Whether and how Labour might win a second term
Labour will probably win a second term leading a coalition Government, but don't rule out an atypical 'winner takes all' result. Bernard Hickey answers one of his eight big questions for 2020.
Given current polling, personnel and policies, the Labour-NZ First coalition Government will probably win a second term with Green support and without mandates for big tax or structural reforms. But it will be closer than many expect and there are still non-negligible chances of an atypical 'winner takes all' result under MMP, where either a Labour-Green or National-ACT Government is formed with significant policy changes ensuing.
Voters decided in the 1993 MMP referendum after a decade of 'elected dictators' and unmandated policy shocks to essentially solve New Zealand's lack of constitutional checks on executive power by bringing in a voting system that punishes big and/or unexpected policy changes. That has effectively locked in the policy mix present by the mid-1990s, albeit with tweaks that have benefited the bulk of the current median voters now at the expense of those on the margins and non-voters, both now and in the future.
Examples include the electoral third rails of NZ Superannuation reform and the Capital Gains Tax, interest free student loans and three years fees-free, a lack of greenhouse gas emissions policies to significantly reduce emissions, and high net migration to keep wages and prices down while not investing enough in infrastructure.
In the absence of a hard constitution with an upper house and an activist Supreme Court to prevent a Prime Minister with direct control of both the Cabinet and Parliament from making massive changes, voters created a system designed for coalitions led by parties that hug the centre of the policy debate and avoid promising major changes to the policy status quo, particularly around taxes, pensions, infrastructure and welfare spending.
Since the first MMP election in 1996, each Government has lasted three terms in coalition form where Prime Ministers Helen Clark, John Key/Bill English and Jacinda Ardern have understood the coalition leader will only win promising small changes, and will be moderated by small parties holding the balance of power. They have expected to govern in coalition and have stuck broadly to the rule that unmandated policy shifts are not only politically unacceptable, but also very difficult to achieve in either cabinet or Parliament because of the moderating influence of coalition partners.
Smaller centrist or special interest parties, including New Zealand First, United Future, Maori, ACT and the Greens have all at various points acted as 'handbrakes' on the natural policy instincts of Labour and National since 1996. Aside from the dying third term of the Jim Bolger/Jenny Shipley Government, that MMP formula has led to two three-term Governments (Labour 1999 to 2008 and National 2008 to 2017) that delivered incremental policy reform and more-stable-than-expected coalitions. The rule of thumb was that Prime Ministers led Governments that stuck to limited promises and minor parties avoided Government-killing ructions in Cabinet to retain the trust of voters. Ardern's coalition has started along similar lines. That has led to full three-year Governments led by parties in control for nine years each without shocking policy shifts.
At least until now. There are no rules to say that Labour or National should lead Governments for three consecutive terms or that they have to be in moderating coalitions. That is the way the electorate and MMP has 'magically' worked together since 1996 with the various results in eight elections, but there's no guarantee it will always work that way.
The uncertainty about an atypical 'winner takes all' result is elevated when there are now so few public opinion polls and the two major parties have relatively high poll ratings in their own rights. When MMP was introduced, there were regular opinion polls published by two television channels (TVNZ/Heylen and TV3/CM-NFO) and two newspaper groups (Herald-Digipoll and NBR-UMR), along with others over the years such as Roy Morgan.
Public polling is now much less frequent and in fewer places, particularly during non-election years, leading to uncertainty about where the public is sitting. The costs and increasing difficulty of landline polling and the straightened state of private media have created a spotty and unreliable polling data set. David Farrar's Curia does regular polls for National and UMR does regular polls for Labour, but neither are made consistently or fully public. The parties know where they stand, but the public doesn't. The coincident shift to a hybrid of landline, mobile and online polling has also undermined confidence and appeared to show volatility or strength in party support that may not be there.
The last TVNZ/Colmar Brunton poll (half landline/half mobile) was taken from November 23 to November 27 last year and showed National on 46 percent and Labour with 39 percent, while the Greens were on 7 percent and New Zealand First was at 4.0 percent. The same poll done a month earlier had National at 47 percent and Labour at 40 percent. It did just six polls last year and six in 2018. It did 11 in 2017, including 10 before the election.
The last TV3/Reid Research poll (70 percent by unspecified phone poll and 30 percent from an online panel) was taken from October 2nd to October 9th last year. It found Labour at 41.6 percent, down 9.2 percentage points from a poll in June, while National was up 6.5 percentage points to 43.6 percent. TV3/Reid Research did just three polls in 2019 and two in 2018. It did seven polls in 2017, including three in the month before the September 23 election result. It was the most accurate of the polls, but may not even exist by the time this year's election rolls around, given the current uncertainty over the state of Newshub/TV3's news operation. Mediaworks has put its television operations up for sale, with a closure or massive reduction of its news operation seen as potential outcomes.
