New Zealand

Politics:

• Analysis

  New Zealand politics: John Key remains popular but has no room for complace

  According to a recent opinion survey, the conservative National Party and its coalition partners retain a lead over the main opposition Labour Party and the Green Party. But the prime minister, John Key, has no room for complacency, given the problems that some of his party's own coalition partners are facing. Between now and the next general election, due in 2014, the success of Mr Key's partial-privatisation programme will have a significant bearing on National's fate at the next poll.

  Although the margin of difference in support for the governing coalition compared with the opposition is small, the continued high levels of support for National and its coalition partners is an impressive endorsement of their handling of the economy and natural disasters in recent years. According to the opinion poll, jointly produced in late February by One News and Colmar Brunton, the ruling coalition-comprising National, United Future, ACT and the Maori Party-has a support rating of 50.3%, which would convert into 67 out of 124 seats in parliament, compared with 64 out of 121 currently. (The total number of seats in parliament can vary from year to year owing to the existence of overhang seats.) With this level of support (and assuming no changes in the electoral system), the government would be returned to power at the 2014 general election. Furthermore, Mr Key remains well ahead of his Labour rival, David Shearer, with the two men boasting 44% and 15% support respectively.

  No room for complacency

  Mr Key has no reason to be complacent, however. Not only has National seen a steady, albeit slight, fall in its support since the last general election in November 2011, but some of its coalition partners are facing tough times. Retaining the parliamentary support of ACT will very much depend on the fortunes of John Banks, the party's electorate (and sole) member of parliament (MP) from Epsom. Should Mr Banks fail to retake his seat, Mr Key would have cause for concern (at the last election ACT failed to obtain the minimum 5% support needed to obtain a list seat, a situation that remains unchanged, according to the latest survey). Mr Banks is a controversial character, having been implicated in a political funding scandal involving a German-born Internet entrepreneur, Kim Dotcom. United Future's sole electorate MP, Peter Dunne, faces similar challenges. Like ACT, United Future's support is well below the 5% threshold, making it an equally fragile coalition partner for National.

  Although the Maori Party's partnership with National is much more limited-it can decide whether to vote with the ruling party on a case-by-case basis except in the case of no-confidence motions and appropriation bills-it provides an important safety net of support for the government. The Maori Party has three electorate MPs, but with their overall party support declining from around 3% in November 2011 to 1% in February 2013, their prospects at the next election are looking increasingly dim. This reflects not only the party's struggle to become more than a one-issue political movement, but also the perception of many leftward-leaning Maori that it has "sold out" to National. Without a unifying issue to rally around, an ethnically based entity such as the Maori Party will continue to struggle to attract the support of Maori voters from across the political spectrum.

  Despite these problems, if an election had been held in February, the National-led coalition would have been returned to government. Thus, the question facing Labour is how to boost its support and thereby strengthen its chances at the next poll. The latest opinion survey puts preference for Labour at 33%, which would convert to 42 seats in the legislature. Since the last election, support for the party has increased, albeit at a slow pace. The Labour leader, Mr Shearer, has so far seemingly made limited progress in building the party's support, but a recent shadow cabinet reshuffle has been interpreted as a sign that he means business in maintaining Labour's position as the main opposition player.

  Tough times for Labour

  But this feat may be difficult for Mr Shearer to achieve. The Green Party was one of the big winners at the November 2011 general election, raising its tally of parliamentary seats from nine to 14. Since then, its support has broadly tacked upwards and the latest survey indicated that it would retain its 14 seats. As the Greens gain greater credibility as a significant opposition force, the party may draw support away from Labour. Collectively, potential coalition partners Labour, the Greens and a small opposition party, Mana, have 44.5% support, according to the survey, which would convert into 57 (out of 124) seats in parliament, up from 49 (out of 121 seats) currently. Despite the improved performance of Labour and the Greens, this does not amount to a parliamentary majority and much work remains to be done before the election in 2014.

