NZ ELECTIONS: TWO-WEEK WAIT TO SEE WHO'S WON THE

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.


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WHERE THINGS STAND
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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.

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WHAT HAPPENS NEXT: DO THE MATH
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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.

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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