IPREDICT LTD

2014 ELECTION UPDATE #12

Thursday 3 April 2014

www.ipredict.co.nz

Key Points:

• National favoured to win, and could now govern with the support of existing coalition partners or New Zealand First

• Labour remains below 30% but could still govern with Green, NZ First, Maori, and Mana Party

• Maori Party now forecast to win 2 seats, but Waiariki remains tight

• Labour now just 50% to win 2017 election

• Probability of surplus in 2014/15 improves marginally

Commentary:

National remains the favourite to win the 2014 election and could once again govern with the support of its current support partners, according to the combined wisdom of the more than 7000 registered traders on New Zealand’s online predictions market, iPredict. Although Maori Party Co-Leader Te Ururoa Flavell remains in a tight battle to retain his Waiariki seat, the Maori Party is now forecast to win 2 seats and would therefore be pivotal in forming the next Government, along with NZ First Leader Winston Peters. Despite the Labour Party sitting below 30%, Leader David Cunliffe could still form a government with the support of the Green, New Zealand First, Maori and Mana parties.

Economic Context

Growth expectations have remained steady this week. Statistics NZ is expected to report on 19 June growth of 1.1% in the March 2014 quarter (steady), while the market forecasts growth of 1.1% in the June quarter (up from 1.0% last week), 1.2% in the September quarter (steady) and 1.2% in the December quarter (steady). Forecast annual growth for 2014 remains unchanged at 4.5%.

Expectations for the unemployment rate are unchanged this week. Unemployment continues to be expected to be 5.8% in the March 2014 quarter, 5.7% in the June quarter, 5.5% in the September quarter and 5.5% in the December quarter.

New Zealand’s current account deficit is now expected to be 3.0% in the March 2014 quarter (down from 3.1% last week), 3.5% in the June quarter (up from 3.4% last week), 4.0% in the September quarter and 4.0% in the December quarter (both steady).

There is a 95% probability of a fiscal surplus in 2014/15, (up from 94% last week) with the surplus in 2014/15 still expected to be 0.62% of GDP (steady). The surplus forecast for 2015/16 is expected to be 0.93% of GDP and 2.0% of GDP for 2016/17 (both steady).

Inflationary expectations are broadly steady, with annual inflation still expected to remain around the Reserve Bank’s 2% target midpoint and within the 1-3% band. Annual inflation to the end of theMarch quarter is expected to be 1.6% (steady) and will rise to 1.8% in the June quarter (down from 1.9%), 1.8% in the September quarter (down from 1.9%) and 2.1% in the December quarter(steady).

The market is forecasting a further 25 basis point increase at the next OCR Review on 24 April. Compared with the rate of 2.5% at the start of the year, the market is pricing that the OCR will be up 46 basis points in April (steady), 65 in June (up from 64 last week), 79 in July (steady), 90 in September (steady), 100 in October (up from 99) and 112 in December (steady).

Other Issues

New Zealand’s chances of being elected to the UN Security Council for 2015-16 have improved to 47% probability this week (up from 39% last week). The probability New Zealand will sign a Free Trade Agreement with South Korea before 1 December 2014 remains steady at 47%.

The probability the US Congress will ratify the yet-to-be-signed Trans Pacific Partnership (TPP) agreement before 1 July 2015 is steady at 2.5%, and there remains a 37.8% probability a deal will be ratified by the US Congress by 1 July 2017 (steady).

Election Personnel

All current party leaders, except for Maori Party co-leader Tariana Turia, are strongly expected to remain in their roles until nomination day with at least 95% probability.

Party Vote

A party vote turnout of 74.7% is forecast (steady), marginally up from the 74.2% turnout in 2011.

Of major parties, National is expected to win 44.86% of the party vote, up fractionally from 44.80% last week. Labour has fallen slightly to 29.54%, down from 29.7% last week, while the Green Party’s expected vote has fallen to 10.58%, down from 11.30% last week.

Of smaller parties, NZ First has continued its recent increases in support, and is expected to reach the 5% threshold under the MMP electoral system when parties’ likely support is adjusted to sum to 100%. Winston Peters’ party is now expected to win 5.41% of the party vote, up from 5.18% last week and 5.07% the week before.

The Conservative Party has recovered this week to 3.50% (up from 2.97% last week) but is still short of the 5% threshold required for parliamentary representation.

Act remains below 2%. The party is now forecast to win 1.80% of the party vote, compared with 1.73% of the party vote last week, 1.69% the preceding week, 1.72% three weeks ago, and 2.18% four weeks ago.

Mana’s forecast party vote has slipped fractionally, and is now 1.20%, down from 1.25% last week, 1.09% two weeks ago, and 0.96% three weeks ago.

The Maori Party is now forecast to receive 1.20% (up from 1.06% last week), while the Internet Party has fallen back to 0.80% (down from 0.96%). UnitedFuture is now on 0.60% (up from 0.58%),Aotearoa Legalise Cannabis Party on 0.30% (up from 0.29%), and the Civilian Party and Democrats for Social Credit on 0.10% each (both steady).

Electorate Contests

The Conservative Party now has just a 31% probability of winning at least one electorate seat (down from 33%). Its expected representation remains just 0.37 MPs.