  There has been speculation about potential coalitions with the country's fourth-largest political party, New Zealand First. The party sits at the centre of the political spectrum and has, in the past, worked with parties on both the left and right. Yet the recent survey shows a collapse in support for New Zealand First, which is likely to have been a result of various gaffes by its MPs, notably xenophobic remarks in a magazine column written by Richard Prosser in February 2013. New Zealand First currently has seven MPs; however, since all seven are list MPs, at its current levels of support (just 3.9%, below the 5% threshold) the party would lose its entire parliamentary representation at the next general election.

  Between now and 2014 the political landscape could change in various ways. Beyond the implications of proposed changes to New Zealand's electoral system, the successful partial sale of a state energy firm, Mighty River Power-part of Mr Key's asset-privatisation programme-over the next few months would be likely to boost support for National. Despite opposition and an earlier attempted legal challenge, the sale is going ahead and some 35,000 New Zealanders have pre-registered for shares in the company. However, if the recent revelation of financial difficulties at another state company slated for partial sale, Solid Energy, is seen to have negative implications for the government's fiscal plans, particularly its aim to return the budget to surplus by fiscal year 2014/15 (July-June), it could jeopardise National's plans to retain power.

  March 07, 2013

• Background

  New Zealand: Key figures

  John Key

  A former investment banker, Mr Key became prime minister following the general election in November 2008, just two years after becoming the leader of the then opposition National Party. Mr Key takes an inclusive approach to ethnic diversity in New Zealand, and he has proved adept at building alliances across the political spectrum and negotiating compromises when the need arises. Mr Key's spontaneous and optimistic personality continues to appeal to voters, and his personal popularity remains high.

  David Shearer

  Replacing Phil Goff as leader of the opposition and Labour Party following the general election in 2011, Mr Shearer is a relative newcomer to politics. He was elected as a member of parliament (MP) for the Mount Albert constituency in a by-election held in June 2009 following the resignation of the sitting MP, the former prime minister, Helen Clark. Mr Shearer's background is in humanitarian work overseas, having served the UN in various roles. Despite his limited political experience, Mr Shearer is seen as possessing good leadership qualities. These will be put to the test over the course of the current term as he needs to reinvigorate Labour supporters after the party's devastating defeat in November 2011.

  Peter Dunne

  Mr Dunne is the leader and sole parliamentary representative of the centre-right United Future (UF) party, which was formed through the merger of a centrist party, United New Zealand, and a Christian-dominated conservative party, Future New Zealand. Support for UF fell at the 2008 election, following which the party joined the National-led coalition government. Mr Dunne serves as revenue minister, sitting outside the cabinet. Like the other junior coalition partners, UF supports National through a confidence and supply agreement (whereby a coalition partner supports the government during motions of confidence, and on issues of appropriations) signed following the last general election in 2011.

  Tariana Turia and Pita Sharples

  Ms Turia, a former Labour minister, and Mr Sharples, a Maori academic, are co-leaders of the Maori Party, which was formed in 2004, partly in protest against controversial legislation asserting Crown ownership of New Zealand's foreshore and seabed. The Maori Party opted to stay out of alliance arrangements with Labour or National after the 2005 election, but became a junior partner in the National-led four-party coalition government following the 2008 poll. Ms Turia is the minister of disability issues and Whanau Ora (a major contemporary indigenous health initiative that aims to improve delivery of social, educational and other support services to Maori). Mr Sharples is the Maori affairs minister. Both Ms Turia and Mr Sharples sit outside the cabinet. The sensitive nature of Maori affairs could cause sporadic flare-ups between the National and Maori parties in the future.

  August 14, 2012

• Structure

  New Zealand: Political structure

  Official name

  New Zealand

  Form of state

  Parliamentary monarchy

  National legislature

  Unicameral House of Representatives, usually of 120 members (the current chamber has 121), elected for a three-year term using the mixed member proportional representation system

  Electoral system

  Universal direct suffrage over the age of 18

  National elections

  November 2011; the next general election will take place in 2014

  Head of state

  Queen Elizabeth II, represented in New Zealand by the governor-general, Sir Jerry Mateparae

  National government

  The cabinet is presided over by the prime minister, who is appointed by the governor-general on the basis of party strength in parliament. Currently, the National Party leads a coalition that also includes ACT, United Future and the Maori Party

  Main political parties

  National Party (59 seats); Labour Party (34 seats); Green Party (14 seats); New Zealand First (eight seats); Maori Party (three seats); ACT (one seat); United Future (one seat); Mana (one seat)

