National will still need the support of New Zealand First to achieve a working majority in Government, according to Westpac’s chief economist Kelly Eckhold. 

Election night results indicated National and Act will have 61 seats in Parliament between them, but this could drop by one or two seats once the special votes were known on November 3. 

Eckhold said it seemed likely the next Parliament would have 122 seats - 121 from the general election and a further seat likely following the Port Waikato by-election on November 25 - which meant National and Act would not have a majority. 

“Hence the support of the NZ First Party will likely be needed to achieve a working majority.” 

This could come in the form of a three-party coalition between National, Act and NZ First or a coalition between National and Act with NZ First providing support on a supply and confidence basis. 

“The National Party’s pre-election preference was to form a government with Act, dealing with NZ First only as a last resort. However, given the election outcome, our assumption is that the National Party’s preference will be to tie both Act and NZ First into a formal three-way coalition,” Eckhold said. 

“We think that National will view this as a more stable government, with the leaders of both parties offered Cabinet positions that mean that they will be bound by the principle of ‘Cabinet collective responsibility' for the broad programme of government.” 

However, he said it was possible NZ First could prefer to sit outside government and provide support in return for policy concessions. 

Eckhold said substantive coalition talks would likely be delayed until the special votes results were in. 

“As the election result is relatively close, it will be some time until coalition negotiations are likely completed - indeed, they are unlikely to start in earnest until sometime after November 3. 

“This may affect prospects for National to deliver the “mini-Budget” prior to Christmas that had been signalled during the campaign but the generally conciliatory tone among the three players means it could still be in play. This ‘mini-Budget' or Half-Year Economic and Fiscal Update is likely to not be released before mid-December, meaning no new fully costed government policy initiatives until then.” 

Eckhold said financial market volatility may be slightly elevated as coalition negotiations evolve. 

“However, [the] centre-right’s strong performance on the night will help to assuage some uncertainty.” 

Eckhold said there was a high degree of commonality among the centre-right parties, particularly on tax bracket adjustments, easing tax obligations on property investors, reduced regulation for farmers, redistribution of carbon tax income to taxpayers and focusing the Reserve Bank’s mandate on inflation. 

But Act and NZ First tended to favour greater spending cuts and doubted the extent to which National’s proposed tax on homes bought by foreigners would be able to fund tax cuts. 

However NZ First also had some higher-cost spending initiatives and Eckhold said National may need to make bigger cuts in order to fund those initiatives and to get NZ First on side. 

“The bottom line is more spending cuts may need to be agreed to get the coalition across the line.”