THE TRANSITION TO THE MIXED MEMBER PROPORTIONAL VOTING SYSTEM

Background:
Some would say the current political landscape in New Zealand has everything. For political scientists and commentators it is the closest thing to heaven they could possible get. For politicians, depending on circumstances, it will vary between heaven and hell. For the general public on the street their interest in politics probably ranges from being important, to irritating, to incredible, to irrelevant. Some will be far more interested in how many tries All Black Johna Lomu scores in rugby, or how our golfers are going in the US Masters. However, for international investors such as yourselves, it is not a game. The political landscape of a nation is important. It affects your decisions on where in the world you place your money.

The significant turn-around in economic growth in New Zealand against the background of declining GDP in the late 80s and early 1990s, is an endorsement of the current economic policy framework;

• monetary policy commitment to control inflation
• fiscal policy commitment to keep government expenditure under tight control
• sensible labour laws that allow flexibility in the labour market
• a commitment to further expose the economy to international competition through a continuing tariff reduction programme
• and a micro economic policy agenda, designed to ensure further efficiencies in the economy.

The result is that New Zealanders are enjoying much higher levels of sustainable low inflationary growth than for decades, with forecasters predicting a steady growth rate of between 3% - 3.5% over the next three years; our highest ever level of employment; major tax reductions, and in addition, on-going fiscal surpluses of around 3 percent of GDP. New Zealand has moved up to eighth out of 48 in the World Competitiveness Report, and our credit rating has improved to AA+.

These successful policies were all introduced under a First Past the Post (FPP) Westminster type political system. It is against this record of progress that we look at the transition into the full MMP system.

1996 election:
The introduction of a new voting system of proportional representation does give rise to an element of uncertainty for the New Zealand economy of the future. This is because of the greater difficulty of any one party to achieve 50% of the popular vote, and creates a very real uncertainty on the likely makeup of the next government. History shows us that the last time any party won more than 50 percent of the actual votes on the day was 1952. In todays climate with 20 registered parties, this is unlikely to happen at this years general election.

One of the interesting aspects of the new voting system is that a party has to get at least 5% of the vote before its vote counts, unless they win a constituent seat. In this first MMP election, given this large number of small parties, this could mean that we may see possibly up to 10% of the total popular vote not contributing to the final makeup of the House. Rather, the makeup of the seats in the new parliament may be as a proportion of 90% of the vote. That leaves still the potential for a majority government. This is not a strong likelihood but it could be possible given the uncertainty surrounding the first election.

There is much speculation on what election results the mathematics of the new system could throw up. I understand that you have some political scientist and commentators talking to you today, who will no doubt add to the speculation.

However, in New Zealand there has been a trend for the voters to vote governments out rather than vote governments in, so precise predictions about voter behaviour are difficult with the new fragmentation of voter choice.

Government since 1993:
Some would argue that government has over the last two and a half years been operating very much in a MMP environment. Since the 1993 election, which on election night looked like delivering a hung parliament, this government has successfully managed a very volatile political landscape. To date we have lost 9 MPs to other parties. We have gone from being a one party majority government , to a minority government (with the support of the left wing Alliance party) to a full coalition Government with a member of another party sitting around the cabinet table.

This has meant that since 1993 we have put much work into anticipating and understanding how minority and coalition arrangements work We have established the machinery and the ground rules for making these arrangements. We have made it work. It is valuable experience that will assist National to provide stability in the times ahead.

While currently this government has just got the numbers, I believe it will continue in power full term. This is because it is not in any political parties interests, except perhaps New Zealand First, for there to be an early election.

MMP risk
When looking at the possible risks associated with the transition to MMP and beyond, we need to look at the politicians, policies, political processes, political institutions and what influences their behaviour. This is too big a task to fully tackle over lunch.

