The art of the (political) deal
What will be the priorities and bottom lines — and where might National be forced to go — to forge a post-election agreement,
With under two weeks until the final election result is known — on November 3 — the make-up of the next Government remains unclear. A number of scenarios could play out, each delivering different leverage to the parties at the negotiating tables.
The preliminary result has given National and Act a one-seat majority. If that cushion is fattened in the final count, they will likely form a twoparty coalition, which they would prefer, rather than having to rely on New Zealand First.
Special votes tend to favour the left, however, and the most likely outcome of the final vote is that the right will lose at least one seat. In the past two elections, National lost two seats.
National Party leader Christopher Luxon has said he would only call NZ First leader Winston Peters as a “last resort”. This suggests he would leave Peters outside the governing tent unless NZ First was needed for a parliamentary majority.
But if the National-Act combination maintains a one-seat majority at the final count, Luxon might still invite NZ First into the tent so that it wouldn’t be prone to collapse with the loss of a single MP. That can happen quickly and unexpectedly — just look at former Labour MP Gaurav Sharma.
Luxon might do a deal with NZ First even if National and Act have a cushion larger than a single seat. Former prime minister Sir John Key, with a view to having good relationships with an eye on future elections, made deals with parties whose numbers he didn’t necessarily need for a parliamentary majority — even the Greens.
Asked whether he would call Peters even if NZ First didn’t hold the balance of power, Luxon didn’t rule it out. While still on the campaign trail, he told the Herald: “We’ll deal with our coalition arrangements on the other side. We’re getting well ahead of ourselves.”
There is plenty of common ground that could be the backbone of some kind of agreement between National and NZ First. Even in the absence of one, National could still likely rely on NZ First support in policy areas such as law and order or welfare or cogovernance, or for specific policies, such as reducing farming regulation, repealing Three Waters and the RMA replacement laws, and developing a four-lane highway from Whanga¯rei to Port Marsden.
If the National-Act majority evaporates at the final count, then NZ First would hold the balance of power. This would strengthen Peters’ hand considerably, and might even push Act outside Cabinet, which happened to the Greens when NZ First supported governments in 2005 and 2017.
Act leader David Seymour has said he’d rather have substantial policy wins than be in Cabinet, though it wouldn’t be hard for him to feel frustrated if Peters ended up in Cabinet at his expense.
There’s also the possibility that the magic number needed to hold a majority might change.
It is currently 61 in a 121-seat Parliament. If more seats flip from Labour to Te Pa¯ti Ma¯ori at the final count, this could create a bigger parliamentary overhang, pushing the magic number to 62 (in a Parliament with 122 seats). This would increase the likelihood of NZ First holding the balance of power.
If the party vote for Te Pa¯ti Ma¯ori increases, as it has done historically, the overhang could vanish but the magic number would still be 61 (in a 120-seat Parliament).
And then there’s the Port Waikato byelection on November 25, which will add another seat to Parliament and will almost certainly benefit National, given the high likelihood of incumbent National MP Andrew Bayly winning the byelection.
If the National-Act combination still has a one-seat majority on November 3, that might be enough for Luxon to keep Peters at arm’s length, knowing that the majority would likely become two seats after the byelection.
It’s not uncommon for parties and party leaders to talk about bottom lines in the lead-up to an election, but they are mostly about appealing to voters rather than an actual readiness to pull the plug if demands are not met.
Seymour has talked about a referendum on the principles of the Treaty of Waitangi as a bottom line. He also made comments about scrapping the firearms registry as a bottom line with the caveat “if that’s your idea of politics”, and he has declared he wouldn’t share a Cabinet table with Peters.
But he has since softened his language and said, on the eve of the election, that he’d wait and see how the numbers fell.
It’s a given that a single party’s promises are not what a multi-party government ends up wanting to deliver. There has to be some to and fro, but one thing is clear: National has a bottom line and it is tax cuts.
Seymour and Peters are sceptical about whether National’s tax package is credible. That means to deliver tax relief, National will likely have to make concessions in other areas regardless of whether those are for Act, for NZ First, or both.
And there is room in its fiscal plan to do so. National has $9.9 billion in unallocated operating spending over four years and $8b in its unallocated multi-year capital allowance.
There is also a middle ground that would help National with any fiscal holes that might emerge. Its tax package has been challenged in terms of how much revenue may or may not arrive from its proposed new taxes, but any shortfall could be made up by bigger cuts to the public service — to appease Act, and maybe NZ First, too — which would also put downward pressure on inflation.
NZ First released its manifesto — with some pricey items — but what Peters and his caucus would prioritise in talks with National is speculative.
In 2017, Peters emerged from coalition talks with Labour with concrete commitments to raise the minimum wage, add 1800 more police, and establish a $3b Provincial Growth Fund (PGF). He campaigned on some of these, like the police promise, extracted more than what he campaigned on in terms of the minimum wage, and plucked the PGF from a much vaguer promise for the regions not to be overlooked.