  Government

  Prime minister, minister for tourism & Security Intelligence Service: John Key (National)

  Deputy prime minister, minister for finance: Bill English (National)

  Ministers

  Attorney-general, arts, Treaty of Waitangi: Chris Finlayson (National)

  Canterbury earthquake recovery & transport: Gerry Brownlee (National)

  Commerce & broadcasting: Craig Foss (National)

  Conservation & food safety: Kate Wilkinson (National)

  Consumer affairs: Chris Tremain (National)

  Defence & state services: Jonathan Coleman (National)

  Economic development, science & innovation, tertiary education, skills & employment: Steven Joyce (National)

  Education & Pacific island affairs: Hekia Parata (National)

  Energy & resources, housing: Phil Heatley (National)

  Environment: Amy Adams (National)

  Foreign affairs & sport: Murray McCully (National)

  Health & state-owned enterprises: Tony Ryall (National)

  Immigration, racing & veterans' affairs: Nathan Guy (National)

  Internal affairs (sitting outside the cabinet): Simon Bridges (National)

  Justice & Accident Compensation Corporation: Judith Collins (National)

  Labour: (vacant)

  Maori affairs (sitting outside the cabinet): Pita Sharples (Maori)

  Police & corrections: Anne Tolley (National)

  Primary industries & local government: David Carter (National)

  Regulatory reform & small business (sitting outside the cabinet): John Banks (ACT)

  Revenue (sitting outside the cabinet): Peter Dunne (United Future)

  Social development & youth affairs: Paula Bennet (National)

  Trade & climate change issues: Tim Groser (National)

  Whanau Ora & disability (sitting outside the cabinet): Tariana Turia (Maori)

  Central bank governor

  Graeme Wheeler

  January 07, 2013

• Outlook

  New Zealand: Key developments

  Outlook for 2013-17

  • New Zealand will continue to benefit from a stable political environment in the forecast period. The National Party-led coalition controls 64 out of a total of 121 seats in the legislature following the November 2011 general election.
  • The administration will remain committed to its existing policy agenda, which in the short term will focus on reconstruction and aid efforts following the September 2010 and February 2011 earthquakes.
  • The government has succeeded in passing legislation for the partial privatisation of a number of state assets, as well as for deep-sea mineral exploration. The plans remain controversial, however.
  • The prime minister, John Key, has made improving the public finances-including returning the budget to surplus by fiscal year 2014/15 (July-June)-central to the agenda for his second term of office, which ends in 2014.
  • Real GDP is forecast to grow by 2.2% in 2013. The economy will expand at an average annual rate of 3.2% in the remainder of the forecast period, largely thanks to improved domestic economic conditions.
  • In 2013 consumer prices will rise by 1.6%, owing to a small pick-up in global non-oil commodity prices and a fall in the value of the New Zealand dollar, which will increase imported inflationary pressures.

  Review

  • The Performance of Services Index, published by a lobby organisation, Business New Zealand, rose for the first time in four months in October, to reach its highest level since November 2011.
  • At its final monetary policy meeting of 2012 the Reserve Bank of New Zealand (RBNZ, the central bank) left its main policy interest rate, the official cash rate, on hold at 2.5%.
  • The RBNZ noted that the global economic outlook appeared "soft but less threatening" than previously. On the domestic front, the latest data suggest that the worst of the economic slowdown has passed.
  • In December the High Court ruled that a government intelligence agency would be investigated, along with the police, as part of the legal challenge of an Internet entrepreneur, Kim Dotcom, to his extradition to the US.

  January 07, 2013

Economy:

• Background

  New Zealand: Country fact sheet

  Fact sheet

  Annual data	2011a	Historical averages (%)	2007-11
  Population (m)	4.4	Population growth	1.0
  GDP (US$ m; market exchange rate)	159,229b	Real GDP growth	0.8
  GDP (US$ m; purchasing power parity)	131,442	Real domestic demand growth	0.7
  GDP per head (US$; market exchange rate)	35,912	Inflation	3.0
  GDP per head (US$; purchasing power parity)	29,645	Current-account balance (% of GDP)	-5.5
  Exchange rate (av) NZ$:US$	1.26b	FDI inflows (% of GDP)	1.6
  a Economist Intelligence Unit estimates. b Actual.