Although on the economic policy front, all major parties, with the exception of the Alliance, now appear to generally accept the overall economic thrust that is in place, I believe there will still be some key political challenges:

• Maintaining the independence of the Reserve Bank Act and the 0-2% band.
• Maintaining the Fiscal Responsibility Act and ensuring fiscal surpluses are used responsibly, especially in maintaining the repayment of public debt;
• Maintaining and enhancing the freedoms and flexibility of the Employment Contracts Act
• Continuing with deregulation; and
• Maintaining the push for more effective and efficient delivery of social services.

It is vital that New Zealand does not go off track. We cannot afford to squander our hard won gains. New Zealanders, above all else, want stability, just as investors do.

Some MMP Features:
I would like to suggest that some features of the new environment will be:

• Political time frames may revert back to short term gain versus long term vision. (Eg Government spending )
• There may be many issues generated for domestic consumption and voter appeal, rather than any genuine desire for policy change. (eg immigration)
• The power of the executive will be diminished with more power to parliament
• There will be more debate on policy issues and their presentation
• While there may be much more consultation there may be confusion between consultation and consensus.
• Political support may be more fluid. Coalitions may form around specific issues
• Consultation and gaining multi party support will be vital, and politicians who have consensus building skills will be well utilised.

Political reforms:
With these risks and features in mind, it is important to remember that while there have been major economic reforms in this country over the last decade, there have also been some major, but perhaps less recognised political reforms. These help provide a counter balance to some of the perhaps less desirable aspects of MMP.

1. Electoral reform (MMP)
It is important not to forget that the voting system determines what happens on one day every three years. Once the votes have been cast and a government formed, all other things being equal, that administration will continue to the next election, just as it has under the old FPP system. However you will continue see some political behaviour changes in election years , just as at present.

2. Parliamentary reform
Since February 20 of this year, we have been operating under new Standing Orders. These are the rules that govern the mechanics of how parliament operates. This relates to everything from the hours of parliament, the way voting is undertaken, what select committees do, and legislative procedures. This has already changed the way decisions are made. Irrespective of who does get or doesnt get elected, we will have had the valuable experience of operating under these new rules for some time.

3. Public Sector reform:
The Public Service has also been dramatically reformed over the last decade.

The Government has divested itself of any functions we dont consider to be the core business of government. Where we do own commercial activities, they have been corporatised. They now operate outside the budget sector, subject to disciplines and obligations identical with those of comparable private business.

For the remainder of the public sector, we now focus on outcomes, not inputs. Managers have clear measurable goals. They decide how to allocate their resources to achieve those goals, and are personally accountable for the outcome.

In many instances there has also been a division between the funder and the provider of government services. This has meant that while the Government has continued to fund activities, the provider may or may not be a government agency.

Work has also been done on the way departmental policy advice will be handled in the new environment.

4. Less Government:
Further, with deregulation and controlled government spending, we now have much less government involvement in the economy than we used to. There are less opportunities for politicians to muck things up. I find it interesting to note that those who are the loudest and most critical of Government and what it does, are those who want more of it.

In a recent Economist article entitled Withering away the State the authors noted that New Zealand has reduced public spending from 46% of GDP in 1988 to 36% in 1994 and falling, while many countries are pushing over the 50% of GDP figure.

The article states As a general rule, those economies with the lowest rise in public spending since 1960 seem to be more efficient and more innovative, and notes that in the newly industrialised countries, which are often envied for their growth, public spending averages only 18% of GDP.

I believe this positive trend in New Zealand of reducing governments overall involvement in the economy should continue.

We are fortunate to have the transparency and accountability of the Fiscal Responsibility Act, which provides some welcome protection from silly political spending extremes. It is actually supported by all parties.

The Reserve Bank Act also gives a welcome independence from political interference to monetary policy. While there is some debate about what the target inflation band should be, this Act will also continue to have majority support in the Parliament

The reason I raise all these political reforms is that not often much attention is focussed on them. They are important because they offer checks and balances in the new political environment.

Other checks and balances:
Along with these in built political checks and balances, there are also others, as we go into the new environment.