The NZ First manifesto this year has similar policies, including 500 more police in the next 18 months, a minimum wage of $25 an hour (with tax concessions to businesses that use it), and a regional productivity growth fund focused on “providing modal solutions, opening up land, sea and the seafloor, water supply, power and internet to get all regions humming”.
There is no detail on how much this fund should be or how it would be funded, though NZ First wants to transfer half of Crown minerals royalties to the regions they came from.
Peters will also likely push for his policies for seniors, including a 50 per cent rates rebate for SuperGold cardholders who own and live in their only home, up to a maximum of $1600 each year. This has been costed at up to $1.2b from when it would start, in July next year, until the end of the parliamentary term.
He is also a staunch supporter of keeping the age of superannuation eligibility at 65. National and Act want to lift it to 67, with Act wanting a gradual increase to start next year.
Peters could convince National — at Act’s expense — to freeze the age at 65 for at least the next parliamentary term.
Peters also wants to fund 2000 new residential care beds over the next term, though there is no cost estimate for this, and to increase the Government’s medicines budget by an additional $1.3b a year.
And he wants a $925m-a-year “GP Waitlist Reduction Fund”.
National doesn’t have any specific policies for seniors, and instead has a wishlist that includes lowering inflation and reducing hospital waiting lists — policies where help for seniors is more incidental.
The racing industry has given donations to NZ First, and racing is important to Peters, so much so that he is a former Minister for Racing.
NZ First’s racing policy doesn’t include specifics beyond “wise investment”, to explore “export channels and opportunities”, and to address the industry's’s high administrative costs. It also calls for “work towards greater parity with race-day prize money in NSW [New South Wales]”.
Seymour’s broad priorities have been outlined repeatedly in his public meetings on the campaign: law and order, the Treaty of Waitangi, education and government productivity.
Luxon won’t need much pushing on law and order, as they all agree on the intended direction of travel — a
growing prison population.
All three parties want more severe restrictions and punishments on gang members, a more punitive approach for serious young offenders, and to restrict how judges can discount sentences by restricting — or scrapping, in Act’s case — the use of cultural reports. Seymour has said that criminals have benefited from “judicial activism”, while Luxon has said that some judges are hiding behind the Sentencing Act.
National and Act want a return of Three Strikes, and while this particular law isn’t mentioned in the NZ First manifesto, there is specific support for “mandatory minimum sentences for serious violent and sexual offenders”. Peters also blocked Labour’s wish to scrap the controversial law while in government.
NZ First also wants a review into low-level offending with an increase in fines for shoplifting or texting while driving, which Luxon could easily agree to.
An area they may disagree on is whether to abolish the firearms registry, as Act wants, or to keep it, as National wants. NZ First wants an independent firearms authority, though it’s unclear what this would mean for the registry.
All three parties also want to take a tougher line on beneficiaries, though with different policies. National wants more punitive measures on beneficiaries who do not meet their ready-for-work obligations, while Act wants drug addicts who refuse treatment to lose their benefit.
National wants to index benefit levels to inflation rather than average wage growth, something that isn’t Act policy but Seymour has said he isn’t opposed to.
NZ First hasn’t stated a position on what benefit levels should be, but it wants a two-year limit on the JobSeeker benefit over one’s lifetime.
Seymour has also questioned Police Commissioner Andrew Coster in a similar way to National’s police spokesman Mark Mitchell, who has challenged the “policing by consent” model.
Seymour has echoed this sentiment, saying Coster’s time at the top had accompanied New Zealanders becoming less safe.
“It’s demonstrably true that it’s less safe, and certainly the language and the guidance to police from Andrew Coster — look at decisions around pursuits — seems to be driven by what is the safe thing to do in the short term rather than what is safe for New Zealanders,” he told the Herald after a meeting in Queenstown.
“In the long term, you’ve seen more pursuits as a result of not being prepared to pursue, and also a lack of morale among police who know that criminals can just drive away. That would be an example of a decision where I’m not sure the values are quite right.”
He said the Labour Government had been far worse for public safety than Coster, “but his leadership style seems to be in keeping with the ‘less consequences for criminals’ and ‘less rights for the law-abiding’ that I think has really characterised the last five or six years”.
Asked about policing by consent, Seymour said policing style was a matter for Coster, but “ultimately criminals, by definition, have not consented to have the law enforced; it’s going to be pretty difficult to have a safe society where the police need consent from people who by definition aren’t consenting”.
Seymour had earlier told the public meeting that politicians were powerless to remove the police commissioner unless they’d done something especially egregious.
Luxon and Peters have common ground in wanting to fund more police. Peters wants 500 new police in the next 18 months, while Luxon wants 300 more police over the next four years. Act wants police numbers to be maintained in line with population growth.
Seymour has an uphill battle to have a referendum on the Treaty of Waitangi principles, which Luxon has said would be divisive, while Peters has tried to pass a bill to remove the principles from legislation altogether. The bill was voted on in 2005 and was defeated, despite support from NZ First, National and Act.
