US embassy cable - 05WELLINGTON715

C O N F I D E N T I A L SECTION 01 OF 04 WELLINGTON 000715 
 
SIPDIS 
 
NOFORN 
 
STATE FOR D (FRITZ), EAP/ANP, EAP/RSP, EAP/EP, INR/EAP 
NSC FOR VICTOR CHA AND MICHAEL GREEN 
SECDEF FOR OSD/ISA LIZ PHU 
PACOM FOR J2/J233/J5/SJFHQ 
 
E.O. 12958: DECL: 09/15/2015 
TAGS: PGOV, PREL, NZ 
SUBJECT: NZ ELECTIONS: EMBASSY CONFIDENTLY PREDICTS 
UNCERTAINTY 
 
REF: WELLINGTON 702 
 
Classified By: Charge D'Affaires David R. Burnett, 
for reasons 1.4(b) and (d). 
 
1.  (C) Summary:  New Zealand's election race remains the 
closest in years.  We believe it likely the National Party 
will get more votes than the Labour Government, but the real 
question will be whether this would be enough to ensure a 
National government.  Mixed Member Proportional voting (MMP), 
and the small parties' current struggle for survival, make it 
difficult to predict which major party will be able to form a 
government.  In addition, National will need a higher minimum 
number of votes to win than Labour, because the Nats have 
fewer potential coalition partners.  Given the many possible 
outcomes, it may be days or longer before either major party 
can form a government.   End Summary. 
 
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Labour back in front? 
--------------------- 
 
2.  (C) It's the last day before elections, and things look 
as murky as ever.  The week started off poorly for the Labour 
Government.  On Tuesday, the Prime Minister was shouted down 
when trying to deliver a speech at Canterbury University. 
Although she claimed a few National supporters were to blame, 
other observers noted that a significant number of  students, 
normally assumed to be core Labour supporters, also 
participated in the cat-calling.  Then, a Fairfax-AC Neilson 
poll released on September 14 showed a six-point lead for 
National over Labour, at 43 vs. 37%, respectively.  This 
proved that Labour-Green claims that National was colluding 
with the secretive Exclusive Brethren sect had failed to gain 
traction. That same day, the media gave wide coverage to 
reports that, as the result of a National Party request, an 
ombudsman had ordered the Government to release Treasury's 
original costing for Labour's student loan interest pledge. 
The costs were far higher than the figures cited by Labour 
when it introduced the initiative, and this, together with 
the Government's original refusal to release the data, 
implied both that there had been a cover-up and that there 
was plenty of room for National's tax cut.  The Government's 
woes increased with the revelation that an associate minister 
had weighed in with immigration officials on behalf of a Thai 
visa overstayer, who then flew to Samoa to re-tile the 
minister's roof for free.  The PM was criticized in the 
media, not for her minister's action, but for trying to sweep 
the issue under the rug during this election week rather than 
following her normal course of ordering an inquiry. 
 
3.  (C) Nevertheless, things at the end of the week look 
better for the Government.  A poll published yesterday showed 
that 48% of voters believe Labour will win.  Of three polls 
published today, the last before the election, two showed 
Labour in the lead.  One, conducted by Herald-DigiPoll, 
showed Labour comfortably sprinting to victory with a seven- 
point lead over National (44.6% vs. 37.4).  A fair number of 
Kiwis we know also believe that the Government has not done a 
bad enough job to push voters to take a risk and elect a 
relatively unknown National-led Government. 
 
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Still May Be National's Game 
---------------------------- 
 
4.  (C) Despite this view and the Government's apparent 
upswing, we nevertheless believe several factors will very 
plausibly lift support for National over Labour tomorrow. 
For one thing, the one poll this week that showed Labour well 
in front -- Herald-DigiPoll -- is New Zealand's most 
unreliable.  It fails to take into account undecided voters, 
its questions are reportedly biased, and its sample size is 
relatively small. In addition, today's Herald poll was based 
on questioning that began well over a week ago, before 
Labour's decisive slide.  Of the three other polls released 
this week, two showed National well in front of Labour (the 
aforementioned Fairfax poll and a One News-Colmar Brunton 
poll published today, where National leads by 6 points.)  The 
third, last night's TV3-TNS poll, showed Labour leading by 
just 1.8 points, well within the margin of error. 
 
