Winds of change

In our last issue we focused on the regional differences in our latest confidence surveys, with the rural regions reporting a modest rebound in confidence as the risk of drought proved to be less than feared. Regional divergences were an important underlying theme of last week’s events as well, as the outlook for dairying returns darkened, Auckland house prices continued to race ahead, and housing construction showed signs of reaching a turning point.

Before we move on to economic developments, we’ll comment on the Northland by-election held the previous weekend – particularly for the benefit of our overseas readers who may be unfamiliar with the complexities of New Zealand’s voting system. The by-election was triggered by the resignation of the sitting MP, in what was long considered to be a safe seat for the ruling National Party. However, the opposition parties were able to harness a feeling that the region has been neglected by central government, and the seat went to NZ First, a centrist party that now holds 12 seats.

The crucial point is that there is no change to the political stability that New Zealand has maintained for the last six and a half years. The National Government has always been a minority one; even last year’s ‘landslide’ election result gave it just 60 out of 121 seats in Parliament. To form the majority needed to pass legislation, National signed confidence and supply agreements with three minor parties who currently hold four seats between them (one for ACT, one for United Future and two for Maori) – a coalition that was larger than strictly necessary, but provided some wiggle room.

The by-election result leaves National with 59 out of 121 seats. So for the most part, it can still pass legislation with the backing of at least one support party. There is one exception, however: National’s proposed reform of the Resource Management Act will have to be watered down or abandoned. This could have important implications for the way the New Zealand economy develops over time, but is not really a significant issue for financial markets at this stage.