IPREDICT LTD

2014 ELECTION UPDATE #30

Tuesday 12 August 2014

www.ipredict.co.nz

Key Points:

• Internet-Mana to have five MPs

• NZ First to hold balance of power

• Key to lead National/NZ First governing arrangement

• Fiscal surplus in 2014/15 remains unlikely

• Labour back in front in Palmerston North

• Cunliffe’s position as Labour leader strengthens

• National fractionally ahead for 2017

Commentary:

For the first time, the 7000 registered traders on New Zealand’s online predictions market, iPredict, are picking the Internet-Mana Party to win five seats at the next election, bringing Chris Yong into parliament along with Hone Harawira, Laila Harre, Annette Sykes and John Minto. The boost for Internet-Mana is despite Mr Harawira’s chances of winning Te Tai Tokerau falling to a new low of 71%, although this is balanced by Ms Sykes’ chances of winning Waiariki improving to 34%. The Maori Party is again expected to leave parliament altogether.

Meanwhile, the major parties’ vote shares have remained broadly steady over the last week, with Winston Peters’ NZ First again holding the balance of powerbetween National/Act/UnitedFuture and Labour/Green/Internet-Mana, and expected to choose the former.

In electorate contests, Labour has edged ahead again in Palmerston North while National remains fractionally ahead in Port Hills.

The probability of a fiscal surplus in 2014/15 has improved but remains below 50%. Interest-rate expectations have edged up and inflationary expectations have edged down.

Economic Context

Growth expectations remain steady this week. Growth in the June quarter is now expected to be 0.9% (steady compared with last week), 1.0% in the September quarter (steady) and 1.2% in the December quarter (steady). Forecast annual growth for 2014 is steady on 4.1%.

Stocks forecasting growth in the March 2015, June 2015, September 2015 and December 2015 quarters are now open for trading, but have not yet attracted sufficient volumes to make robust forecasts.

June unemployment was reported by Statistics New Zealand to have been 5.6%, slightly lower than last week’s iPredict forecast of 5.7%. Future unemployment expectations remain unchanged. Unemployment is expected to be 5.5% in the September quarter (steady compared with last week) and 5.5% in the December quarter (steady).

Forecasts for the current account deficit also remain steady. The forecast deficit for the June quarter is 2.8% of GDP (steady compared with last week), 3.7% in the September quarter (steady) and 3.9% in the December quarter (steady).

The fiscal outlook has improved slightly, although there is still only a 48% probability of a fiscal surplus in 2014/15 (up from 34% last week). The surplus forecast for 2014/15 is now 0.21% of GDP, up from 0.06% last week. Future surplus forecasts are steady at 1.0% of GDP in 2015/16, 2.0% for 2016/17 and 2.4% for 2017/18.

Short-term inflationary expectations have again eased marginally this week and remain below the Reserve Bank’s 2% target midpoint through 2014. Annual inflation to the end of the September quarter is expected to be 1.5% (down from 1.6% last week) and 1.7% in the December quarter (steady).

Stocks forecasting inflation in the March 2015, June 2015, September 2015 and December 2015 quarters are now open for trading, but have not yet attracted sufficient volumes to make robust forecasts.

Interest-rate expectations have edged up marginally this week. Compared with the rate of 2.5% at the start of 2014, the market is pricing that the OCR will be up 101 basis points in September (steady compared with last week), 105 in October (up from 104), 112 in December (up from 110), 117 in January 2015 (up from 115), 133 in March 2015 (up from 132), 142 in April 2015 (up from 140) and 158 in June 2015 (up from 156).

There is a 90% probability the Reserve Bank will leave the OCR unchanged on September 11, nine days before the election.

Party Vote

All current party leaders are expected to remain in their roles until nomination day with at least 97% probability. The party vote turnout is expected to be 74.4% (steady compared with last week).

Of major parties, National is expected to win 44.7% of the party vote (up from 44.6% last week). Labour is expected to win 28.3% (down from 28.6%) and theGreen Party is expected to win 10.6% (up from 10.3%) meaning the combined Labour/Green vote is steady.

Of smaller parties, NZ First’s expected party vote is 5.5% (down from 5.8% last week), the Conservative Party is on 4.0% (down from 4.2%), Internet Mana is on 3.7% (up from 3.4%), Act is on 1.8% (steady), the Maori Party is on 0.7% (steady), UnitedFuture is on 0.2% (steady), the Aotearoa Legalise Cannabis Party is on 0.2% (steady) and the Civilian Party is on 0.1% (steady)

Electorate Contests

In electorate contests, Mana has a 73% probability of winning at least one seat (down significantly from 87% last week) but its expected electorate representation remains 1.1 MPs (steady). The probability Mana leader Hone Harawira will win Te Tai Tokerau has fallen sharply to 71% (down from 85% compared with last week) but its candidate in Waiariki, Annette Sykes, has restored her position to 34% probability of winning (up from 27%).