Of electorate bundles launched so far, the Conservatives are not expected to win any specific electorate, with just a 15% probability of winning East Coast Bays, (steady), a 14% probability of winningUpper Harbour (steady), and a 12% probability of winning Rodney (steady).

Mana now has just a 57% probability of winning at least one electorate seat (down from 86% last week), while the Maori Party has also fallen to just 57% probability of winning at least one seat (down from 79% last week). Both the Mana and Maori Party’s expected electorate representation remains steady this week on 1.21 electorate MPs and 0.96 electorate MPs respectively.

The Mana Party appears most likely to retain the Te Tai Tokerau electorate, with 82% probability leader Hone Harawira will win the seat (down from 83% last week). While still close, support for Mana in the Waiariki electorate currently held by Maori Party Leader Te Ururoa Flavell has slipped slightly this week. Mr Flavell has just a 52.5% probability of winning the seat, (steady), with the Mana Party trailing narrowly with 42.6% probability (down from 45% last week). The probability the Maori Party will retain Tariana Turia’s Te Hauauru electorate remains unchanged at 18.2%. Pita Sharples’ Tamaki Makaurau electorate remains safe for Labour with 90% probability it will be won by that party.

UnitedFuture remains fairly secure, while support for the Act Party has slipped this week.

UnitedFuture has an 82% probability of winning at least one seat (steady) and has expected electorate MP representation of 0.84 MPs (steady). Its probability of winning Peter Dunne’s Ohariuelectorate remains 80% (steady).

Act has a 65% probability of winning at least one electorate seat (down from 72% last week) and its expected electorate representation is 0.65 MPs, down from 0.73 last week. It has a 62% probability of winning Epsom (down from 67% last week).

The Greens and NZ First continue not to be expected to win electorate seats.

The four other most marginal seats are Napier, Waimakariri, Rotorua and and Wairarapa. Labour’s support remains steady in Napier, where it has 67% probability of picking up the seat from National, and steady in Waimakariri where it has 71% probability of victory. National’s support in Rotorua has recovered this week following confirmation that Labour will stand former television presenter Tamati Coffey, with National forecast to hold the electorate with 73% probability (up from 69% last week).

Election Result & Alternative Scenarios

Based on the party vote forecasts and the electorate results above, Parliament would be as follows: National 56 MPs (steady), Labour 37 MPs (steady), the Greens 13 MPs (down from 14 last week), NZ First 7 MPs (steady), Act 2 MPs (steady), the Maori Party 2 MPs (up from 1), UnitedFuture 1 MP (steady) and Mana 2 MPs (steady). Parliament would have 120 MPs and a government would be required to have the support of 61 MPs on confidence and supply.

Under this scenario, the current National/Maori Party/Act/UnitedFuture governing arrangement would again be in a position to form a government with 61 seats. National could also govern with the support of NZ First, either through a coalition (63 seats) or through a confidence and supply arrangement. A Labour-led government would also be possible, however would require the support of the Green, NZ First, Mana and Maori parties (61 seats). The Maori Party and NZ First would therefore be pivotal in forming the next Government.

Should Winston Peters have the balance of power after the election, iPredict’s bundle of stocks forecasting NZ First’s decision-making indicates there is now a 38% probability it would provide confidence and supply to a National-led government, up from 37.3% last week. There is a 34.1% probability it would provide confidence and supply to a Labour-led government (down from 35.2% last week), and a 26.9% probability it would not give confidence and supply to anyone (up from 26.4%), which would favour the biggest bloc, which is currently forecast to consist of National/Maori Party/Act/UnitedFuture.

Overall, National has a 74% probability of leading the next government, down marginally from 76% last week, 73% the week before and 72% three weeks ago.

Post Election Developments

The market indicates a 73% probability that David Cunliffe will depart as leader of the Labour Party by the end of 2015 (down from 78% last week, 78% the week before and 76% three weeks ago). There is a 79% chance he will depart by the end of 2016 (down from 82% last week, and 80% two and three weeks ago).

Grant Robertson’s chances of succeeding Mr Cunliffe have slipped slightly to 52%, down from 55% last week. Shane Jones remains second favourite with 20% probability (steady). Support for both Jacinda Ardern and Andrew Little remains unchanged, and they have 11% and 9% respectively.

In National, there is a 35% probability John Key will depart as leader before the end of 2015 (up from 29% last week), a 59% probability he will depart by the end of 2016 (up from 55%) and a 78% probability he will depart by the end of 2017 (up from 77%).

Steven Joyce remains the favourite to succeed Mr Key as National Party leader, with 35.4% probability (steady). Judith Collins is second favourite with 28.2% probability (up from 26.9% last week), just ahead of Simon Bridges who is down slightly to 19.8% probability (from 20% last week).

Labour’s chances of winning the 2017 election have slipped this week, with a 50% probability they will be successful (down from 55% last week).

Miscellaneous

iPredict Ltd is owned by Victoria University of Wellington. Details on the company and its stocks can be found at www.ipredict.co.nz. The weekly political update is prepared by Exceltium Ltd on a pro bono basis and is based on a snapshot taken at a random time each week. This week’s was taken at 08.51 am today.

ENDS

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