IPREDICT LTD

2014 ELECTION UPDATE #23

Wednesday 25 June 2014

www.ipredict.co.nz

Key Points:

• Support for NZ First increases

• Winston Peters forecast to hold balance of power and back National

• National able to govern without NZ First if Conservatives win an electorate

• 2017 election race narrows

• Ruth Dyson now in tight battle in Port Hills with National’s Nuk Korako

• Probability of fiscal surplus in 2014/15 falls

• Other major economic forecasts unchanged

Commentary:

Winston Peters’ NZ First Party will hold the balance of power after this year’s election and will support a National-led government, according to this week’s snapshot of the combined wisdom of the 7000 registered traders on New Zealand’s online predictions market, iPredict. National would not require the support of NZ First should the Conservatives win an electorate, although current forecasts Conservatives Leader Colin Craig is trailing in East Coast Bays. The probability of New Zealand recording a fiscal surplus in 2014/15 has deteriorated this week, while all other major economic forecasts are unchanged and the Reserve Bank of New Zealand is still expected to raise the OCR at its next review in July.

Economic Context

Growth expectations remain unchanged this week. Growth in the June quarter is still expected to be 1.0% (steady compared to last week), 1.0% in the September quarter (steady) and 1.1% in the December quarter (steady). Forecast annual growth for 2014 has, however, fallen to 4.2% (down from 4.4% last week).

Unemployment expectations are also unchanged this week. Unemployment is expected to be 5.7% in the June quarter (steady compared with last week), 5.5% in the September quarter (steady) and 5.5% in the December quarter (steady).

Forecasts for New Zealand’s current account are unchanged this week. The deficit is still expected to be 3.1% for the March 2014 quarter (steady compared with last week), 3.0% in the June quarter (steady), 3.7% in the September quarter (steady) and 3.9% in the December quarter (steady).

The probability of a fiscal surplus in 2014/15 has slipped to 86% (down from 90% last week). The surplus forecast for 2014/15 is 0.43% of GDP (down from 0.45%), while the forecast for the 2015/16 surplus is 0.974% of GDP (steady), and the forecast surplus for 2016/17 remains 2.00% of GDP (steady).

Inflationary expectations are unchanged this week and continue 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 1.7%, (steady), 1.6% in the September quarter (steady) and 1.7% in the December quarter(steady).

The market is forecasting a 83% probability that the Reserve Bank will increase the Official Cash Rate by a further 25 basis points at its next review on 24 July (up from 70% last week). Compared with the rate of 2.5% at the start of 2014, the market is pricing that the OCR will be up 97 basis points in July (up from 93), 105 in September (up from 101), 116 in October (up from 112), 124 in December (up from 121), 129 in January 2015(up from 126) and 145 in March 2015 (up from 142).

Other Issues

There is a 4% probability Judith Collins will lose all her ministerial portfolios before parliament is dissolved on 14 August, down from 7% last week, 10% three weeks ago and 19% four weeks ago.

New Zealand’s chances of being elected to the UN Security Council for 2015-16 have improved to 48% (up from 42%, last week). The probability Helen Clark will be appointed the next UN Secretary General remains 20%, steady compared to last week. The probability New Zealand will sign aFree Trade Agreement with South Korea before 1 December 2014 is unchanged at 52%.

The probability the US Congress will ratify the yet-to-be-signed Trans Pacific Partnership (TPP) agreement before 1 July 2015 is 11% (steady), and there remains a 35% probability a deal will be ratified by the US Congress by 1 July 2017 (steady).

Party Vote

All current party leaders, except for Maori Party co-leaders Tariana Turia, are strongly expected to remain in their roles until nomination day with at least 93% probability. Labour Party Leader David Cunliffe now has a 93% probability of leading his party on nomination day, having fallen to just 75% probability last week. The party vote turnout is still expected to be 77.7% (steady compared to last week), up from the 74.2% turnout in 2011.

Of major parties, National is expected to win 44.6% of the party vote, down from 45% last week. Labour has improved to 29.4%, from 28.9% last week, while the Green Party is down to 10.3%, from 10.5% last week.

Of smaller parties, NZ First is expected to win 6.1% of the party vote, up from 5.3% last week. The Conservative Party’s forecast party vote has fallen to 3.9%, down from 4.2% last week, and still short of the 5% threshold required for parliamentary representation unless it wins an electorate seat. Support for Act is 2.0% (down from 2.3% last week), while support for UnitedFuture remains at 0.5%.

Amongst other smaller parties, the Internet Mana alliance is expected to win 2.1%, the Maori Party 0.8%, and the Aotearoa Legalise Cannabis Party0.2%, all of which are unchanged this week.

Electorate Contests

Act’s probability of winning at least one electorate seat is 83%, up from 81% compared to last week, and its expected electorate representation is now 0.80 MPs, down from 0.82 MPs. The market is pricing that it has an 82% probability of winning Epsom (steady).

The Conservative Party’s probability of winning at least one seat has fallen this week to 36%, down from 45%, and its expected electorate representation has increased to 0.37 MPs from 0.48 MPs last week. The Conservatives are not expected to win any specific electorate, however have a 33% probability of winning in East Coast Bays (down from 37% last week) following confirmation that party leader Colin Craig will contest that electorate.

