IPREDICT LTD

2014 ELECTION UPDATE #25

Tuesday 8 July 2014

www.ipredict.co.nz

Key Points:

• Maori Party in serious trouble, with 57% chance of leaving Parliament

• Combined Labour/Green vote rises

• Conservatives up at expense of NZ First, but not expected to win seat

• National now expected to win Palmerston North and Waimakariri, and Labour to hold Port Hills and Te Atatu

• NZ First to hold balance of power unless Conservatives win seat, and expected to back National

• John Allen safe as MFAT boss until September

Commentary:

For the first time, the combined wisdom of iPredict’s 7000 registered traders is that the Maori Party will leave parliament after the election on 20 September, with its expected party vote dwindling below 1%, a big slump in its chances of winning Wairariki and a new high of 57% probability that it will win no electorate seats. The combined Labour/Green vote has improved over the last week and the Conservative Party has also gained ground, apparently at the expense of NZ First. Nevertheless, NZ First is still expected to hold the balance of power and decide whether National or Labour will lead the next government. The market is predicting it will opt for the former.

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 slipped marginally to 4.1% (from 4.2% last week).

Unemployment expectations are again 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).

Statistics New Zealand last week announced a current account deficit for the March 2014 quarter of 2.8% of GDP, lower than the 3.1% forecast by iPredict. The forecast deficit for the June quarter is now 3.0% (steady compared with last week), 3.7% in the September quarter (steady) and 4.0% in the December quarter (up from 3.9% last week).

The probability of a fiscal surplus in 2014/15 has slipped to 84% (compared with 86% last week). The surplus forecast for 2014/15 is 0.42% of GDP (down from 0.43% last week) while the forecast for the 2015/16 surplus is 0.974% of GDP (steady), and the forecast surplus for 2016/17 is 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 1.8% in the December quarter(up from 1.7%).

Interest rate expectations are broadly stable this week. The market is forecasting a 79% probability that the Reserve Bank will increase the Official Cash Rate by a further 25 basis points at its next review on 24 July (down from 80% last week). Compared with the rate of 2.5% at the start of 2014, the market is pricing that the OCR will be up 95 basis points in July (steady), 103 in September (down from 104), 114 in October (steady), 124 inDecember (steady), 130 in January 2015 (up from 129) and 146 in March 2015 (up from 145).

Foreign Affairs & Trade

New Zealand’s chances of being elected to the UN Security Council for 2015-16 have recovered marginally to 26% (up from 23% last week). The probability Helen Clark will be appointed the next UN Secretary General is steady at 21%. The probability New Zealand will sign a Free Trade Agreement with South Korea before 1 December 2014 is also steady at 26%, as is the probability the US Congress will ratify the yet-to-be-signed Trans Pacific Partnership (TPP) agreement before 1 July 2015, at 11%, and by 1 July 2017 at 35%. There is a 0% probability that Secretary of Foreign Affairs John Allen will depart from before September 2014.

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 93% probability. The party vote turnout is now expected to be 74.1% (up from 73.4% last week) and comparable with the 74.2% turnout in 2011.

Of major parties, National is expected to win 44.1% of the party vote (steady compared with last week). Labour is steady on 28.6% and the Green Party is up to 12.1%, from 11.5% last week and 10.3% the week before.

Of smaller parties, NZ First’s expected party vote is down to 5.2%, from 6.3% last week and 6.1% the week before. The Conservative Party’s forecast party vote has recovered to 4.0% from 3.4% last week and 3.9% the week before, but is still short of the 5% threshold required for parliamentary representation unless it wins an electorate seat. Act is steady on 2.1% while UnitedFuture is down to 0.4% (from 0.5% last week). Amongst other smaller parties, the Internet Mana alliance is expected to win 2.1% (steady), the Maori Party 0.9% (steeady), and the Aotearoa Legalise Cannabis Party 0.3% (up from 0.2%).

Electorate Contests

Act’s probability of winning at least one electorate seat is 81%, down from 82% last week, but its expected electorate representation is up to 0.85 MPs, from 0.82 last week. The market is pricing that it now has an 80% probability of winning Epsom (down from 88%).

The Conservative Party’s probability of winning at least one seat has risen slightly to 39% (from 36% last week), and its expected electorate representation is also up to 0.39 MPs from 0.35 MPs last week. The Conservatives are not expected to win any specific electorate, however have a 35% probability of winning in East Coast Bays (steady).

UnitedFuture has a 79% probability of winning at least one seat (steady compared with last week) and its expected electorate MP representation is 0.79 MPs (steady). Its probability of winning Peter Dunne’s Ohariu electorate has eased to 77% (from 79% last week).

