New Zealand's National Party Returned to Power
November 29, 2011
The November 26 elections in New Zealand saw Prime Minister John Key returned to power with a larger share of the seats in Parliament. His center-right National Party received a plurality of the votes (48 percent, up from 45 percent in 2008) and 60 seats in the 121-seat Parliament, one seat short of a majority. The center-left Labour Party received 27 percent of the vote, giving it 34 seats in Parliament. Six other minor parties will have seats allotted based on their performance in the voting or by winning specific local electorates. (Since 1996, New Zealand has used a mixed member proportional representation system under which parliamentary seats are awarded on the basis of the performance of the nation-wide party slate.)
Since 2008, the National Party has governed with the support of the Maori Party and three other parties. Prime Minister Key will again have to form a coalition with at least one of these minor parties in order to constitute a majority government. The Labour and Green Parties will be in opposition. The National Party is set to embark on a series of policies that will reduce the government’s ownership of state-owned assets and craft an austerity plan to reduce the government’s budget deficit and sovereign debt.
Q1: Who is Prime Minister John Key?
A1: The prime minister grew up in Auckland and Christchurch and studied commerce at the University of Canterbury. Starting in the mid-1980s, Key worked in foreign currency exchange in Wellington and Auckland and, in 1995, began working for investment bank Merrill Lynch. While with Merrill Lynch, Key was posted to Singapore, London, and Sydney as the head of Asian foreign exchange and later the global head of foreign exchange. In 1999, he was appointed to the Foreign Exchange Committee of the Federal Reserve Bank of New York.
Key’s time at Merrill Lynch is viewed as giving him the bona fides to deal with New Zealand’s sovereign debt problems and balancing the country’s budget. Having a leader with a pro-business image helped the Nationals in a climate where economic growth is of paramount political importance. Despite his banker past, Key is often described as someone with whom a voter could have a beer.
Since 2002, Key has served as a National Party member of Parliament (MP) from a suburb of Auckland. He served from 2004 to 2006 as the opposition’s shadow finance minister before stepping into the party leadership role after his predecessor stepped down in 2006. In 2008, Key led the Nationals to their first coalition victory since 1996.
Q2: What were the highlights of the election campaign?
A2: The campaign centered on the fragile state of New Zealand’s economy and various economic policies enacted since 2008. The National Party’s proposal to sell state-owned enterprises presented a referendum to New Zealand voters, and they chose to stick with Key’s leadership. Key maintained popularity despite the nation’s slow economic growth, fallout from a devastating earthquake in Christchurch in February, a sovereign-debt downgrade by Standard & Poor’s and Fitch in September, and the ongoing saga of a cargo ship leaking fuel into New Zealand’s coastal waters. The National Party’s strong polling figures ahead of the elections may have contributed to depressed voter turnout (less than 74 percent of voters, the lowest number since the 1880s) because a National victory was viewed as a foregone conclusion.
The main opposition party, Labour, suffered losses in both its share of the vote and the number of seats it held in Parliament. Despite running a tight campaign operation, Labour was fighting off challenges from both its right and left. Labour’s leader, Phil Goff, is not nearly as popular as John Key and was never able to significantly close the gap. Labour’s policies would have increased the budget deficit at a time when the Nationals were promising to eliminate it. With the Green Party increasing its share of the vote on Labour’s left, the party struggled to gain traction.
In the last few weeks of the campaign, an inadvertently recorded conversation between Key and ACT Party’s John Banks stole some headlines. In the conversation, Key reportedly made disparaging remarks about the demographics of New Zealand First Party’s electorate. Key responded by attacking the media outlets responsible for recording and carrying the story. While the issue, dubbed the “Tea Tape scandal,” blew over and never threatened to derail the Nationals’ strong momentum, the full contents of the conversation have not yet been disclosed.
Q3: What were Key’s major contributions in the previous term?
A3: Since 2008, Key’s government has worked to reenergize a stagnant economy, balance the budget, and stop a flood of migrants out of New Zealand. Part of the plan to make New Zealand more attractive for young professionals was cutting the top income tax rate to 33 percent from 38 percent. Corporate taxes were cut to 28 percent from 30 percent.
Although Key pledged to stem the tide of New Zealanders leaving to work in Australia and elsewhere, he was not able to reverse the trend. New Zealand’s unemployment rate has inched up to 6.8 percent, which is still low for developed countries but higher than the 4.8 percent average over the last decade.
Although New Zealand experienced some setbacks in the past year, it appears that voters were able to differentiate between “acts of God” and events in the control of their prime minister. While Key has not been blamed for the credit downgrade—partially due to the debt incurred to rebuild Christchurch—he received praise for New Zealand successfully hosting and winning the Rugby World Cup in October.
Q4: What can we expect following the elections?
A4: Key’s top priority is economic recovery from the global recession and the devastation caused by the Christchurch earthquake in February. The National plan to balance New Zealand’s budget by 2014 is built on a proposal to sell state-owned assets and cut spending. Key plans to sell a minority stake in four key state-owned energy companies and reduce ownership of Air New Zealand. The government will keep a bare majority stake in the companies and ensure that most of the private shares will be held by New Zealand investors. These sales are expected to net at least $3.7 billion in the next few years. Key is claiming his victory as a clear mandate, although polling indicates that 68 percent of New Zealanders oppose the privatization plans. The New Zealand government had sold state-owned assets before, but the effort stalled under the Labour-led government between 1999 and 2008.
The National Party is also expected to reform the distribution of welfare benefits. Although unemployment benefits will not be cut, more accountability will be demanded from recipients. In an effort to boost employment, increases in the minimum wage will be limited.
Key’s previous foreign and trade policies are likely to continue. New Zealand’s relations with the United States are expected to deepen. Secretary of State Hillary Clinton visited New Zealand in November 2010 for meetings that produced the 2010 Wellington Declaration, signaling closer security cooperation. Given the announcement earlier this month of closer cooperation between Australia and the United States, it is expected that the U.S.–New Zealand security relationship will also deepen. Key has promised to keep a small contingent of troops in Afghanistan.
Trade policy in New Zealand cuts across party lines—Labour’s Phil Goff was instrumental in getting the Trans-Pacific Partnership (TPP) launched. The TPP currently includes New Zealand, the United States, and seven other economies spanning both sides of the Pacific. The TPP is expected to boost trade and investment among TPP countries, stimulate economic growth, and create more jobs.
Murray Hiebert is senior fellow and deputy director of the Southeast Asia Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Sakari Deichsel is a researcher with the CSIS Pacific Partners Initiative.
Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
© 2011 by the Center for Strategic and International Studies. All rights reserved.