New Zealand Election: No Change or Fundamental Change?

Jim McLay (Executive Chairman, Macquarie New Zealand Limited, and former New Zealand Deputy Prime Minister)

Fluctuating polls before New Zealand's election suggested a race that was too close to call. And so it was with the Labor Party (led by Prime Minister Helen Clark) securing 40.74 percent, closely followed by National (led by Don Brash) with 39.63 percent. Media reports suggest Labor might be able to form a new, coalition government; but headlines such as "Stalemate," "Nation waits while parties weigh options," " Clark faces coalition chaos," and "Labor (for now)" underline the uncertainty. Clark believes she's the first ever Labor leader to win a third term, but on election night could only say she would commence discussions with other parties. Likewise, Brash (who almost doubled his party's vote from its disastrous 2002 result), couldn't claim victory but, equally, wouldn't concede defeat.

Labor and National secured 50 and 49 seats respectively in the 120 member, unicameral parliament. The final outcome could depend on 218,000 special votes - 9.6 percent of the total - including many from overseas New Zealanders.

In three previous MMP elections, the two major parties' total vote never exceeded 63 percent, but this time totaled 80.37 percent. Therefore, although the other six parties in the previous parliament secured re-election, all were squeezed. The performance of the new Maori Party was significant, winning four seats, but with only 2 percent of the vote; creating an "overhang", adding two seats for the next three years (and requiring 62 seats to achieve a parliamentary majority).

Both Clark and Brash face problems in forming a coalition government. While the numbers might suggest Clark has the marginally easier task, her "natural" partner (Green) is unacceptable to the two centrist parties - United Future (UF) and New Zealand First (NZF) - from which she also needs support. UF has said it won't serve in a coalition with the Greens; and, during the campaign, NZF, led by veteran populist Winston Peters, said it wouldn't enter into any coalition. Peters undertook, "in the first instance," to observe a claimed "constitutional convention" that the party gaining the most seats "must first try and form a government"; adding he wouldn't allow "any potential minority government to be blackmailed or held to ransom by an extreme party of the far left or the far right." Clark might therefore tell all parties (except the small Progressives) that, such is their incompatibility, she can't form a coalition and will, instead, govern as a minority; but will seek their support on confidence (the test of a parliamentary majority) and supply (the legal authority to finance government spending). It remains to be seen if that is acceptable; although the smaller parties will want to avoid forcing another election.

This uncertainty might allow Brash to negotiate a minority government deal with the center parties. There is also the possibility of the Greens, who polled just 5.1 percent but fell below 5 percent in the final count. That would exclude them from parliament and reduce the center-left vote by that amount, putting the National-led center-right over the top. The Greens have previously done well out of special votes, but the squeeze on third parties meant that, this time, all (except the Maori party, established in 2004 by a disaffected Labor minister) lost ground on their 2002 positions. That trend could hurt the Greens who hovered around 5 percent throughout the campaign.

Whatever emerges from this uncertainty, it's likely to be a minority government, relying on the support of NZF (and maybe UF) on fundamental issues of confidence and supply; but with support for all legislation being negotiated, on a case-by-case basis; not an environment for significant (in some cases, much needed) change. The uncertainty could continue for some weeks (at least until the final count on Oct. 1). In the meantime, by constitutional convention, Clark continues as "caretaker" prime minister, unable to take any new policy initiatives.

Foreign policy issues figured only briefly in the campaign, with Labor claiming National planned to end New Zealand's long-standing anti-nuclear policy (source of a rift with the U.S., which resulted in New Zealand's exclusion from the tripartite ANZUS treaty, with the U.S. declaring it "a former ally" in 1987). In fact, National said the firmly entrenched policy would only be changed by referendum. Some of Labor's campaign rhetoric had anti-American overtones, including frequent references to the "unjust" Iraq war. Although not as extreme as heard from center-left parties elsewhere (e.g. during Germany's 2002 election), if Labor is re-elected, some fence-mending may be required.

Both NZF and Greens are (for different reasons) opposed to free trade agreements, and any government will have to look elsewhere for support for these. However, Labor and National generally agree on trade, so should still achieve a parliamentary majority. Especially interesting is the election, as a National MP, of New Zealand's leading trade diplomat and a world-recognized expert on international trade, Tim Groser, until recently, ambassador to the WTO and chair of its Agriculture Negotiations. Groser would almost certainly play a key role in any National-led trade negotiations.

New Zealand's most important relationship is, of course, with Australia . Over more than 20 years, a Closer Economic Relationship (CER) treaty resulted in a 500 percent trade increase and has been described as the world's "cleanest" free trade agreement. Past relations were, however, often marred by personality issues (center-right leaders, Malcolm Fraser and Robert Muldoon had especially fraught dealings, as did Labor Prime Ministers Bob Hawke and David Lange), the ANZUS disagreement, diplomatic rivalry (particularly in Washington DC ), and suspicion about respective motives and agenda.

Today, however, the political relationship is very good, reflecting efforts by former NZ Prime Minster Jenny Shipley (National) and, more recently, Clark. Moreover, more than any recent Australian leader, John Howard has institutionalized the relationship, with annual prime ministerial meetings and regular meetings at all ministerial levels, particularly in foreign affairs and finance. Under Clark, that would be largely unchanged; but Brash is more sympathetic toward a Single Economic Market. New Zealand has played its part in resolving regional problems such as East Timor and, more recently, the Solomons; and that will continue. However, Australian leaders have been privately critical of New Zealand's under-spending - and seeming lack of commitment - on defense. Under Clark, that too is unlikely to change; whereas Brash has acknowledged that previous National and Labor governments have fallen short, and is committed to increased expenditures (although whether that will satisfy Australia remains to be seen).

Pre-election commentary suggested that this poll might be the most important in recent history, with the major parties offering significantly different views about the country's future direction. It seems voters were almost equally divided on which direction they preferred. The result is uncertainty that may take some weeks to resolve. Curiously, barely 24 hours later, a similar German electoral system, faced with similar choices, appeared to deliver a similar impasse.

(Posted here with the permission of Pacific Forum CSIS)