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  Background: New Zealand is one of the smallest OECD economies and is still heavily reliant on agricultural production. Agriculture and manufacturing exports remain important. New Zealand has close trade links with the US and Australia, while China and other East and South-east Asian countries are also significant trading partners.

  Political structure: New Zealand is a democratic state within the Commonwealth of Nations. Executive power is vested in the governor-general, who represents the British Crown. The House of Representatives (the unicameral parliament) normally has 120 members. Elections for the entire chamber are held at maximum intervals of three years; 69 members are elected by geographical constituencies (including seven from Maori seats), while 51 are appointed from party lists in proportion to the share of the party vote received by each party. Following the November 2011 general election the prime minister, John Key, formed a coalition government that controls 64 of parliament's 121 seats (the extra seat is the result of the Maori Party's having won four electorate seats, when it would have received only three based on its share of the party vote).

  Policy issues: In the short term, the government will focus on aid and reconstruction efforts following the Christchurch earthquake in February 2011. This was the second quake to strike the region in six months, and caused considerable damage and loss of life. More broadly, the government will focus its efforts on strengthening the public finances and improving New Zealand's economic performance and productivity, largely by enacting tax reforms. It is also aiming to part-privatise a number of state-owned assets. The government is keen to improve the regulatory environment.

  Taxation: Personal income is taxed at 10.5% for the first NZ$14,000 (around US$11,000), 17.5% on subsequent income up to NZ$48,000 and 30% on income between NZ$48,001 and NZ$70,000. Income above NZ$70,000 is taxed at 33%. A goods and services tax of 15% is levied on final consumption, residential construction and financial services inputs.

  Foreign trade: According to IMF data, exports of goods rose by 20.3% to US$38.4bn in 2011, following an increase of 25.8% in 2010. Goods imports meanwhile increased by 20.6% in 2011, to US$35.6bn. New Zealand has historically run a structural deficit on the current account and will continue to do so throughout the forecast period.

  Major exports 2011	% of total	Major imports 2011	% of total
  Dairy products	25.0	Machinery & electrical equipment	19.8
  Meat products	11.6	Mineral fuels	16.6
  Forestry products	9.4	Transport equipment	12.7
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  Australia	22.7	Australia	15.9
  China	12.3	China	15.7
  US	8.4	US	10.7

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  January 07, 2013

• Structure

  New Zealand: Economic structure

  Data and charts: Annual trends charts

  
  

  

  January 07, 2013

• Outlook

  New Zealand: Country outlook

  New Zealand: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: New Zealand will benefit from a stable political environment during the forecast period, aided by a well-established and transparent political process. General elections are held frequently (a typical parliamentary term lasts between two and three years), but changes of government are smooth. The most recent poll was held in November 2011. The incumbent prime minister, John Key, and his conservative National Party secured a record 59 seats out of 121 in parliament. The National-led coalition--which also includes the Maori Party (with three seats), ACT (one seat) and United Future (also one seat)--controls a total of 64 seats, giving it a slim majority but one sufficient to enable it to govern.

  ELECTION WATCH: The next general election, which is due by 2014, will be held under the existing mixed-member proportional representation (MMP) system. Under the initial recommendations made by the Election Commission on the MMP system, the next poll could see ACT lose its sole parliamentary seat. However, the seat in question, for the Epsom constituency, would be safe for a National candidate.

  INTERNATIONAL RELATIONS: New Zealand's closest diplomatic and economic relationship is with Australia, as formally underpinned by the 1983 Closer Economic Relations agreement. Bilateral ties will deepen in 2013-17. The two governments are negotiating a protocol on a common border, pension portability and joint investment, all of which would help to move the countries closer to their goal of forming a single economic market. The New Zealand administration will remain strongly committed to the principle of free trade, and to the pursuit of free­trade agreements with various trading partners.

