iPredict 2014 Election Update: Monarchy & Key Look Strong

Tuesday 8 April 2014

www.ipredict.co.nz

Key Points:

• Forecast fiscal surplus for 2014/15 down to 0.53% of GDP

• Interest rate and unemployment expectations improve slightly

• NZ First solidly above 5% and shifting towards Labour

• National/Act/UnitedFuture/Maori Party government would have one-seat majority in Parliament even with NZ First above 5%

• Conservatives would bring in three list MPs if gifted an electorate seat and National/Conservative/Act/UnitedFuture would have one-seat majority even with NZ First above 5%

• Joyce and Robertson still favoured as next National and Labour leaders, but Collins and Jones make ground

• Monarchy looks strong, with only 8% probability of a New Zealand Head of State by 2020

Commentary:

The combined wisdom of the more than 7000 registered traders on New Zealand’s online prediction market, iPredict, believe there is a just an 8% probability a New Zealand citizen will be Head of State by 2020, this week’s market snapshot indicates. Charles, Prince of Wales, has a 78% probability of being Head of State by 2020. More proximately, John Key is expected to remain Head of Government after this year’s election, with the current National/Act/UnitedFuture/Maori Party governing arrangement forecast to hold a combined 61 seats in a 120-seat Parliament. Other options for Mr Key include NZ First and the Conservative Party, were it to win an electorate bringing three list MPs into Parliament. The forecast fiscal surplus for 2014/15 is down but there have been marginal improvements in unemployment and interest rate forecasts.

Economic Context

Growth expectations have remained steady this week. Growth in the March 2014 quarter is expected to be 1.1% (steady compared with last week), in the June quarter 1.1% (steady), in the September quarter 1.2% (steady) and December quarter 1.1% (down from 1.2%). Forecast annual growth for 2014 remains unchanged at 4.5%.

Expectations for the unemployment rate have improved fractionally this week. Unemployment is expected to be 5.8% in the March 2014 quarter (steady compared with last week), 5.6% in the June quarter (down from 5.7%), 5.4% in theSeptember quarter (down from 5.5%) and 5.5% in the December quarter (steady).

Forecasts for New Zealand’s current account deficit are all unchanged at 3.0% for the March 2014 quarter, 3.5% in the June quarter, 4.0% in the September quarter and 4.0% in the December quarter.

There continues to be a 95% probability of a fiscal surplus in 2014/15, but the surplus forecast for 2014/15 is now down to 0.53% of GDP, from 0.62% last week. The surplus forecast for 2015/16 is expected to be 0.93% of GDP and 2.0% of GDP for 2016/17 (both steady).

Inflationary expectations are all steady, with annual inflation expected to remain around the Reserve Bank’s 2% target midpoint and within the 1-3% band. Annual inflation to the end of the March quarter is expected to be 1.6% and will rise to 1.8% in the June quarter, 1.8% in the September quarter and 2.1% in the December quarter.

The market is forecasting a further 25 basis point increase at the next OCR Review on 24 April, with 81.3% probability. Compared with the rate of 2.5% at the start of the year, the market is pricing that the OCR will be up 45 basis points inApril (down from 46 last week), 64 in June (down from 65), 77 in July (down from 79), 89 in September (down from 90), 98 in October (down from 100) and 110 in December (down from 112).

Other Issues

The market believes there is only an 8% probability that a New Zealand citizen will be Head of State by 2020. There is a 78% probability that Charles, Prince of Wales, will be Head of State by 2020.

New Zealand’s chances of being elected to the UN Security Council for 2015-16 have eased to 43%, down from 47% last week. The probability New Zealand will sign a Free Trade Agreement with South Korea before 1 December 2014remains steady at 47%.

The probability the US Congress will ratify the yet-to-be-signed Trans Pacific Partnership (TPP) agreement before 1 July 2015 is steady at 2.5%, and there remains a 37.8% probability a deal will be ratified by the US Congress by 1 July 2017.

Election Personnel

All current party leaders, except for Maori Party co-leader Tariana Turia, are strongly expected to remain in their roles until nomination day with at least 95% probability.

Party Vote

A party vote turnout of 74.7% is forecast (steady), marginally up from the 74.2% turnout in 2011.

Of major parties, National is expected to win 44.46% of the party vote, down from from 44.86% last week. Labour has risen to 30.17%, up from 29.54 last week, while the Green Party’s expected vote is down slightly to 10.49%, 10.58% last week.

Of smaller parties, NZ First is down fractionally to 5.36% from 5.41% last week. The Conservative Party’s forecast party vote continues to recover and is now up to 3.67%, from 3.50% last week and 2.97% the week before but is still short of the 5% threshold required for parliamentary representation unless it wins an electorate seat. Act is on 1.79% compared with 1.80% last week and UnitedFuture is steady on 0.60%.

Mana is on 1.19% (down from 1.20% last week), the Maori Party on 1.09% (down from 1.20%) the Internet Party on 0.89% (up from 0.80%) and Aotearoa Legalise Cannabis Party on 0.30% (steady). There is no demand for stocks in theCivilian Party and Democrats for Social Credit above forecast support of 0.002% each.