Act’s probability of winning at least one electorate seat is 84% (down from 85% last week), and its expected electorate representation is 0.9 MPs (steady). The market is pricing that its candidate David Seymour has an 83% probability of winning Epsom (down from 85% last week).

UnitedFuture has an 85% probability of winning at least one seat (down from 86% last week) and its expected electorate MP representation is 0.8 MPs (down from 0.9 MPs last week). Its probability of winning Peter Dunne’s Ohariu electorate is 83% (down from 86% last week).

The Maori Party continues to be set to leave parliament. It now has only a 42% probability of winning an electorate (down from 48% last week) and its expected electorate representation remains 0.6 MPs (steady). The probability co-leader Te Ururoa Flavell will win Waiariki is now 40% (down from 45% last week).

The Conservative Party, the Greens and NZ First continue not to be expected to win electorate seats.

The five most marginal seats, excluding Waiariki mentioned above, are Port Hills, Palmerston North, Waimakariri, Christchurch Central and West Coast-Tasman.

In Port Hills, National challenger Nuk Korako now has a 50% probability of defeating Labour incumbent Ruth Dyson (down from 53% last week), with Ms Dyson on 48% probability.

In Palmerston North, Labour incumbent Ian Lees-Galloway has edged ahead of National’s Jono Naylor, with a 53% probability of winning the seat (compared with a 50:50 dead-heat last week).

In Waimakariri, National’s Matthew Doocey now has a 60% probability of holding out Labour’s Clayton Cosgrove (up from 53% last week).

In Christchurch Central, Labour’s Tony Milne continues to have a 67% chance of defeating National incumbent Nicky Wagner (steady compared with last week).

In West Coast-Tasman, Labour incumbent Damien O’Connor has a 67% chance of holding out against National’s Maureen Pugh (down from 69% last week).

Election Result & Alternative Scenarios

Based on the party-vote and electorate forecasts above, Parliament would consist of: National 56 MPs (down from 57 last week), Labour 36 MPs (down from 37), the Greens 13 MPs (steady), NZ First 7 MPs (steady), Internet-Mana 5 MPs (up from 4), Act 2 MPs (steady) and UnitedFuture 1 MP (steady). The Maori Party would not retain any seats. 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 could only govern with the support of NZ First with whom it would hold 63 seats (down from 64 last week). Labour could also form a government with the Greens, Internet-Mana and NZ First, with a combined 61 seats.

Were the Maori Party to win Waiariki, Parliament would be the same as above except that Labour would have 35 MPs and the Maori Party one. NZ First would continue to hold the balance of power.

iPredict also has a bundle of stocks forecasting NZ First’s decision-making if it does hold the balance of power. There is a 56% probability NZ First would support a National-led government (up from 53% last week) and a 7% probability it would give confidence and supply to neither National nor Labour (down from 12% last week) favouring the larger bloc, which the market indicates would be National-led. There is a 33% probability NZ First would support a Labour-led Government (down from 34%).

Overall, National now has an 83% probability of leading the next government, up from 81% last week.

Post Election Developments

David Cunliffe’s immediate position as Labour leader continues to improve. There is now only a 56% probability he will depart as leader by the end of 2014 (down from 58% last week and 65% the week before), a 78% probability he will depart by the end of 2015 (down from 80% last week and 86% the week before), an 84% probability he will depart by the end of 2016 (down from 85% last week and 88% the week before) and a 93% probability he will depart by the end of 2017 (steady).

In National, John Key’s short-term position has weakened. He now has a 15% probability of departing by the end of 2014 (up from 12% last week and 11% the week before), a 34% probability of departing as leader by the end of 2015 (up from 31% last week), a 56% probability of departing by the end of 2016 (up from 52%), and an 81% probability of departing by the end of 2017 (down from 82%).

Grant Robertson has a 60% probability of being the next Labour leader (steady compared with last week). David Parker remains in second-place with 16% probability (steady), followed by Andrew Little on 13% (up from 9%).

In National, Steven Joyce has a 42% probability of succeeding Mr Key as National Party leader, (up from 40% last week). Judith Collins remains in second place with 19% probability (up from 18%), followed by Paula Bennett on 10% (up from 6%).

National continues to be favoured to win the 2017 election, with 50% probability (steady), ahead of Labour on 47% probability (steady).

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 7.53 am today.

ENDS

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