NATIONAL SHAPING UP AS GENUINE CHALLENGER TO

C O N F I D E N T I A L SECTION 01 OF 04 WELLINGTON 000642

SIPDIS

STATE FOR 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: 08/22/2015
TAGS: PGOV PREL NZ
SUBJECT: NATIONAL SHAPING UP AS GENUINE CHALLENGER TO
LABOUR,S HOLD ON POWER IN NEW ZEALAND

REF: A. WELLINGTON 594


B. WELLINGTON 566

Classified By: Acting DCM Katherine Hadda,
for reasons 1.4 (B) and (D).


1. (SBU) This is the first in a series of cables about where
New Zealand's political parties stand in the run-up to
September 17 general elections.

--------------
Summary
--------------


2. (SBU) Badly battered in the 2002 campaign, New Zealand's
main opposition party, the National Party, has reclaimed
enough public support to pose a genuine threat to the Labour
Government's hold on power. Although Labour has begun to
regain the ground that it lost in the polls in recent months,
the September 17 general election is still too close to call.


3. (C) The Party most favored by business and farmers,
National is fighting the campaign on key domestic issues,
advocating center-right policies such as tax cuts and lighter
regulation in a bid to meet the needs and desires of what the
Party has called "mainstream New Zealanders." In taking this
approach, National is deliberately painting itself as the
alternative to a Labour Government that often targets its
interventionist social and economic policies to specific
sectors of society. By portraying the Government as arrogant
and out of touch with the interests of ordinary voters,
National's message is especially designed to woo working and
middle-class Kiwis who might otherwise vote Labour.


4. (C) National's spike in the polls in May, following a
string of embarrassing revelations of Government
mismanagement and public discontent over Finance Minister
Cullen's budget, caused genuine alarm in the Labour camp. In
response, Labour has cast National as the party that is out
to destroy public services in order to benefit wealthier New
Zealanders. The Government has recently begun to announce a
string of spending initiatives designed to benefit many
voters who might be attracted to National's platform. This
has put more pressure on National to deliver a tax cut plan
that will appeal to the majority of voters without appearing
to cut health, education, and other key services.


5. (C) Despite considerable pressure from the media and the
Government, National decided to hold its tax plan close to
its chest until August 22, the day after the formal start of
campaigning. It did so largely in an attempt to prevent
Labour from copying those ideas which would win support in
the polls. National also wanted to avoid the mistakes of the
last election, when it announced a string of new initiatives
virtually up until Election Day, confusing many voters. But
the anticipation surrounding National's delayed announcement
allowed the Government and media to narrow the issues of the
campaign. What should be a race about the proper role of
government has instead largely boiled down to one issue:
taxes. Should significant numbers of voters not favor its
plan, National is unlikely to win next month.


6. (C) The delayed announcement of the tax cut plan has also
confirmed some voters' view of National as sneaky and having
a hidden agenda. Labour has worked to raise similar
questions in the minds of voters by questioning National's
relationship with the United States and its true intentions
regarding New Zealand,s anti-nuclear stance (reftels).


7. (C) Ironically, while National is considered more
favorably disposed than Labour toward the United States, not
all members of the Party share their leaders' desire for a
review of New Zealand's nuclear policy. Some, even if they
generally like us, harbor some suspicions of US policies. In
addition, the Party's need to avoid the appearance of being
in the United States' pocket will constrain its ability to
argue publicly for a re-evaluation of the relationship even
if elected to power. End Summary.

--------------
National's Message
--------------


8. (SBU) Since rising to leadership in October 2003, Brash
has moved the National Party further to the political right
than it was under his predecessor, Bill English. On the
economic side, this has translated into a greater emphasis on
free market policies such as lower tax rates for both
individuals and businesses, minimized business regulation,
and flexible labor markets. On social issues, the Party
emphasizes the importance of supporting traditional families
with policies that let them make their own decisions.

--------------
The prosperity argument
--------------


9. (C) As in other countries, domestic issues trump all in
New Zealand's elections. In recent years, New Zealanders
have voted for whomever they perceive offers the best
prospect for personal financial prosperity. Seizing on this
as a challenge that only the center-right can meet,
National's campaign focuses heavily on economic issues.
Although earlier in the year Nationals' foreign affairs
spokesman Lockwood Smith had told us New Zealand's five-year
economic expansion would hurt National's election bid, recent
signs of an imminent slowdown will have put a spring in the
Party's step. National also points to Brash's long-term
experience as New Zealand's central banker as proof of the
party's financial capability.