Luxon has said he is open to a national conversation about the Treaty principles.
Co-governance is an area where, again, the three parties are more aligned.
They don’t want mandated Ma¯ori representation at local body level, and will repeal Three Waters and the replacement RMA laws.
None of them want to see government services provided on ethnic grounds, believing that a needs-based system would address the inequitable outcomes that have long plagued minority groups.
What is less clear is how Luxon’s support for “by Ma¯ori for Ma¯ori” solutions, much proclaimed on the campaign trail, will manifest in government, and whether Seymour and Peters will support him; Peters is a long-time critic of Wha¯nau Ora, which Luxon supports as long as there’s good value for money.
They all want the Ma¯ori Health Authority to be scrapped, but Luxon has promised to take its $170m in funding and give it to iwi-led health services. He also wants to bolster locally led rather than centrally led solutions, regardless of whether they’re iwi-led.
Act in general also wants to empower local delivery of services, as does NZ First, which has in its manifesto support for “devolution of central government decision-making and resources to the regions to counter the ‘Wellington Knows-All’ approach”.
National’s education policy has a focus on emphasising essential subjects in school where educational standards have been slipping, according to global comparisons.
Act has a lot of policy in this space, but Seymour hasn’t prioritised having a $307,000 government education account for every child in the country for a parent to spend how they see fit.
He is more likely to push for Act’s teaching excellence fund — $250m a year, to be distributed at principals’ discretion — to incentivise improved teaching, and for controversial league tables, education checks on 4- and 5-year-olds, and more punitive approaches to underperforming schools, Early Childhood Education centres, and truant students.
He and National will embrace a return of charter schools, and more of them.
On the campaign, Peters has mainly talked about getting rid of gender education, which he calls “unmandated indoctrination”, in classrooms.
The party’s manifesto has extensive policy, which advocates for more support for high-needs students and rural schools. There are also incentives for tertiary students to stay in New Zealand once they’ve graduated — which is also a priority for National.
Other priorities for NZ First include to “investigate the introduction of a universal student allowance”, which can easily be agreed to. Investigating is not implementing.
A top priority for Seymour is a new Minister and Ministry of Regulation, which would run regulations — existing and proposed new ones — through a prescribed gauntlet, including examination of cost-benefit analyses.
Anything that fails a high bar of usefulness would be reported to the relevant minister, and if it wasn’t cut, the minister would have to explain to Parliament why it should stay.
Seymour also wants to cut the public service much more than National does, reducing it to 2017 levels, abolishing several ministries and government agencies, and culling 15,000 jobs, including half of the roles at the Ministry of Education.
There is general alignment among all three parties that there is too much fat in the public service system, though they all disagree on how much can be trimmed without impacting the delivery of frontline services.
National has identified 24 government agencies from which it initially wants, on average, 6.5 per cent cuts amounting to $594m on so-called back-office functions to fund tax cuts, and to have it done before Christmas.
NZ First wants government “musthaves” not “nice-to-haves”, including zero central government spending on light rail or cycle lanes while there are still potholes, as well as a “root and branch review of every spending line”.
The party’s key promise is to cap total government expenses at $165b, and core government expenses at $133b, for the 2024/25 year. Treasury’s forecasts say total spending and core expenses will be $180.5b and $142.4b in the 2025 year.
Hitting the targets would require a $15.5b cut to total spending and a $10.4b cut to core spending.
National could agree to greater cuts to the public service than it planned for. It wouldn’t even need to specify the size of any cuts in a governing arrangement contract, which could simply include a vague goal along the lines of “working towards better public services”.
Major questions continue to hover over the new taxes National wants to introduce to fund its tax cuts, while a Goldman Sachs analysis said its tax package could potentially push interest rates higher.
One of the new taxes is on foreigners buying New Zealand homes for $2m or more. National estimates this would bring in about $740m a year but economists have estimated a shortfall of about $450m a year, if the tax gets introduced at all; Peters is vehemently opposed to foreigners eating into the residential housing market.
Peters is also opposed to National’s plan to raise revenue from taxing online gambling through offshore operators, which National says would add $179m per year to government coffers. Even if National manages to introduce this tax, Labour claims it would bring in $132m less a year than National expects.
And National used 2021 figures to calculate how much revenue it would give up by reinstating interest tax deductibility on rental income for landlords (a move supported by Act and NZ First); the most up-to-date figures would dig a deeper hole in the books by $100m a year.
National could scale back its tax cuts or push them out to a later date, but Luxon has ruled this out repeatedly because, he says, the tax package is fiscally neutral and the numbers are “rock solid”.
Luxon also wouldn’t want to borrow money to fill any revenue gaps and there might not be any — because that would be inflationary, all other things being equal.
That leaves open the possibility for higher government savings through bigger cuts to the public service.
National would then have to monitor the other promise they’ve been making, that the delivery of frontline public services will not worsen. But if that happened, Luxon could at least look to Seymour and/or Peters to collectively shoulder any criticism.