IPREDICT LTD

2014 ELECTION UPDATE #17

Tuesday 6 May 2014

www.ipredict.co.nz

Key Points:

• Collins expected to lose all portfolios before election and leadership chances plummet to 8%

• NZ First, Act and Conservatives make gains at National’s expense, with Labour/Green stable

• National still favoured to win election but probability back below 70%, compared with 89% at same time in 2011 election cycle

• Te Atatu and Waimakariri highly marginal

• Cunliffe expected to leave Labour leadership by end of year to be replaced by Robertson, with Little also a possibility

• Key expected to step down as National leader by end of 2015 to be replaced by Joyce, with Bridges also a possibility

• OCR expectations rise marginally with small dip in GDP forecast

• Inflationary expectations remain stable

Commentary:

John Key is expected to step down as leader of the National Party by the end of 2015 to be replaced by Steven Joyce, according to the combined wisdom of the 7000 registered traders on New Zealand’s online predictions market, iPredict. The new forecast for Mr Key’s tenure follows a material fall in National’s chances of forming a government after the election on 20 September, to 69% from 73% last week; a collapse in Judith Collins’ chances of being the next National leader from 27% to 8%; and a 57% probability she will lose will her ministerial portfolios before parliament is dissolved on 14 August.

National’s 69% probability of forming a government is its lowest since early March and well below the 89% probability it had of being re-elected at the same time in the 2011 electoral cycle. Despite the shift in National’s fortunes, David Cunliffe’s forecast tenure as Labour leader has deteriorated marginally over the last week.

Winners this week include NZ First, Act and the Conservatives, whose forecast party votes have crept up at the expense of National, and Grant Robertson, whose probability of being the next Labour leader is now 68%. Andrew Little and Simon Bridges have moved into the second-most favoured slots in Labour and National respectively, ahead of Jacinda Ardern and Ms Collins.

In economic forecasts, there has been a small drop in GDP expectations and a small rise in forecasts for the Official Cash Rate (OCR), while inflationary expectations remain stable.

Economic Context

Growth expectations have eased fractionally this week. Growth in the March 2014 quarter is expected to be 1.0% (steady compared with last week), 1.0% in the June quarter (down from 1.1%), 1.0% in the September quarter (steady) and 1.1% in the December quarter (steady). Forecast annual growth for 2014 remains 4.3%.

There have been no changes to unemployment expectations. Unemployment is expected to be 5.8% in the March 2014 quarter (steady compared with last week), 5.6% in the June quarter (steady), 5.4% in the September quarter (steady) and 5.5% in the December quarter (steady).

Forecasts for New Zealand’s current account deficit are unchanged and remain 3.0% for the March 2014 quarter, 3.6% in the June quarter, 3.9% in the September quarter and 3.9% in the December quarter.

The probability of a fiscal surplus in 2014/15 remains 95% (steady compared with last week). The surplus forecast for 2014/15 is also steady at 0.48% of GDP, as is the forecast for the 2015/16surplus, at 0.931% of GDP, and the forecast surplus for 2016/17, at 2.00% of GDP.

Inflationary expectations remain steady with annual inflation expected to remain below the Reserve Bank’s 2% target midpoint through 2014. Annual inflation to the end of the June quarter is expected to be 1.5%, (steady compared with last week), 1.7% in the September quarter (steady) and 1.6% in the December quarter (steady).

The market is forecasting a 85.8% probability that the Reserve Bank will increase the Official Cash Rate (OCR) by 25 basis points at its next review on 12 June (up from 81.3% last week). Compared with the rate of 2.5% at the start of 2014, the market is pricing that the OCR will be up 72 basis points in June (up from 66 last week,) 86 in July (up from 82), 96 in September (up from 94), 107 inOctober (up from 104), 119 in December (up from 117), 130 in January 2015 (up from 128) and 146 in March 2015 (up from 144).

Other Issues

There is a 57% probability Judith Collins will lose all her ministerial portfolios before parliament is dissolved on 14 August.

New Zealand’s chances of being elected to the UN Security Council for 2015-16 have fallen back to 53%, compared with 60% last week and 52% the week before. The probability Helen Clark will be appointed the next UN Secretary General is up to 40%, from 31% last week. The probability New Zealand will sign a Free Trade Agreement with South Korea before 1 December 2014 is steady at 47%.

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

Party Vote

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. The party vote turnout is expected to be 74.4% (steady), marginally up from the 74.2% turnout in 2011.

Of major parties, National is expected to win 44.96% of the party vote, down from 45.77% last week. Labour is down marginally to 27.77%, from 27.87% last week, while the Green Party is up marginally to 10.38%, from 10.26% last week.

Of smaller parties, NZ First has made a material gain and is expected to win 5.7% of the party vote, up from 5.3% last week. The Conservative Party’s forecast party vote has improved to 4.3%, from 4.2% last week, although is still short of the 5% threshold required for parliamentary representation unless it wins an electorate seat. Act is up to 2.7% from 2.2% last week and UnitedFuture is down to 0.5% from 0.6% last week.

Mana is on 1.1%, up from 1.0% last week, while the Maori Party is on 1.0%, down from 1.1% last week. The Internet Party is steady on 1.2% while the Aotearoa Legalise Cannabis Party has made a small gain to 0.30% from 0.29% last week.

Electorate Contests

The Conservative Party’s probability of winning at least one seat is now 31%, up from 30% last week, but its expected electorate representation is up to 0.40 MPs from 0.31 last week. The Conservatives are not expected to win any specific electorate. Their probability of winning East Coast Bays is 30% (down from 31% last week), their probability of winning Upper Harbour is up to 16% (compared with 12% last week) and their probability of winning Rodney is 12% (steady).

