22 Sep 2014
Business the big winners of the NZ election
Investors looking at New Zealand's election result from across the Tasman and up in North Asia should be breathing a big sigh of relief. They may even open a bottle of champagne or two at the re-election, for a third term, of a centre-right government with a strong mandate for economic reform.
"The result [has] strengthened Key's hand for more pro-business reform of environment and labour laws."
Bernard Hickey, Publisher at Hive News
Voters in New Zealand have overwhelmingly rejected centre-left proposals for bans on foreign buying of assets, monetary policy reform, a re-regulation of the electricity market and the introduction of a capital gains tax, in an election result that even pleasantly surprised re-elected Prime Minister John Key.
The scale of the win by Key's National Party was the biggest since 1951, while Labour's support slumped to its lowest level since 1922. Elsewhere, the centre-left Labour-Green block lost three seats.
A fractious and often bizarre campaign was dominated by allegations National used 'dirty politics' and had approved mass surveillance by security services. But voters reacted against that focus and the involvement of controversial German tech millionaire Kim Dotcom in the campaign to remove Key, who has been New Zealand's most-popular Prime Minister in decades. The Internet Mana party, funded by Dotcom, was dumped from Parliament.
More importantly, the result strengthened Key's hand for more pro-business reform of environment and labour laws, and removed any doubt about the shape of the government and when it would be formed.
Polls had suggested Key's National Party would secure enough votes to win Government for a third consecutive term, but would need the support of either of the more nationalist New Zealand First or Conservative parties.
This would have forced some sort of concession to their calls for bans on foreign buying of land and homes, and would have made further reform of resource management and employment laws much more difficult.
The need for coalition negotiations may also have left the identity of the government in limbo for weeks, creating uncertainty for financial markets.
Instead, voters delivered an historic increase in National's share of the vote to a record high 48.06 per cent from 47.31 per cent in the 2011 election, giving it 61 MPs in the 121 member single House of Parliament, including the extra two MPs it needed to essentially govern alone.
Previously, National needed the support of United Future's only MP, Peter Dunne, the ACT Party's only MP, John Banks, and the Maori Party's three MPs. Opposition from Dunne and the Maori Party to National's Resource Management Act (RMA) reforms forced Key to shelve them earlier this year, while the early resignation of Banks in June put Employment law reform on hold.
The extra two National MPs means National could pass legislation on its own, or if necessary with the new ACT MP, David Seymour, who is expected to support both the RMA and employment reforms.
The ability for National to pass legislation on its own is unprecedented in the post-1996 era of proportional representation, which has always forced the dominant party to form a coalition arrangement or gather support on a case-by-case basis.
It also contrasts with Australia, where the current centre-right Liberal-led coalition controlling the lower house of the Federal Parliament has to negotiate with parties in the upper house, along with much stronger state Governments.
New Zealand doesn't have an upper house or a federal system of government, giving the central government's cabinet much stronger power if the governing party has control of parliament. New Zealand's central government controls all income and consumption taxation, and all spending on welfare, education and health.
The RMA reforms will be most welcomed by business leaders and investors, particularly given opinion polls before the election suggested National would struggle to form a coalition willing to support the changes.
Polling in the last week of the campaign had National around 46.4 per cent, which would have forced Key to ask for the support of the Winston Peters-led New Zealand First, which opposed the Government's RMA reforms.
National proposed the reforms last year as a way to speed up resource consenting and increase the emphasis of economic development in the law, which has previously been more focused on environmental protection. Environmental activists accused the Government of trying to water down protections for the environment.
National argued it needed the RMA reforms to speed up consenting of new house building and to speed up development of agricultural production and mining.
The expansion of dairying was a point of contention in the election campaign, given increasingly intense use of land has increased nitrate and phosphate levels in waterways.
Both the Labour and Green Parties proposed to toughen rules on water quality to make all rivers "100 per cent swimmable", which National said would cost "billions" to implement and slow down or reverse the growth of dairying. The Green Party has also proposed a carbon tax and a charge for water use for irrigation.
Federated Farmers has called National's win a clear mandate for RMA reforms.
Employers have also welcomed the likely revival of employment law reforms, which had been stalled. These include allowing employers to pull out of collective bargaining if an agreement could not be found and to pull out of multi-employer collective agreements.
New employees will also be allowed to pull out of collective agreements immediately, rather than after 30 days under previous rules. Employees would also be able to negotiate more flexible working arrangements around meal breaks and working hours. Unions have strongly opposed the changes.
Against most expectations, investors and employers can now be sure of the government's ability to deliver on its plans to reform those environment and labour laws to increase economic growth over the next three years.
That assurance could last even longer. Key, who is only 53, said after his election victory speech that he wanted a fourth term from 2017.
Conversely, the Labour Party launched immediately into a divisive fight for its leadership.
Current leader David Cunliffe has vowed to fight on in the face of criticism from at least three rivals, including former leader David Shearer, former deputy leader Grant Robertson and young aspirant Stuart Nash.
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.