UnitedFuture prospects remain unchanged this week. It has a 79% probability of winning at least one seat (steady compared to last week) and its expected electorate MP representation is 0.80 MPs (steady). Its probability of winning Peter Dunne’s Ohariu electorate remains 79% (steady).

In the Maori electorates, Mana now has an 85% probability of winning at least one seat (up from 83% last week) and its expected electorate representation is 1.1 electorate MPs, steady. The Maori Party has a 58% probability of winning a seat (up from 57%) although its expected electorate representation has fallen to 0.72 MPs, down from 0.77 MPs.

Mana’s probability of winning Te Tai Tokerau remains 83%, steady compared to last week, and its support has slipped again in Waiariki where it has 40% probability of winning (down from 43% last week), behind Maori Party Leader Te Ururoa Flavell on 57% probability (up from 55% last week). The probability the Maori Party will retain Tariana Turia’s Te Hauauru electorate is 17% (down from 20%), with Labour favoured to win with 85% probability (up from 80%).

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

The six most marginal general seats, excluding the aforementioned Waiariki, East Coast Bays and Te Tai Tokerau electorates, are now Palmerston North, Te Atatu, Port Hills, Waimakariri, Tamaki Makaurau, and Hamilton East.

In Palmerston North, there is no change where Labour’s Ian Lees-Galloway has a 55% probability (steady) of retaining the seat from National candidate and Palmerston North Mayor Jono Naylor who has 45% probability (steady).

In Te Atatu, Labour’s Phil Twyford still has just 55% probability of holding the seat (steady), ahead of National challenger Alfred Ngaro on 45% (steady).

In Port Hills, Labour’s Ruth Dyson has a 65% probability of retaining her seat (down from 73%), ahead of National’s Nuk Korako who has a 38% probability.

In Waimakariri, Labour’s Clayton Cosgrove has 67% probability of winning the seat (steady) ahead of National’s Matthew Doocey on 33% (steady), while in Tamaki Makaurau, Labour’s Peeni Henare has a 67% probability of winning the seat (steady) currently held by retiring Maori Party MP Dr Pita Sharples.

In Hamilton East, support for incumbent National MP David Bennett has increased and he now has a 71% probability of winning the seat (up from 53% last week), ahead of Labour challenger Dr Cliff Allen who has a 31% probability (down from 48% last week).

Election Result & Alternative Scenarios

Based on the party vote forecasts and the electorate results above, Parliament would consist of: National 55 MPs, Labour 37 MPs, the Greens 13 MPs, NZ First 8 MPs, Act 2 MPs, Internet Mana 3 MPs and 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, Act, United Future and the Maori Party would hold 59 seats and be short of the 61 seats required to form a government. National could govern with the support the NZ First party with whom it would hold 63 seats. However, Labour would also be able to form a government with Labour, Greens, NZ First and Internet Mana forecast to hold a combined 61 seats. NZ First would therefore hold the balance of power and be in a position to choose whether New Zealand had a National or Labour government.

With growing speculation National may negotiate with the Conservative Party over an electorate accommodation, iPredict has also projected a scenario based on the party vote forecasts and the electorate results above, with the addition of the Conservative Party winning an electorate. Under that scenario, Parliament would consist of: National 54 MPs, Labour 35 MPs, Greens 12 MPs, NZ First 7 MPs, Act 2 MPs, Conservatives 5 MPs, Internet Mana 3 MPs, and 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 support. National would be able to govern with the support of the Act and Conservative parties who together would hold 61 seats, with UnitedFuture and the Maori parties each providing an additional seat, or with the support of the NZ First party who together would hold 61 seats. A National, Conservative and NZ First Party government would hold 66 seats.

iPredict’s bundle of stocks forecasting NZ First’s decision-making should it hold the balance of power indicates Mr Peters would now support a National-led Government. There is a 54% probability Mr Peters would support a National-led government (up from 46% last week) and a 7% probability he would give confidence and supply to neither (up from 3%) which would favour the larger bloc which the market indicates would be National-led. There is a 38% probability Mr Peters would support a Labour-led Government, down from 50% probability last week.

Overall, National now has an 80% probability of leading the next government, up from 79% last week.

Post Election Developments

David Cunliffe’s position as Labour leader has improved slightly this week. There is now a 56% probability he will depart as leader by the end of 2014 (down from 64% last week), a 74% probability he will depart by the end of 2015 (down from 78%), a 78% probability he will depart by the end of 2016 (down from 82%), and an 87% probability he will depart by the end of 2017 (up from 89%).

Grant Robertson continues to be strongly favoured to succeed Mr Cunliffe. He has a 66% probability of being the next Labour leader (down from 69% last week), followed by Jacinda Ardern on 13% (down from 18%) and Andrew Little on 7% (up from 5%).

In National, John Key now has a 50% probability of departing as leader by the end of 2015 (down from 51% last week), a 67% probability of departing by the end of 2016 (down from 68%), and an 84% probability he will depart by the end of 2017 (steady).

Steven Joyce remains favoured to succeed Mr Key as National Party leader, however his support has fallen significantly to 35% probability (down from 43% last week), followed by Judith Collins on 14% probability (up from 13%) and Simon Bridges on 10% (up from 9%).

Labour’s chances of winning the 2017 election have fallen to 53% (down from 55%).

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 8.37 am today.

ENDS

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