For example, although some parties talk at times of making silly changes, those who do want change, would have to get other parties on side to make such changes. This may not be as easy as they think.

Secondly, with more consultation comes more responsibility. This is something that I dont think the current opposition parties fully realise. They may become accountable for some of their views, something that currently, as opposition politicans, they do not have to worry about. They may have to actually argue facts, and not just rhetoric. Solutions will have to be offered, rather than just restating problems and dragging victims of the system on TV. Extreme views will be less tolerated. Perhaps an example of how this discipline might operate is our experience with the Retirement Accord.

It seems to me that it is going to be increasingly difficult for any new Government to regulate in the areas that have been deregulated. The public has taken quite a liking to increasing deregulation and with it increasing choice and lower costs, particularly in the consumer area. It wont be much fun for any politicians to tell voters that they are going to put their cost of living up.

Whilst some parties on the left may hark back to what they perceive to be the ability of governments of the past, I believe the technological age and trend towards globalisation that we now live in, also makes this less likely.

Political behaviour is becoming increasingly constrained by this technological change and globalisation that is going on around it through the disciplines of the financial markets. Any marked policy shift would very quickly be reassessed because of the response instantly, even before legislation was passed, by these financial markets.

At the end of the day one could argue that when you add these factors to the new complexity of a proportional parliamentary system, it may mean that it is very difficult to see any changes occurring.

Indeed, it seems to me the biggest risk in the medium term, is that this lack of change could mean New Zealand may progressively lose some of the gains that have been made over the last decade.

The Future:
The role of Government is increasingly now being focussed on issues of social cohesion, which sees a focus on education, security, health and welfare. The real challenge of governments I believe as we move into the 21st century is having a balanced and consistent approach to both economic and social issues. That means keeping up with the changes that are occurring out there in the market place, and not impeding the market from working, while also making progress with the social agenda.

This government is doing just that. This government has a longer term strategy and a clear vision of where we want to go. We want to continue to build on the solid foundation to grow our nation into an even more successful one, while taking this balanced approach. This is spelt out in the Governments Path to 2010 and subsequent documents. They make good reading.

There is no doubt that New Zealand is very dependent on continuing confidence of foreign investors, prepared to invest in this country to maintain our standards of living.

I have confidence that the New Zealand political system will make proportional representation work in a New Zealand context. I believe the way that the parliament has operated over the last three years is a positive indication that reform may still be able to continue albeit not as fast as many of us would like, or perhaps feel is necessary for New Zealand to continue to maintain its competitive advantage internationally.

Even as a minority government, one still sees progress in privatisation and other pieces of legislation that even five years ago and with strong majorities would have been too contentious. I believe this is because the public in this country are now beginning to realise and better understand the need for change that has been driven through the political process over recent years. This is reflected in a general confidence by the public about New Zealand s future

I dont believe that New Zealand is in as difficult a position as many, if not a majority of other western countries currently are. One only has to look at European economies to see the difficulties they have in making changes in line with economic realities and what is happening out there on the market place today.

It is worth noting that while our political system is becoming more complex with MMP, there is still only a single parliament. The New Zealand MMP system is still not as complex as the multi layered political systems found around the world. We do not have an Upper House, or separate state parliaments. Nor do we come under the umbrella of complex multi Government systems such as the European union.

From a National Government perspective we certainly are committed to continuing the process of reform in allowing New Zealand to be able to retain its competitiveness in the wider world.

While there may be some ripples and political manouevrings as we have our first election under the MMP system, I believe that the process will settle down. This is likely to be in much the same pattern as has occurred in the German environment. That of three or at the most four parties sharing the spoils and making coalitions.

The policies that underpin our success, because they are sensible and successful, and because of the checks and balances in the system, I believe will not be dramatically altered.

I am still very bullish about the New Zealand economy despite the political changes. New Zealand is a good place to invest. Since 1993 this government has adjusted well to the changing political landscape, and given the New Zealand people, its economy, and those involved in it, political stability.

We want to continue to do so. Thank you.