By Murray Hiebert
The November 26 elections in New Zealand saw Prime Minister John Key returned to power with nearly 50 percent of the vote, giving his National Party one of the country’s strongest electoral performances in five decades. Key is expected to continue many of the foreign and trade policies launched during his previous term, which began in 2008, including promoting closer ties with the United States and completing the Trans-Pacific Partnership (TPP) trade architecture.
Without a doubt, Key’s top priority will be economic recovery from the global recession and the devastation caused by the Christchurch earthquake in February. His plan to balance New Zealand’s budget by 2014 is built on a proposal to sell state-owned assets and cut spending. He plans to sell a minority stake in four key state-owned energy companies and reduce ownership of Air New Zealand. The government will keep a bare majority stake in the companies and ensure that most of the private shares will be held by New Zealand investors. These sales are expected to net at least $3.7 billion in the next few years. While Key is claiming his victory as a clear mandate, polling indicates that 68 percent of New Zealanders oppose the privatization plans.
Key’s previous foreign and trade policies are likely to continue. New Zealand’s relations with the United States, already described by U.S. officials as “the best they have been in decades,” are expected to deepen further in Key’s second term. Over the past five years, the two countries have found ways to work around New Zealand’s anti-nuclear policy. Secretary of State Hillary Clinton visited the country in November 2010 for meetings that produced the Wellington Declaration, signaling a closer strategic partnership. The two countries pledged “practical cooperation in the Pacific region” and regular foreign minister and political-military discussions in areas such as nuclear nonproliferation, climate change, and counter-terrorism.
Key visited Washington in July 2011. In his meeting with President Barack Obama, the two leaders discussed cooperating to create a more effective global trading regime, responses to disasters in the wake of the Christchurch earthquake, and security cooperation in Afghanistan where New Zealand has a small contingent of troops. A key upcoming event is the visit by a group of U.S. Marines who will travel to New Zealand next June to commemorate the 70th anniversary of the first U.S. forces to land in the country during World War II.
Trade policy in New Zealand cuts across party lines—Phil Goff, the Labour Party leader who has stepped down in the wake of his party’s poor showing in the elections, was instrumental in getting the TPP trade talks launched several years ago. The TPP currently includes New Zealand, the United States, and seven other economies spanning both sides of the Pacific and is expected to boost trade and investment among TPP countries, stimulate economic growth, create more jobs, and eventually lead to an agreement including most of the Asia-Pacific region.
Since his victory in 2008, Key has worked to re-energize the country’s economy, balance the budget, and stop a flood of migrants out of New Zealand. Part of the plan to make New Zealand more attractive for young professionals was cutting the top income tax rate to 33 percent from 38 percent. Corporate taxes were cut to 28 percent from 30 percent. Having a leader with a pro-business image has helped the Nationals in a climate where economic growth is of paramount political importance.
The elections suggest that Key got a boost from New Zealand successfully hosting and winning the Rugby World Cup in October. More importantly, they prove that he has also maintained his popularity despite the nation’s slow economic growth, fallout from the devastating earthquake in Christchurch, a sovereign-debt downgrade by Standard & Poor’s and Fitch in September, and the ongoing saga of a cargo ship leaking fuel into New Zealand’s coastal waters.
Murray Hiebert is senior fellow & deputy director, Pacific Partners Initiative and Southeast Asia Program, CSIS
Murray Hiebert serves as senior fellow and deputy director of the Sumitro Chair for Southeast Asia Studies at CSIS.