10. (SBU) National,s major theme - that economic growth is
necessary if New Zealand is to achieve first-world levels of
health care and education - is largely similar to that
espoused by the Labour Government. But National argues
Labour's economic redistribution policies are inefficient,
overly reliant on state involvement and light on personal
responsibility. Instead, National argues, the country needs
greater individual freedom and fiscal responsibility through
tax cuts on personal and corporate income. It has also
called for welfare reform and reduced government bureaucracy
in education and other areas-. National has also introduced
proposals such as tax credits for childcare that it argues
will maximize parents' choices instead of forcing them to
rely on state programs.

--------------
It's the Tax Cuts, Stupid
--------------


11. (SBU) A recent poll shows 62 percent of people believe
they are paying too much tax. National is betting that tax
reform will prove to be the defining issue of the election
and believes that it can work this sense of public
dissatisfaction to its advantage. It is confident that this
will resonate with the electorate more than the targeted
spending packages that Labour has favored. Widespread pubic
disaffection for Labour,s last budget, which - despite a
hefty surplus - provided only limited tax relief beginning in
three years -- seemed to vindicate National's reading of the
public mood.


12. (SBU) National avoided announcing the details of its much
anticipated tax plan until August 22, presumably to avoid
having Labour steal its thunder. (It didn't entirely work:
recognizing its vulnerability on the tax issue, Labour
announced on August 19 its own targeted plan -- a retooled
and expanded version of its "Working for Families"
subsidies.) The Party has pledged to cut taxes by a total of
NZ$9.4 billion (US$6.5 billion) over the next three years.
The first year would see decreases in personal taxes by
lifting tax rate thresholds. (The current highest rate of
39% kicks in for annual salaries equivalent to only $45,000
US.) Corporate tax reductions would kick in during the
second and third year of the plan, providing there is room in
the budget for this.


13. (SBU) National's decision to put personal tax reductions
ahead of business demonstrates how crucial lower- and
middle-class voters are for its campaign. Sensitive also to
Labour's claims that the tax cuts will mean massive
reductions in public services, National has pledged not to
decrease any current spending on health, education, or
superannuation (pensions). It says it will finance the plan
through cutting Government spending by 2% and slowing down
the rate of future spending.


14. (C) To some extent National has been a victim of its own
success, in that Kiwis were so hyped on the idea of tax cuts
that National's delay in announcing the plan made the Party
seem secretive and possibly dishonest. It has also drawn
attention away from other aspects of National's policy, so
that if the plan fails to excite voters National has little
chance of winning the election. It remains to be seen
whether National's plan as announced will do the trick.

--------------
Curb the "brain drain"
--------------


15. (SBU) National argues that, despite the benefit of the
best international trading conditions New Zealand has enjoyed
for many decades and despite reasonable levels of economic
growth as a consequence, most New Zealanders are, in real
terms, no better off. National frequently cites low
comparative income levels as an underlying reason for the
flight of talented New Zealanders to Australia and other
countries, commonly referred to as the "brain drain."


16. (SBU) National argues that immediate tax reform would
encourage New Zealanders to stay in the country. Lowering
corporate taxes would also encourage more overseas investment
in New Zealand, lifting salaries. These issues - income
levels and the sense that the most talented of New Zealanders
are more inclined to leave the country rather than stay -
resonate with voters. But National's confidence that it could
appeal to New Zealand's ever increasing educated middle class
with this approach took a beating when the Government
announced it would abolish interest on student loans.

--------------
Race Relations and "Mainstream New Zealand"
--------------

17. (SBU) Following Brash,s "nationhood" speech to a Rotary
Club at Orewa in early 2004, where he expressed opposition to
Maori racial separatism in New Zealand, National temporarily
received the biggest one-off gain, 17 percent, in the history
of New Zealand,s most well-known political poll. Though the
sentiments expressed in the Orewa speech differed little from
established National Party views, the ensuing nation-wide
support the Party received after delivery, largely a result
of timing and effective spin, indirectly provoked changes of
emphasis in Labour's policy agenda. The themes of the Orewa
speech continue to resonate with many New Zealanders,
particularly the middle class, and is for National a key
component of its claims that it is the only Party
representing "mainstream New Zealanders." One of National's
most popular billboard is a picture of Helen Clark underneath
the word "Iwi" (the Maori word for tribe) alongside one of
Don Brash underneath the word "Kiwi."

