on an issue-by-issue basis.

Peters has been typically unclear as to which minority grouping he will support should it come to that. While he has a high degree of animosity with the leaders of both National and Labour, history suggests he may be more inclined to lean right rather than left. However, he delights in surprising commentators and the media!

If NZ First has the balance of power, National may look to test their support by recalling Parliament the week after the writs are returned (16 December). This would force NZ First to either support National in a confidence vote or opt to support Labour.

A minority government relying on NZ First support will have a limited menu of policy options. For instance, a government of the left may well be unable to push through tax increases or changes to the Employment Contracts Act. On the other hand, a government of the right would be unable to cut taxes or privatise assets.

Virtual policy paralysis may not be a bad outcome for the financial markets. However, the role played by NZ First will throw a random element into policy outcomes. This may cause instability over time, as might apprehension about the stability of the Government.The leader of ACT has recently complicated the picture by saying that his party will force an election rather than allow NZ First to play any role in government. ACT is trying to encourage people to make a definite vote for the right. It will be interesting to see what impact it has.

With the election still four weeks away, it is too early to be definitive about the outcome. About all one can say with reasonable certainty is that it will be close! The final outcome may hinge on results in individual seats, such as whether the Green Party wins Coromandel (and thus gains access to Parliament without passing the 5% threshold).

ENDS

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