Stuff conducted a new online panel-only poll of 1,005 voters with YouGov from November 7 to 11 which found Labour at 41 percent, National at 38 percent, New Zealand First at 8 percent and the Greens at 8 percent. This poll has no run of data to get a sense of its trajectory or reliability. The only other regularly conducted poll was by Roy Morgan, which stopped publishing in November 2017.
There is a useful and regularly updated summary of the all the recent public poll results here at Wikipedia.
All of these public polls were taken before the Government announced plans for an extra $12 billion in infrastructure spending on December 11, so the current state of play is anyone's guess. Both major parties may be in a range from 35-45 percent, with New Zealand First and the Greens around or slightly above five percent, depending on the time of day, the way the wind is blowing and who in particular answers their phone.
So it's easy to see how any particular combination of those numbers, without much variation either way, could result in a 'winner takes all' result with a Labour-Green Government or a National-ACT Government. But the most likely outcome for now is a Labour-led one with both New Zealand First and the Greens on board, in part because the electorate likes a 'moderator' in any coalition and a centrist Prime Minister can use the 'moderator' to keep their own parties and public opinion in check.
Will Ardern campaign for a wealth tax?
The key question for Jacinda Ardern will be how much support she thinks Labour, New Zealand First and the Greens have going into the first half of 2020 when she has to make the key policy and electorate choices before the campaign starts in earnest, probably in July for a late September election date (pencil in September 12, 19 and 26 as possible options).
If she thinks Labour and the Greens are strong enough to win on their own with the current policy positions, she may choose to strengthen that policy mix to ensure any plans for a wealth tax are included on the policy platforms of both Labour and the Greens to ensure a mandate. Labour leaders have quietly suggested plans to revisit the idea of a wealth tax, possibly as a land tax, after the death of the Capital Gains Tax last year, but have yet to declare their hands.
The electorally safe option for Ardern would be to rule a wealth tax out at the beginning of the election campaign. If she doesn't, then we are all on for a repeat of the 2017 campaign where National successfully focused its attacks on the effects on home, rental property and small business owners. A land tax of say 0.5 to 1.0 percent would, for example, immediately reduce land prices by 10 to 20 percent and force many asset rich/income poor owners to sell, in the absence of some sort of deferred payment or Government-run reverse mortgage option. Either way, the use of the 'Death Tax' would be guaranteed.
Will Ardern 'gift' electorates to NZ First or the Greens?
The other big issue is whether Labour needs to offer an accommodation to either or both of New Zealand First and the Greens for them to win an electorate seat to ensure there is no wasted vote on the centre-left in the event either or both slip below the 5.0 percent threshold. These 'dirty deals' have been commonplace on both sides of the fence, with National stepping out or aside from Epsom, Ohariu and the Maori electorates to allow United Future, ACT and the Maori parties to be their partners from 2008 to 2017.
Helen Clark did the same in 1999 with Coromandel to ensure Green Co-Leader at the time, Jeanette Fitzsimons, was elected to Parliament and could bring in more Green MPs on her coattails. In the end, the Greens got just over 5 percent and Fitzsimons won the electorate after the counting of special votes. The Greens then entered a support agreement to ensure Labour and the now-defunct Alliance Party formed a coalition Government with enough support in Parliament to win on confidence and supply votes. Clark did not need to bring the Greens into her second Goverment in 2002 and did not signal an accommodation in Coromandel because National was very low in the polls and she expected Labour would have enough votes in Parliament to retain power, either with the Greens, or with United Future and Jim Anderton. It was closer than expected in the end in 2002, but Clark formed a Government without needing the Greens.
Labour under then leader (and now senior cabinet minister) Andrew Little also gave its voters in the Northland by-election 2015 a nod and a wink to support New Zealand First's Winston Peters ahead of its own candidate Willow-Jean Prime, who is now a Labour list MP. Ardern did not suggest Labour voters do the same in Northland in 2017, which meant Peters lost his seat.
If Ardern changes her stance and gives Peters or Shane Jones a leg up in Northland, that will indicate whether she expects to include New Zealand First in a second term Government in some form. She could also do the same for the Green Party in a friendly electorate -- possibly including Nelson where the combined Labour and Green votes were above that of incumbent National MP Nick Smith.