18. (SBU) Overall, National says that Labour has been, and
continues to be, excessively concessionary when it comes to
Maori claim settlements stemming from the 1840 Treaty of
Waitangi. National says it will set a deadline of 2010 to
settle all claims. It has also taken a resolute line against
consultation with Maori on resource management issues, any
program it can plausibly call race-based, some Treaty
settlements and official deference to Maori spiritual and
cultural values.

-------------- --------------
National's Vulnerabilities: Anti-nuclear policy at issue
-------------- --------------


19. (C) Foreign relations rarely command center stage in a
general election campaign. But Labour is determined to take
advantage of National,s perceived vulnerability regarding
New Zealand's 1987 legislation that bans nuclear-powered and
nuclear-propelled ships from its harbors (reftels). National
has done a relatively poor job of deflecting these charges.
By simply repeating that it does not have plans to change the
law and would not do so absent a referendum, the Party has
begged the question of why it would even call for such a
vote. This has made it easier for Labour to convince voters
that National has a hidden agenda.

--------------
Seeking a return to traditional alliances
--------------


20. (C) National is publicly committed to multilateralism,
but it places greater preference on New Zealand's
relationships with traditional allies - the United States,
the United Kingdom and Australia -- than does Labour.
National maintains that these traditional alliances,
especially with the United States and Australia, have
unnecessarily deteriorated under the present Labour
Government, leaving New Zealand dangerously isolated.
National is mindful, however, of the anti-American sentiment
that has seized many New Zealanders. Party officials have
quietly told us that they seek to address this, but are
equally honest that to do so will be very difficult. It's
worth noting that even Party stalwarts such as former PM Jim
Bolger would not want to see New Zealand totally remove its
nuclear policy. (NB: We will report septel on the campaign's
implications for U.S. foreign and defense interests.)


21. (C) National has been very critical of the Government's
spending on military capability. However, it has not
committed to any defense spending above the Government's
recently pledged $4.6 billion Defence Sustainability
initiative. National recognizes that the military cannot
absorb anything more than this over the shorter term. The
Party's strategists also realize that the Party is vulnerable
on defense issues: Labour has made a lot of hay during the
campaign trumpeting the fact that Don Brash indicated some
months ago that he would have sent troops to Iraq.

--------------
Background on Brash
--------------


22. (U) Dr. Don Brash served as New Zealand,s central banker
for 14 years (1988 - 2002). After studying at the University
of Canterbury, he gained a PhD in Economics at Australian
National University in 1966. He was an economist at the World
Bank for five years, general manager of Broadbank Corporation
for 10 years, managing director of the New Zealand Kiwifruit
Authority from 1982-1986 and managing director of the Trust
Bank Group from 1986-1988. Brash became leader of the
National party in October 2003 following an internal coup
that toppled former leader Bill English. Since becoming
Leader of the Opposition, Brash and National have enjoyed an
upswing of public support with party membership doubling
under his leadership.

--------------
Comment
--------------


23. (C) Although most Kiwi politicians believe the
anti-nuclear law is a third-rail issue, it is unlikely to
greatly affect the election outcome. Even if National were
believed to be planning to repeal the nuclear-powered-vessels
part of the law, that alone would probably not cost it the
support of swing voters. Potential National voters are far
more likely to be drawn to the Party because of their
concerns over the size and role of the state - doubts about
the government's managerial competence; political
correctness/Treaty of Waitangi issues, and especially taxes
and spending patterns.


24. (C) In addition to the tax issue, it is likely that the
fortunes of National will increasingly be tied to how the
country responds to Brash as a possible prime minister. As
the election becomes increasingly presidential in style and
substance, there will inevitably be closer comparisons made
between him and the Prime Minister as leaders. This may be a
problem for National. According to National Party strategist
Peter Keenan (protect),the Party regards Brash's lack of
political experience as both his greatest asset and
vulnerability.


25. (C) Clark is a tested leader who is widely considered as
capable and experienced. Although she is not widely seen as
likable, to date she maintains a comfortable lead over Brash
in polls asking voters to name their "preferred Prime
Minister." Cerebral and awkward, Brash is still untested,
and -- as three recent debates have proven -- is not as
comfortable on the stump as his opponent Clark. On the other
hand, as a political novice who entered politics in 2002,
Brash does not carry the sort of obvious political baggage
that the highly experienced Clark carries after her many
years as a politician. New Zealanders are conventionally wary
of career politicians, and this may work in Brash's favor in
the end. End comment.

Burnett