  POLICY TRENDS: Mr Key and his government will continue with the policy agenda developed during their first period in office. In the short term, the administration will continue to focus on reconstruction and aid efforts in the Canterbury region, following the earthquakes that struck Christchurch in September 2010 and February 2011. This work is expected to consume considerable fiscal resources. The Reserve Bank of New Zealand (the central bank) estimates that total spending on earthquake-related reconstruction will reach NZ$20bn (around US$15bn). In the medium term, the government will remain committed to fiscal prudence, and it is not expected to allow the budget deficit or the public debt to balloon as a result of the quakes. The high cost of rebuilding Christchurch could be seen as reinforcing Mr Key's argument that the partial sale of a number of state-owned assets is necessary to help to keep in check the fiscal deficit and public debt, as well as to fund other capital expenditure.

  ECONOMIC GROWTH: The Economist Intelligence Unit forecasts that real GDP will grow by 2.2% in 2013. On an expenditure basis, expansion will be driven by fixed investment, which we expect to grow by 7.4% as earthquake-related reconstruction gathers pace. Growth in private consumption will pick up slightly this year, to 2.4%, from an estimated 2.1% in 2012, but expansion will remain below the rates recorded prior to the global financial crisis. This will partly reflect ongoing household cautiousness, which will result in a focus on saving and repaying debt. In addition, the government's fiscal consolidation efforts may constrain domestic demand. The external sector will weigh on economic expansion in 2013, but export growth will accelerate to 4%, from an estimated 1.9% in 2012.

  INFLATION: We forecast an acceleration in the rate of consumer price inflation in 2013, to 1.6% on average, from an estimated 1.1% in 2012. Global non-oil commodity prices will increase slightly in 2013, putting upward pressure on domestic inflation. At the same time, the New Zealand dollar will depreciate against the US dollar, thereby increasing imported inflationary pressures. Further upward pressure on consumer price inflation will be exerted by the rise in the tobacco excise tax at the start of 2013. (The tax rate will be increased in January each year until 2016.) During 2014-17, as post-earthquake reconstruction gathers momentum, spare capacity in the economy will be utilised, generating further inflationary pressure. Demand for labour for reconstruction work will help to reduce unemployment, and this may cause wage pressures to rise marginally. Annual inflation will moderate to 2% on average in 2014-17.

  EXCHANGE RATES: We expect the New Zealand dollar to weaken to NZ$1.4:US$1 on average in 2013, from NZ$1.24:US$1 in 2012. During the remainder of the forecast period we envisage gradual further depreciation in the local currency's value, to an average of NZ$1.5:US$1 in 2017. Given New Zealand's wide and expanding current-account deficit, a bigger fall in the currency's value is possible. However, our benign forecast is based on the positive outlook for domestic economic growth, in addition to expected interest rate rises in the first few years of the forecast period. The New Zealand dollar has historically been popular with investors, and its value has held up well amid the recent bout of instability in global financial markets. We expect this to remain the case, although the volatility of international investor risk appetite and eventual increases in global interest rates mean that a steeper weakening of the currency in 2013-17 cannot be ruled out.

  EXTERNAL SECTOR: New Zealand has traditionally run a current-account deficit, and we forecast that it will continue to do so in the forecast period. We expect the shortfall on the current account to widen to the equivalent of 5.8% of GDP in 2013 and to average 7.4% in 2014-17. In 2013, although price rises for New Zealand's commodity exports and a pick-up in global demand will see export expansion accelerate, import growth will also gain pace owing to a rise in reconstruction-related imports. On the services account, the strong New Zealand dollar makes overseas holidays by local residents more financially attractive, while continued weakness in the country's main European visitor markets will act as a drag on the country's tourism sector. As a result, the services account will remain in the red. The deficit on the income account will be sizeable in 2013-17, reflecting the cost of servicing the country's substantial stock of foreign debt, the low domestic saving rate and the repatriation of profits by foreign-owned firms operating in New Zealand. The trade surplus will grow in the latter part of the period amid a slowdown in reconstruction-related import growth.