Act’s probability of winning at least one electorate seat is up to 72%, from 70% last week, and its expected electorate representation is up to 0.73 MPs from 0.71 last week. The market is pricing that it has a 71% probability of winning Epsom (steady).

UnitedFuture prospects remain broadly unchanged this week. It has a 79% probability of winning at least one seat (up from 78% last week) and has expected electorate MP representation of 0.79 MPs (steady). Its probability of winning Peter Dunne’s Ohariu electorate remains 79% (steady).

In the Maori electorates, Mana now has an 82% probability of winning at least one seat (up from 81% last week) and its expected electorate representation is 1.0 electorate MPs (steady). The Maori Party retains just a 57% probability of winning a seat (steady) and its expected electorate representation is 0.71 MPs (steady).

Mana’s probability of winning Te Tai Tokerau is 80%, up from 75% last week, but the probability it will win Waiariki has fallen to 40% (from 43% last week) behind Maori Party Leader Te Ururoa Flavell on 60% probability (up from 55%). The probability the Maori Party will retain Tariana Turia’s Te Hauauru electorate remains unchanged on 20%, with Labour favoured to win with 80% probability.

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

The six most marginal general seats are now Te Atatu, Waimakariri, Hamilton East, Wairarapa, Port Hills and Napier.

In Te Atatu, Labour’s Phil Twyford appears to be in serious trouble, with just a 50% probability of holding the seat from a National challenger, down from 71% last week. National has a 50% probability of picking up the seat.

In Waimakariri, Matthew Doocey has a 50% probability of holding the seat for National, with Labour’s Clayton Cosgrove having a 48% probability of picking it up for Labour (down from 75% last week).

In Hamilton East, National’s David Bennett continues to be in serious trouble with just a 55% chance (steady) of retaining his seat ahead of his Labour challenger, Cliff Allen.

Wairarapa continues to become more marginal for National, with Alastair Scott having just a 57% probability (down from 60%) of retaining retiring MP John Hayes’ seat over Labour’s Kieran McAnulty.

In contrast, Labour’s Ruth Dyson has made some progress in Port Hills over the last week, and now has a 60% probability of retaining the seat (up from 53% last week) from a National challenger.

Labour’s Stuart Nash continues to have a 65% probability of taking Napier from National.

Election Result & Alternative Scenarios

Based on the party vote forecasts and the electorate results above, Parliament is unchanged from last week: National 58 MPs, Labour 36 MPs, the Greens 13 MPs, NZ First 7 MPs, Act 3 MPs and Mana, the Maori Party and UnitedFuture 1 MP each. 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, National would enjoy a number of potential governing arrangements. A National/Act government would have 61 seats, a National/Act/UnitedFuture Government 62 seats, a National/Act/UnitedFuture/Maori Party Government 63 seats or a National/NZ First Government 65 seats. There is no viable scenario where the Labour Party could form a government.

In light of speculation about a Mana/Internet Party arrangement, iPredict has also modelled what would happen if the parties merged for the purposes of the party vote and maintained their combined forecast party vote of 2.3%. Under such a scenario, National would have 57 seats, Labour 35, the Greens 13, NZ First 7, Mana/Internet 3, Act 3 and the Maori Party and UnitedFuture 1 each. 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, National would again be re-elected and have multiple governing arrangements available. National/Act/UnitedFuture would have 61 MPs, National/Act/UnitedFuture/Maori Party 62 seats and National/NZ First 64 seats. A Labour/Green/Mana-Internet/NZ First government would have 58 MPs, and be unable to form a government.

Should Winston Peters have the balance of power after the election, iPredict’s bundle of stocks forecasting NZ First’s decision-making indicates identical chances he would facilitate a National- or Labour-led government. There is a 49% probability he would give confidence and supply to Labour (up from 40% last week) and a 32% probability he would give confidence and supply to National (down from 44% last wee)k. However, there is a 17% probability he would give confidence and supply to neither (up from 15% last week), favouring the larger bloc, which the market indicates would be National-led.

Overall, it has been a bad week for National. The party now has a 69% probability of leading the next government. This is down from 73% last week and its lowest probability of forming a government since the update on 4 March. It is also well below the 89% probability National had of being re-elected at the same time in the 2011 electoral cycle.

Post Election Developments

Despite this, David Cunliffe’s position as Labour leader has not improved this week. There is now a 66% probability he will depart as leader by the end of 2015, up from 64% last week, a 74% chance he will depart by the end of 2016, up from 71% last week, and an 82% he will step down by the end of 2017, up from 80% last week.

Grant Robertson is now strongly favoured to succeed Mr Cunliffe. He has a 68% probability of being the next Labour leader (up from 60% last week), followed by Andrew Little on 16% (up from 7%) and Jacinda Ardern on 14% (down from 24%).

In National, John Key now has a 54% probability of departing as leader by the end of 2015 (up from 35% last week), a 70% probability of departing by the end of 2016 (up from 55%) and an 87% probability he will depart by the end of 2017 (up from 80%).

Steven Joyce is now clearly favoured to succeed Mr Key as National Party leader, with 57% probability (up from 37% last week), followed by Simon Bridges on 24% (up from 10% last week). After the issues of the last week, Judith Collins has just an 8% probability of being the next National leader, down from 27% last week.

Labour’s chances of winning the 2017 election are steady on 53%.

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 9.49 am today.

ENDS

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