In the Maori electorates, Mana now has an 85% probability of winning at least one seat (up from 80% last week) and its expected electorate representation is 1.0 electorate MPs, up from 0.98 MPs. The Maori Party is in serious trouble. It now has just a 43% probability of winning a seat, (down from 60% last week) and its expected electorate representation is just 0.51 MPs, down from 0.75 MPs.

Mana’s probability of winning Te Tai Tokerau is up to 85% (from 79% last week) but its chance of winning Waiariki is down to 25% (from 33% last week and 40% the week before). Maori Party Leader Te Ururoa Flavell now has just a 45% probability of winning the seat, down from 57% last week. The probability the Maori Party will retain Tariana Turia’s Te Tai Hauauru electorate is now down to 11%, from 13% last week and 17% the week before, with Labour favoured to win with 89% probability, up from 85% last week and 80% the week before.

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

The four most marginal general seats, excluding those mentioned above, are Palmerston North, Waimakariri, Port Hills and Te Atatu.

In Palmerston North, National’s Jono Naylor has squeezed into first place with a 50% probability of edging out Labour’s Ian Lees-Galloway, on 48%.

There has also been a change in forecast winner in Waimakariri, with National’s Matthew Doocey now having a 53% probability of beating Labour’s Clayton Cosgrove.

In Port Hills, Labour’s Ruth Dyson has recovered and now has a 60% probability of retaining her seat (up from 50% last week) from National’s challenger, Nuk Korako.

In Te Atatu, Labour’s Phil Twyford continues to have a 60% probability of holding the seat ahead of National challenger Alfred Ngaro.

Election Result & Alternative Scenarios

Based on the party-vote and electorate forecasts results above, Parliament would consist of: National 55 MPs (steady compared with last week), Labour 36 MPs (up from 35), the Greens 15 MPs (up from 14), NZ First 7 MPs (down from 8), Act 3 MPs (steady), Internet-Mana 3 MPs (steady) and UnitedFuture 1 MP (steady). Assuming the Maori Party did not win Waiariki, it would no MPs (down from 1). 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 and UnitedFuture would have only 59 seats and could not govern. National could govern with the support the NZ First party with whom it would hold 62 seats. However, Labour would also be able to form a government with Labour, Greens, Internet-Mana and NZ First, with 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.

Were the Maori Party to win Waiariki but the Conservative Party to miss out on East Coast Bays, there would be a one-seat overhang with all other parties having the same seat forecasts as above. National, Act, United Future and the Maori Party would hold a combined 60 seats and could not form a government but nor could any Labour-led combination without NZ First, which would have the balance of power.

Given speculation National may negotiate with the Conservative Party over an electorate accommodation, iPredict has also projected a scenario based on the market’s party vote and electorate forecasts, but with the addition of the Conservative Party winning an electorate. Under that scenario, Parliament would consist of: National 53 MPs, Labour 35 MPs, Greens 15 MPs, NZ First 6 MPs, Conservatives 5 MPs, Act 3 MPs, Internet Mana 3 MPs and UnitedFuture 1 MP. Parliament would have 121 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, Conservative and UnitedFuture parties, who together would hold 62 seats.

In any case, however, iPredict’s bundle of stocks forecasting NZ First’s decision-making should it hold the balance of power indicates Mr Peters would support a National-led Government. There is a 56% probability Mr Peters would support a National-led government (up from 50% last week) and a 3% probability he would give confidence and supply to neither National nor Labour (down from 6%) which would favour the larger bloc which the market indicates would be National-led. There is a 39% probability Mr Peters would support a Labour-led Government, down from 43% probability last week.

Overall, National now has an 80% probability of leading the next government, down from 81% last week.

Post Election Developments

David Cunliffe’s position as Labour leader continues to improve, although overall his future appears bleak. There is now a 50% probability he will depart as leader by the end of 2014 (down from 53% last week and 56% the week before), an 88% probability he will depart by the end of 2015 (down from 89%), a 91% probability he will depart by the end of 2016 (down from 92%), and a 98% probability he will depart by the end of 2017 (down from 99%).

Grant Robertson continues to be strongly favoured to succeed Mr Cunliffe. He has a 70% probability of being the next Labour leader (steady compared with last week), followed by Jacinda Ardern on 9% (up from 8% last week). David Parker and Andrew Little both have a 5% probability of being the next Labour leader, the former having slumped from 16% over the last week.

In National, John Key’s position has eased marginally. He now has a 43% probability of departing as leader by the end of 2015 (up from 41% last week), a 63% probability of departing by the end of 2016 (steady), and an 81% probability he will depart by the end of 2017 (steady).

Steven Joyce remains favoured to succeed Mr Key as National Party leader, and has a 42% probability (steady, followed by Judith Collins on 17% probability (up from 16%) and Simon Bridges on 8% (down from 10%).

The 2017 election remains 50:50 between Labour and National.

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 9.16 am today.

ENDS

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