  January 07, 2013

• Forecast

  New Zealand: Country forecast summary

  Country forecast overview: Highlights

  • New Zealand will continue to benefit from a stable political environment in 2013­17, underpinned by a well-established and transparent political process. General elections are held every two to three years. At the most recent poll, in November 2011, the incumbent prime minister, John Key, and his conservative National Party secured a record 59 seats out of 121 in parliament. The National-led coalition government controls 64 seats, giving it a slim majority but one that is sufficient to enable it to govern.
  • In the forecast period the economy will expand by an average of 3% a year, owing to steady growth in demand for New Zealand's major exports and strengthening domestic economic conditions. Real GDP is forecast to grow by 2.2% in 2013, following an estimated gain of 1.9% in 2012. Growth will be driven primarily by fixed investment and private consumption this year.
  • Consumer prices will rise in 2013­17, but the pace of increase is expected to remain within the 1­3% medium-term range targeted by the Reserve Bank of New Zealand (the central bank). Inflation is forecast to average 1.6% in 2013.
  • In the forecast period fiscal policy will be aimed at consolidating the public finances, with new spending to be funded by expenditure cuts elsewhere as well as by fresh revenue-generating measures. The funds for new capital expenditure will come from the proceeds of the partial privatisation of a number of state-owned assets, rather than from new borrowing. The budget balance will improve from a deficit equivalent to 6.5% of GDP in fiscal year 2011/12 (July-June) to a small surplus of 0.3% in 2016/17.
  • The New Zealand dollar has remained relatively strong against the US dollar despite global economic uncertainty, averaging an estimated NZ$1.24:US$1 in 2012. The Economist Intelligence Unit expects the local currency to depreciate in the forecast period, to stand at an average of NZ$1.5:US$1 in 2017, despite a substantial current-account deficit that is forecast to widen to the equivalent of 7.1% of GDP on average in 2013-17. Our benign currency outlook is based on the positive prospects for the domestic economy, and on expected interest rate rises in the forecast period.
  • New Zealand's rate of population growth will remain subdued throughout 2013-17, reflecting only moderate net inward migration and lower birth rates. The ageing of the population is proceeding more slowly in New Zealand than in most other OECD countries, but higher dependency ratios (as "baby boomers" begin retiring in large numbers) will start to put pressure on the pension system.

  Country forecast overview: Key indicators

  Key indicators	2012	2013	2014	2015	2016	2017
  Real GDP growth (%)	1.9	2.2	3.1	3.1	2.9	3.6
  Consumer price inflation (av; %)	1.1	1.6	2.1	2.0	1.9	2.1
  Budget balance (% of GDP; fiscal years ending Jun 30th)	-6.5	-2.3	-1.3	-0.4	-0.3	0.3
  Current-account balance (% of GDP)	-4.7	-5.8	-7.1	-7.8	-7.3	-7.4
  Short-term interest rate (av; %)	5.9	6.3	7.8	8.8	9.0	9.0
  Exchange rate NZ$:US$ (av)	1.24	1.40	1.46	1.49	1.48	1.50
  Exchange rate NZ$:¥100 (av)	1.55	1.69	1.68	1.67	1.61	1.64

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  January 07, 2013

View detailed map

Country Briefing

Land area

270,534 sq km, comprising two main islands, North and South, and several smaller islands

Population

4,393,500 (estimated resident population at end-2010)

Urban areas

Population in '000 (March 2006 census):

 Auckland: 1,303

 Wellington (capital): 449

 Christchurch: 348

 Hamilton: 129

 Dunedin: 119

 Tauranga: 104

Climate

Temperate

Weather in Wellington (altitude 126 metres)

Hottest months, January-February, 13-20°C; coldest month, July, 6-11°C (average daily minimum and maximum); driest months, November-February, 87 mm average rainfall; wettest month, July, 143 mm average rainfall; average annual rainfall, 1,240 mm

Language

English; Maori has official status

Measures

Metric system

Currency

New Zealand dollar (NZ$); NZ$1 = 100 cents. Average exchange rate in 2011: NZ$1.27:US$1

Fiscal year

July-June

Time

12 hours ahead of GMT; New Zealand summer time is 13 hours ahead of GMT

Public holidays

January 1st (New Year's Day); January 2nd; February 6th (Waitangi Day); March 29th (Good Friday); April 1st (Easter Monday); April 25th (ANZAC Day); June 3rd (the Queen's birthday); October 28th (Labour Day); December 25th (Christmas); December 26th (Boxing Day)

January 07, 2013