US embassy cable - 05WELLINGTON719

C O N F I D E N T I A L SECTION 01 OF 03 WELLINGTON 000719 
 
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: 09/18/2015 
TAGS: PGOV, PREL, NZ 
SUBJECT: NZ ELECTIONS: TWO-WEEK WAIT TO SEE WHO'S WON THE 
BATTLE,  BUT LABOUR'S ALREADY LOST THE WAR 
 
REF: WELLINGTON 715 
 
Classified By: Charge D'Affaires David R. Burnett, 
for reasons 1.4(b) and (d). 
 
1.  (C) As predicted, New Zealand's September 17 General 
Elections were the closest in years.  Despite starting the 
evening well ahead, the opposition National Party ended up 
one Parliamentary Seat behind the Labour Government.  But the 
Nats refuse to concede defeat and Labour has not declared 
victory, as absentee ballots totaling 10% of votes remain 
uncounted.  Both major parties will be courting possible 
coalition partners in the two weeks before the final tally is 
announced.  We suspect Labour will ultimately be the party to 
put together a government, but it may come at a high cost. 
Both United Future and NZ First have expressed reluctance to 
work with the Greens, NZ First's leader Winston Peters 
remains as unpredictable as ever, and the Maori Party's sweep 
of 4 of 7 Maori seats have left it strongly placed to 
negotiate the terms of its participation. 
 
2.  (C) It's still not impossible for National to form a 
government.  Potential coalition partner the Act party, all 
but assumed dead, has won 2 seats.  There is also a chance 
that the Greens will disappear during the final ballot count: 
their 5.07% of the party vote is barely above the minimum 
needed to stay in Parliament. If they fall below the 
threshold, the Greens' share of the vote would be reallocated 
among all parties, to National's advantage. The Maori Party 
has also said it remains open to coalition talks with the 
Nats, although we consider a final deal unlikely.  Even if 
National loses the election, however, in many ways it has 
already won the future.  The party has doubled its seats in 
Parliament and taken 11 electorate seats from Labour.  It has 
also swept up almost all of the seats that the minor parties 
have lost.  Most significantly, NZ's electorate has clearly 
moved to the right, a fact not lost on Labour.  End Summary. 
 
 
------------------ 
WHERE THINGS STAND 
------------------ 
 
3. (SBU) It was -- is -- the closest of races.  While 
initially National appeared in the lead by a substantial 
margin, in the end it received 39.63% of the party vote (49 
seats), just behind Labour's 40.74% (50 seats).  Labour's 
party vote share remained virtually unchanged from last 
election, so most of National's gain came from the small 
parties.  NZ First garnered just 5.8% (7 seats, down from 
13), and leader Winston Peters may have lost his electorate 
seat to National in a nasty, hotly contested race.  United 
Future got 2.72% (3 seats, down from 8), and the Greens 
clocked in just above the party vote threshold at 5.07% (6 
seats, down from 9).  In an unexpected turn, Act Leader 
Rodney Hide surprised virtually all observers (except Hide 
himself) and won an electorate seat.  But with just 1.52% of 
the party vote, Act will have just two seats in Parliament, 
down from nine.  Jim Anderton's two-person Progressive Party 
just got tinier -- with 1.21% of the party vote, only 
Anderton will return to Parliament.   The real minor party 
winner was the Maori Party, which won 4 of the 7 designated 
Maori seats.  Because they have two electorate seats more 
than they are entitled to through their party vote share, 
there is now a Parliamentary "overhang."  The number of total 
seats will be 122 for the next three years and, 
significantly, the number of seats a major party bloc needs 
to hold a clear majority has increased to 62. 
 
4.  (SBU) On election night, a clearly shattered Helen Clark 
thanked voters for making possible Labour's return to power 
and said she would begin to negotiate a government.  Clark 
also reminded voters that she has the experience to do this. 
But with 219,000 "special votes" (absentee ballots) 
outstanding, the buoyant National leader Don Brash has 
refused to concede.  He has pledged he, too, will negotiate 
with minor parties to try to form a government during the two 
weeks it will take to count the special votes and recount all 
the regular ballots. At this point the numbers seem against 
National, although Labour will have problems in its 
negotiations as well.  While it is unlikely, the recount 
could also change the picture dramatically. 
 