5.  (C) There are other factors in National's favor.  As many 
as 10-30% of voters remain undecided, and in the past 
undecided voters have tended to vote center right.  Besides 
National, this would include United Future, which has pledged 
to enter coalition talks with whichever major party wins the 
most votes.  It also includes NZ First, the other potential 
limited coalition partner for National. (NZ First's survival 
and support for National are far from certain, however. More 
on this later.)  In addition, we suspect that polls are 
under-representing National's support. In this 
"politically-correct" environment, Kiwis are likely reluctant 
to admit that their vote will be driven by a desire for a tax 
cut and the wish to end special Maori privileges. Eighty-five 
percent of people surveyed in a recent poll, for example, 
claimed the tax issue would not influence their vote.  This 
just isn't credible, given that National's tax plan website 
received over a million hits within days of posting and that 
support for the party climbed back up at the same time. 
 
6.  (C) Many analysts' assumptions about why Labour may win 
seem to us to resemble urban myth rather than solid analysis. 
 Those who believe the strong economy will work in the 
Government's favor, for example, ignore the fact that many 
voters are angry at Labour precisely because the budget is 
running a surplus and yet many Kiwis will receive little or 
none of that money.  Analysts' claims that things don't seem 
bad enough for people to want a change ignores the fact that 
no Labour Government has ever won a third term, and that a 
third term is almost unheard of for any party regardless.  In 
a country that resents the "tall poppy," people may simply 
think that Labour's time has come.  If it's a truism in the 
States that elections are the incumbents' to lose, then the 
parallel axiom here is that New Zealand voters tend to vote 
governments out, not in.  The striking thing about National's 
campaign is that it has belied Labour's message that the 
Government is popular and capable.  Voters may be tempted to 
send a signal that neither is the case. 
 
7.  (C) Certainly National seems to think it will win, 
perhaps even by an absolute majority.  The party has refused 
to cast a life line to the doomed Act party, arguably the 
potential coalition partner whose ideologies are closest to 
the Nats.  National has distanced itself from the heated 
Tauranga race, where NZ First leader Winston Peters, a 
potential coalition partner, has been trying to save his 
party from defeat by dredging up an old sexual harassment 
charge against National candidate Bob Clarkson.  These 
(in)actions seem to reflect a quiet confidence that National 
has enough additional votes to win.  They also reflect a 
deliberate plan: well before the campaign started, National 
strategist Peter Keenan told us the party would aim first and 
foremost to gain a majority of party votes.  The wisdom of 
that approach appears to be bearing fruit, as National's 
support grows and the two other center right parties, United 
Future and NZ First, say they will throw their support behind 
whichever large party gains the most votes.  National's own 
polling may also be showing them victory where other polls 
haven't.  One Wellington-area candidate has told us that 
National polling of 3,000 voters found working class voters 
in her district -- normally Labour supporters -- will vote 
for her this election. 
 
--------------------------------------- 
Small Parties: Wrench in the Machinery? 
--------------------------------------- 
 
8.  (C) But even if we are cautiously convinced that National 
will win more votes than Labour tomorrow, there are many 
possible reasons why this may not translate into a victory 
for the Nats.  Labour has more potential coalition partners 
than National, so it could more easily form a government.  In 
fact, Labour could be the victor if it won as little as 
37-38% of the vote, although at that low level of support the 
resulting coalition (some arrangement with Greens, 
Progressives, United Future, NZ First, and perhaps the Maori 
Party) would be very unstable.  Because the absolute minimum 
floor for National is higher, at least 42-44% and possibly 
more, the odds of it being able to form a government are 
lower.  Also, the Maori Party is set to receive just 1-2% of 
the Party vote, but is likely to win more than this amount in 
electorate seats.  (It will likely win 3-4 of the special 
Maori seats now occupied by Labour.)  Under MMP, this will 
create an "overhang" that increases the number of seats in 
Parliament and, by extension, the percentage a party or 
coalition will need in order to gain a majority.  This too, 
could work against National. 
 