My gut feel (which was accurate before the last election but should be treated the same as investment advice -- past performance does not guarantee future success) is that:
Ardern will take the conservative option and not campaign for a wealth tax and suggest Labour voters help out New Zealand First and Green candidates in a couple of electorates if her own polling shows there is a danger of a wasted vote.
If she does that in the first half of 2020, then a second term for a Labour-led coalition with the same Green and New Zealand First partners becomes much more probable.
If she campaigns for a wealth tax and leaves New Zealand First and the Greens to fend for themselves around the 5.0 percent threshold, then there is a much greater chance that National could win Government 'on its own' in partnership with ACT.
What are the known unknowns and unknown unknowns?
The wild cards in all of this are a potential Electoral Commission and/or Serious Fraud Office investigation into New Zealand First's electoral returns and finances, any changes in the personal situations of Jacinda Ardern or Winston Peters, or a massive change in the wider economic environment.
All of those things, along with other unknown unknowns, are a possibility. There was a Global Financial Crisis before the 2008 election that no one expected in early 2008. There was a massive earthquake that wrecked our second largest city and required an emergency fiscal response from the-then National Government just seven months before the 2011 election. Voters were impressed by National's response and were reluctant to change leadership at such an uncertain time.
National then appeared to be cruising to a fourth term less than two months before the 2017 election, but then the Green Party imploded after then-co-leader Metiria Turei admitted benefit fraud two months before the election. That helped prompt then-Labour Leader Andrew Little to hand over the reins to Jacinda Ardern in the hope it would reduce the damage in yet another Labour election loss. Little did Little or Ardern know that the resulting wave of 'Jacindamania' would transform Labour into becoming the front-runner over the next six weeks.
Only a sustained attack by National on the Capital Gains Tax policy (which forced Ardern to retreat in the last week of the campaign) stopped the juggernaut.
What those potential outcomes would mean...
The most probable outcome of a second term Labour-led coalition with a low-risk tax and welfare policy would not change much for business, the economy or society. Labour remains committed to low Government debt and minimal infrastructure spending so is unlikely to transform the housing or public transport situations in a way that would change the current housing unaffordability and climate change policy deficits. Absent a bold move by Ardern and her partner Grant Robertson to risk losing with a wealth tax, not much would change in the underlying fundamentals of the economy.
A pure Labour/Green Government could change a lot more, including infrastructure spending, water policy, climate change policy, and the income tax and welfare spending systems.
A National/ACT coalition governing on its own would change the Resource Management Act and potentially ramp up Government spending on roads, while restraining spending on welfare and housing. Business confidence would surge, but not in a meaningful way that lifted GDP growth per hour worked, given the underlying problems with very strong population growth in tandem with inadequate infrastructure would continue to hamper productivity growth and leave the housing unaffordability crisis and the carbon emissions trajectory unchanged.
But anything could happen in the next eight months to change those equations, and the tightness of the results under MMP mean a long-running and solid prediction of a particular winner is very difficult.
So in summary...
All this means that the outcome will depend on what support levels the respective parties have in the first six months of this year, how ambitious Jacinda Ardern is for any second term Government she leads, and what happens independently of New Zealand's economy that might change the political and business landscapes.
Unemployment remains low, wage growth is solid at the low end, house prices are rising in line with home owners' hopes and the global economic outlook has stabilised. All of these things suggest a popular Prime Minister with a low-profile set of policies should be able to ride the tides of firming consumer and business confidence to a second term.
It depends on a set of unknowns that could range from the tension in the Alpine fault to Donald Trump's small trigger fingers to the Prime Minister's personal situation, or to whether Winston Peters is prosecuted over the New Zealand First Foundation finances.
But the key things to watch in the coming months are the polls (as infrequent and incomplete as they are), Jacinda Ardern's appetite for political risk around the wealth tax and 'dirty electorate deals' issue and the global political and economic situations in that order. And keep an eye on Geonet and Donald Trump's Twitter feed (Sorry).
Over the coming days, we’ll detail those other 7 big questions for 2020, including.
Will Trump be re-elected?
Will the Government appoint an Auckland Light Rail builder?
Will Huawei be allowed to build the core of Spark’s 5G network?
Will NZ conclude a trade deal with the EU?
Will Rio Tinto shut down Tiwai Pt?
Will NZ regulate Big Tech?
Will NZME buy Stuff?
Get it early – This article was first published on Newsroom Pro and/or included in Bernard Hickey’s ‘8 Things’ morning email of the latest in-depth business and political analysis. Get it early by subscribing now or starting a 28-day free trial.
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