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New Zealand – Government on a Steady Course

On December 5, two days after a by-election in which the main opposition Labour Party retained its seat in Mount Roskill constituency, Prime Minister John Key made the shock announcement that intended to resign as prime minister and leader of the National Party on December 12. The decision seemed to surprise even his own Cabinet ministers, particularly as there was no urgency to depart in view of National’s strength in the opinion polls, and the generally healthy state of government finances and the economy.
The markets held steady amid the transfer of leadership, reflecting confidence in Key’s successor, Bill English, who served as deputy prime minister and minister of finance throughout Key’s tenure in the top post. The Finance portfolio has been handed to Steven Joyce, another figure with considerable ministerial experience.
With a general election required no later than November 18, it is unlikely that the reconfigured administration will embark on any new major initiatives in the interim. The mid-year budget review and the budget statement for the fiscal year that begins on July 1 indicate that the government is on track to achieve a small operating surplus in the current fiscal year, meaning there will be room to include tax cuts and increased outlays for key constituencies in the pre-election budget. However, there is little time left to tackle more ambitious legislation that will require securing buy-in from the support parties that provide the government with its majority.
A poll conducted in over a two-week period ending on December 11 showed support for National slumping to 45%, from 49.5% one month earlier, but it is difficult to determine to what extent, if any, the decline was influenced by Key’s announcement. In any case, the most recent polls show National retaining the support of more than 45% of the electorate, compared to combined support for Labour and the Greens that tops out at slightly less than 40%.
Significantly, Donald Trump’s victory in the US presidential election held in November 2016 has thrown a cloud of doubt over the future of the Trans-Pacific Partnership (TPP), which Labour leader Andrew Little had hoped to make a central issue of the upcoming campaign. In any case, the very high cost of housing will provide the alliance of Labour and the Greens with a meaty issue around which to rally support. Another by-election scheduled for late February will provide a gauge of Labour’s ability to expand its vote share in the coming months.
In the absence of evidence that points to a sustained surge in support for either Labour or the Greens, National will be favored to win a fourth consecutive term. However, as long as the incumbent continues to poll below 50%, the odds are that National will once again fall short of winning an outright majority in the Parliament, and will need to secure the backing of smaller parties to form a government. In that event, English is likely to pursue a renewal of confidence-and-supply agreements with the Maori Party, ACT, and United First, which the National leadership views as preferable to seeking out a partnership with Winston Peters’ New Zealand First.
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