9.  (C) Then there is the New Zealand First issue.  The 
party's declared post-election policy may not be as clear as 
it contends, potentially creating still more confusion if the 
Labour-National results are close.  NZ First Leader Winston 
Peters has declared his party will back whichever major party 
wins the most votes, as has United Future's Peter Dunne. 
Unlike United Future, NZ First has ruled out joining a formal 
coalition, but would           support the Government on 
issues of confidence (ie, votes under which could topple the 
Government) and supply (budget issues).  Other NZ First 
staff, however, have said the party will offer confidence and 
supply support to whichever bloc of parties has the most 
votes.  In that case, NZ First would support a 
Labour-Green-Progessive grouping if it had more votes than 
National or a National-United Future alliance, even if 
National had more votes than Labour.  Peters has since 
repeated his majority-party stance, but given his 
personality, we could see him back away from this, especially 
if the gap between National and Labour were very small.  He 
would doubtless cite the known preference of his party's 
voters as the reason, as a majority of them reportedly favor 
a deal with Labour over National.  His real motive, however, 
would be that NZ First would more easily play the spoiler, 
and gain more recognition, in a Labour-Green-led coalition. 
A National-United Future coalition would be more stable and 
closer to NZ First's ideology on many issues, offering less 
opportunity for NZ First to stand out. 
 
10.  (C)  That is, however, only an issue if NZ First 
survives this election.  Although the party now on average 
polls at 5-7 percent, in some polls it has not met the 
minimum 5% party vote threshold.  NZ First's only potential 
electorate win is Winston Peters' seat, and as mentioned 
earlier he is facing a difficult fight against the National 
candidate in his Tauranga district.  If he loses, and the 
party fails to gain 5% of the party vote, they will be out. 
The Greens, at 5-6 percent support, are very unlikely to win 
any electorate seats, so will also be out of Parliament if 
they fail to meet the party threshold.  Whether Labour or 
National gains from these parties' elimination from 
Parliament depends on the scenario.  If the Greens narrowly 
miss the threshold, Labour would probably need much more 
support than is now the case -- at least 40-1%  -- to ensure 
NZ First's support and the victory.  If NZ First misses 
narrowly, National will have no chance of winning without at 
least 46% or more of the vote.  If either Greens or NZ First 
end up well below the threshold because they've lost 
considerable support to a major party, then Labour is the 
likely beneficiary of those votes in both cases and National 
will probably lose. 
 
11.  (C) The other wrinkle here is that under MMP, if one or 
both of those two small parties fail to reach the 5% 
threshold and also fail to gain any electorate seats, most of 
the party vote they do get will be reallocated 
proportionately among the major parties.  The same will 
happen with Act's all-but-certain sub-5% party vote share. 
This makes the final outcome of the race even harder to 
predict. 
 
12.  (C) Unless one of the major parties wins an outright 
majority or something close to that, it may be days before 
negotiations with minor parties lead to a government. 
Another wrinkle is that Winston Peters has threatened to sue 
his opponent for allegedly exceeding  campaign finance 
limits.  This could throw the outcome of the election into 
doubt for weeks, especially if NZ First polls below the 5% 
party vote threshold. 
 
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COMMENT 
------- 
 
13.  (C)  Even if National loses, victory could be a mixed 
blessing for Labour.  The Government would probably need at 
least 44% or so and a Green victory of at least 5-6 percent 
to end with a relatively stable Labour-Green-Progressive 
coalition.  Lower Labour support, and/or a loss of the 
Greens, makes any potential Labour-led Government far less 
stable, as it would also have to include some combination of 
United Future (which has rejected a formal coalition with the 
Greens) the Maori Party (which hates Labour because of the 
Foreshore and Seabed legislation) and NZ First (which is an 
entity unto itself).  A National victory (ie, National alone, 
National-United Future, or National-United Future in a 
limited voting agreement with NZ First) would be far more 
stable. 
 
14.  (C) National's ability to create such a close race in a 
time of relative prosperity and stability also shows that a 
new Labour Government would have to satisfy an increasingly 
restive public.  Recent signs that the economy is slowing 
will only add to the Government's pressures. 
 
15.  (C) Oddly, the real beneficiary of this race may be 
United Future's Peter Dunne.  If he ends in coalition with 
National, many believe he will be made Foreign Minister. This 
would ease concerns about National's "hidden agenda" with the 
United States.  Although Dunne has ruled out participating in 
any government that formally includes the Greens, in recent 
days Clark has indicated she may now opt for a voting 
arrangement with the Greens instead of a formal coalition. 
The Greens would likely accept this as they have nowhere else 
to go, and this could open the way for United Future's 
coalition participation.  In this case, too, Dunne is rumored 
to be a possible Foreign Minister.  Either way would benefit 
us: Dunne favors better relations with the United States and 
his pragmatic, non-ideological bent would pass muster with 
whichever major party ends up in opposition.    End Comment. 
 
 
 
 
 
 
Burnett