Sean Keane: Fewer political horses being traded will be a good thing for New Zealand

The ruling National Party has been very comfortably re-elected at the weekend’s election in New Zealand, delivering Prime Minister John Key a third three year term as the countries leader. Mr Key’s personal popularity with the electorate was a crucial feature during the election, and despite the various late attempts to throw the campaign off track National were actually able to extend their majority very slightly.

Remarkably the government’s margin of victory was sufficient to ensure that National can now rule without the assistance of any other party – the first time that this has happened since MMP was introduced into the New Zealand electoral process in 1996. The Prime Minister has seen National’s share of the vote actually increase in each of the 3 past elections. This is an extraordinarily impressive achievement, and runs counter to the usual direction of support for an ageing government.

The National Party took 61 of the 121 seats in the New Zealand Parliament, almost double the number of the main opposition Labour Party. To ensure that the government retains a comfortable working majority it will likely continue with its prior alliance with the Maori, United Future and ACT parties, taking its block of votes up to 65 seats1. This is a slight improvement on the prior Parliament, and delivers a larger margin of comfort for the government than most had expected. It also completely removes the need to strike any kind of operational deal with some of the country’s other less apposite political parties.

 A key element of the 2014 election was not just the personal popularity of the Prime Minister, and the strong economic and employment platform from which National were campaigning. The election was also heavily influenced by the very poor performance of the main opposition party, and the ineffectiveness of the various other affiliates who associated around Labour. The Labour party objective appeared to be one of waiting for the Prime Minister to be derailed by one of the journalistic scoops that never quite delivered the coup de grâce that was much anticipated. The content beyond that never really appeared very strong. The end result was the worst outcome for the NZ Labour Party at any election since 1922. NZ Herald writer John Armstrong summed up the election result in bluntly stated but realistic terms, saying

 “A complete and utter – and indisputable – triumph for one man; a total and unmitigated disaster for his many enemies.

 This was slaughter. John Key is now in the elite company of other three-term prime ministers, like Helen Clark.

 And a fourth term cannot be ruled out given the hiding that Key has inflicted on the centre-left.”

 The financial markets will like the fact that the Prime Minister has comfortably earned a working majority and that the New Zealand First party leader, Winston Peters, is not holding the balance of power in his hands. Mr Peters has famously horse-traded between the major parties in the past, effectively selling his support to the highest political bidder.

 There was some concern in the latter days of polling that Peters may again have hollowed out a middle ground position, and been in a position to hold the political process to ransom over coming days. That would have been an uncomfortable and volatile period for the financial markets. Politicians such as Mr Peters have been the beneficiaries of the Mixed Member Proportional voting system that New Zealand uses to elect its MP’s. Fortunately the markets will not have to deal with any of the whimsical and capricious behaviour that has occurred in the days following other recent elections.

 From afar the NZ election appeared to be a very small risk to most foreign investors. They observed New Zealand’s low and falling unemployment and inflation rates, relatively robust growth performance and the beneficial trade relationships that the country holds with the key economies of Asia Pacific. The Prime Minister, and importantly his Finance Minister, were seen as competent and credible representatives of the country, and are generally held in high regard by most foreign investors, and other government leaders. It was therefore difficult for many foreign investors to imagine why the local population might even consider voting the National party out of office.

The answer of course had little to do with the popularity of the Prime Minister and his ruling National Party, and everything to do with the vagaries and peculiarities of the Proportional Representation voting system that the country has used since 1996. As an example of the distortions that are caused by the supposedly less distortionary Proportional Representation voting system, we had the ridiculous outcome on Saturday in which the ACT Party earned just 14,510 Party votes in the whole country, yet they earn representation in Parliament as their MP won the seat of Epsom. By comparison the Conservative Party won no seats, but gained 86,616 Party votes. (The parties either have to win an electoral seat of get more than 5% of the national vote to be awarded Party List seats). The Conservatives earned only 4.1% of the national vote but won no electoral seats. As a result the Conservatives ended up with no Parliamentary representation whatsoever, despite the fact that they earned more Party votes than almost all of the other smaller parties combined.

 What this means is that those small parties with individually effective candidates can achieve Parliamentary representation, whilst others with perhaps a wider support base, do not. On Saturday the Aotearoa Legalise Cannabis party earned almost twice as many Party votes than the United Future party, but they ended up with no seats as they didn’t surpass the 5% threshold, and they didn’t end up winning any single electorate. The Proportional Representation system is neither proportional nor representative and has as many quirks as the more widely used First Past the Post (FPP) voting system that is familiar to most Parliaments operating on the Westminster model. The difference with the FPP system is that the tyranny of the tiny minority is avoided, and there is far less need for the major parties to court narrow interest groups.

 Saturday’s election was the first one since MMP was introduced in which any single party has won more than half of the seats in Parliament. Effectively this is the first election out of the past seven which has delivered a government that hasn’t required the support of a narrow interest group, or smaller party to carry out its mandate. The latest election will therefore see fewer horses being traded than ever before – and that is undoubtedly a good thing for New Zealand.

 Despite the fact that the National Party could rule on its own PM John Key has been quick to extend his hand to his existing coalition partners, and he indicated on Sunday that the preferred path forward will see the government continuing with the current coalition arrangement. Financial markets will be quite comfortable with this approach.

Sean Keane of Triple T Consulting

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