Electorate Contests

The Conservative Party’s probability of winning at least one seat has improved marginally to 34%, from 31% last week, however its expected representation remains just 0.37 MPs. The Conservatives are not expected to win any specific electorate, with just a 16% probability of winning East Coast Bays, (up from 15% last week), a 14% probability of winning Upper Harbour (steady), and a 12% probability of winning Rodney (steady).

Act has a 66% probability of winning at least one electorate seat (up from 65% last week) and its expected electorate representation is 0.67 MPs, up from 0.65 last week. It has a 65% probability of winning Epsom (up from 62% last week).

UnitedFuture has an 81% probability of winning at least one seat (down from 82% last week)) and has expected electorate MP representation of 0.84 MPs (steady). Its probability of winning Peter Dunne’s Ohariu electorate remains 80% (steady).

In the Maori electorates, Mana has an 83% probability of winning at least one electorate seat and the Maori Party a 72% probability of winning at least one seat. Mana’s expected electorate representation has fallen to 1.16 MPs, down from 1.21 last week and the Maori Party’s expected electorate representation is down to 0.89 MPs, from 0.96 last week.

Mana appears most likely to retain the Te Tai Tokerau electorate, with 82% probability leader Hone Harawira will win the seat (steady). In Waiariki, Maori Party Leader Te Ururoa Flavell has a 69% probability of winning, up from 53% last week. The probability the Maori Party will retain Tariana Turia’s Te Hauauru electorate is up marginally to 20% from 18% last week. Pita Sharples’ Tamaki Makaurau electorate remains safe for Labour with 90% probability it will be won by that party.

The Greens and NZ First continue not to be expected to win electorate seats.

The four other most marginal seats continue to be Napier, Waimakariri, Rotorua and Wairarapa. Labour’s Stuart Nash continues to have a 67% probability of picking up Napier and Labour’s Clayton Cosgrove a 71% probably of taking Waimakariri, both currently held by National. National’s Todd McClay has a 73% probability of holding on to Napier from Labour challenger Tamati Coffey. National has a 77% probability of holding on to Wairarapa from Labour.

Election Result & Alternative Scenarios

Based on the party vote forecasts and the electorate results above, Parliament would be as follows: National 57 MPs (up from 56 last week), Labour 38 MPs (up from 37), the Greens 13 MPs (steady), NZ First 7 MPs (steady), Act 2 MPs (steady), and Mana, the Maori Party and UnitedFuture 1 MP each. Parliament would have 120 MPs and a government would be required to have the support of 61 MPs on confidence and supply.

Under this scenario, the current National/Maori Party/Act/UnitedFuture governing arrangement could again form a government with 61 seats. National could also govern with the support of NZ First, either through a coalition (64 seats) or through a confidence and supply arrangement. A Labour-led government would also be theorectically possible, but only with the support of all of the Green, NZ First, Mana, Maori and UnitedFuture parties (61 seats).

Should Winston Peters have the balance of power after the election, iPredict’s bundle of stocks forecasting NZ First’s decision-making indicates there is now a 45% probability it would provide confidence and supply to a Labour-led government (up from 34% last week). The probability it would give confidence and supply to a National-led government is down to 32%, from 38% last week. However, combined with a 23% probability it would give confidence and supply to anyone (down from 27% last week), there is still a 55% probability NZ First would either support or acquiesce to a National-led government if it held the balance of power.

Because of the rise in the Conservative Party’s forecast party vote, iPredict has analysed what would happen if it won an electorate seat. In such a case, Parliament would be as follows: National 54 MPS, Labour 37 MPs, the Greens 13 MPs, NZ First 7 MPs, the Conservatives 4 MPs, Act 2 MPs, and Mana, the Maori Party and UnitedFuture 1 MP each. A National/Conservative/Act/UnitedFuture governing arrangement would be possible with 61 MPs. No realistic Labour-led government could be formed, with or without NZ First.

Overall, National continues to have a 74% probability of leading the next government.

Post Election Developments

The market indicates a 71% probability that David Cunliffe will depart as leader of the Labour Party by the end of 2015 (down from 73% last week). There is a 77% chance he will depart by the end of 2016 (down from 79% last week, and an 84% probability he will step down by the end of 2017.

Grant Robertson continues to be favoured to be next Labour leader, with 52% probability (steady compared with last week), followed by Shane Jones with 22% probability (up from 20%), Jacinda Ardern with 11% probability (steady) and Andrew Little with 9% probability (steady).

In National, there is a 36% probability John Key will depart as leader before the end of 2015 (up from 35% last week), a 60% probability he will depart by the end of 2016 (up from 59%) and a 78% probability he will depart by the end of 2017 (steady).

Steven Joyce remains the favourite to succeed Mr Key as National Party leader, with 35% probability (steady) compared with last week), followed by Judith Collins on 30% probability (up from 28%) and Simon Bridges on 13% probability (down from 20% last week).

Labour’s chances of winning the 2017 election have remained at 50% probability this week.

Miscellaneous

iPredict Ltd is owned by Victoria University of Wellington. Details on the company and its stocks can be found at www.ipredict.co.nz. The weekly political update is prepared by Exceltium Ltd on a pro bono basis and is based on a snapshot taken at a random time each week. This week’s was taken at 10.40 am today.

ENDS

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