------------------------------ 
WHAT HAPPENS NEXT: DO THE MATH 
------------------------------ 
 
5.   (SBU) If the Greens' count holds, Labour (with the 
Progressives) will have 57 seats.  But for the remaining 5 
seats things get harder.  United Future has pledged to "talk 
first" with whichever major party wins the most votes, but 
leader Peter Dunne has made it very clear he will be hesitant 
to join in with any government that formally includes the 
Greens.  NZ First leader Winston Peters similarly pledged to 
support whichever major party was ahead, but on election 
night he noted that, given the narrow margins separating 
Labour and National, it was too early to confirm the leader. 
Peters, too, has expressed reservations about the Greens.  He 
now has gone on leave and reportedly did not return PM 
Clark's call yesterday, perhaps in payback for her failure to 
call him at all in 2002.  Clearly, Peters hopes to be a 
kingmaker and is likely to talk with both major parties 
during the two week ballot count.  The Maori party is a 
potential partner for Labour, but just before the election 
the party softened its  automatic rejection of a possible 
coalition with National because of that party's opposition to 
special Maori Parliament seats and bureaucracies.  The Maori 
now say they will talk to any party that approaches them, and 
will let Maori Party constituents decide through public 
meetings which government coalition to back.  At the very 
least, this puts the Maori Party in a much stronger position 
to get what it wants in return for supporting a Labour-led 
Government.  The resulting deal could be very unstable, given 
Clark's unwillingness to concede to Maori demands that she 
backtrack on Labour's foreshore and seabed legislation. 
 
6.  (SBU) Because of the UF/Green issue, sources in 
Parliament tell us that they believe the likely Labour 
coalition would be Labour-Progressive-United Future, with the 
Greens in a confidence and supply voting arrangement.  This 
assumes, as is rumored, that the Greens recognize there is no 
other way they can be in government.  This would still only 
give Labour 60 votes, which it may be able to make up with 
Maori party support (although as noted this will create its 
own problems).  However, without United Future, National can 
probably do no better. 
 
7.  (SBU) National's only reliable coalition partner is Act, 
and together the two parties have 51 seats.  If NZ First were 
to back down on it's pre-election pledge, or if National 
squeaks ahead in the recount, that would make 58 seats.  If 
United Future opted out of a Labour-led coalition government, 
say because the Greens insist on being in a formal coalition, 
that would give National's bloc 61 seats.  Brash has also 
made it clear that he has not ruled out talking with the 
Maori Party.  Although on social issues Maori are quite 
conservative, the odds of them actually backing National are 
limited unless National backs down on its pledge to eliminate 
the Maori seats.  It's not entirely impossible, however, that 
National could to find a compromise.  It's worth remembering 
that the Maori Party was founded in protest against Labour's 
Foreshore and Seabed policy, and co-leader Turia reportedly 
despises PM Clark.  It would also not be necessary for the 
Maori Party to back National.  By simply not supporting 
either major party, National would still have one more seat 
than Labour. 
 
8.  (SBU) In reality, however, the only likely way National 
could form the Government is if the Greens lost their party 
vote share after the recount, and/or National's own share 
increased over Labour's.  The Green vote would be reallocated 
to all remaining parties, and the boost to National would 
enable them to form a majority with fewer minor party seats. 
Labour, meanwhile, would lose it's largest sure-bet partner, 
and would find it difficult to compensate.  In the past two 
elections, however, the Greens have picked up support (and 
seats) from the special voters, a large number of whom are 
students.  If the same holds true this election, National is 
unlikely to benefit from the Greens' loss. 
 
------------------------------ 
IT'S LABOUR'S LOSS, REGARDLESS 
------------------------------ 
 
9.  (C) Even if Labour forms a Government, it has in many 
respects lost this race.  Just five months ago, virtually all 
political analysts (including many in the National Party) 
predicted a clean sweep in these elections for the 
Government.  As a result of National's campaign, a reelected 
Labour would be badly weakened, and perhaps unable to pass 
much of the legislation it would want this Parliamentary 
session. 
 
10.  (C) PM Clark, an astute politician, must also realize 
that the nature of Labour's narrow win (or loss) spells 
trouble for the party's future.  Many MPs close to the PM 
(including Trade Minister Jim Sutton) lost their electorates 
and will return to Parliament as list candidates.  Others saw 
their margins of victory dramatically clipped: Labour lost 10 
electorates to National and Labour's margins in 29 of the 31 
electorates it maintained were sharply reduced.  The country 
is clearly moving to the right. 
 
11.  (C) National, on the other hand, is on the upswing. 
After 2002's dismal showing of 21%, many predicted the Nats 
would soon become a minor party.  Yet under Don Brash, they 
have gained 11 electorate seats and almost doubled their 
total seats in Parliament.  In strong contrast to PM Clark 
during her election-night speech, Brash appeared totally 
confident.  Labour's obviously weakened position is also 
giving National a boost. One National candidate told us that 
she and others who lost their races have been instructed not 
to stand down their campaign teams.  The party leadership 
anticipates that even if Labour forms the Government, it's 
fragile coalition will not last a full three years. 
 
13.  (C) As for Don Brash's future, the party he leads is 
credible once more, and will be capable of mounting an 
effective opposition to a decidedly weakened government.  He 
may actually prefer this to squeaking to a victory this time 
around.  Indeed, we suspect that given the tight margins and 
divided electorate in this race, neither major party really 
relishes the chance to take over the reins. 
 
 
Burnett