Key Points:

Labour Party president Mike Williams doesn't mind admitting he was feeling so miserable at the start of this election year he rang up one of his old Australian political mates for advice.

"All you can do is tick every box," the friend told him.

Williams recalls the list - asked and answered.

"Is your leadership okay? Yeah.

"Caucus united? Yes.

"Membership stable and growing? Well it's stable, probably growing a bit.

"Have you got a bit of money in the bank? Yes.

"Have you got a strategy? Yes.

"You put all those things together and if you are going to get beaten you are going to get beaten. But if you don't put a foot wrong, you are in with a chance."

Three months after his New Year blues, Williams' optimism about the chance Labour has of gaining a rare fourth term does not sound just like delusional presidential spin.

It is common feeling among the Labour membership and MPs who will meet in Wellington next weekend for their election-year congress.

Despite the gap between Labour and National in the polls, there is a sense that if they do everything right and National makes enough mistakes, they have a chance, a small chance, but a chance nonetheless.

Many believe the tide has turned already and that last week's Herald DigiPoll survey in which the gap between the two big parties almost halved to 10 points was confirmation of that. "We're past the tipping point," one MP says.

Labour has done it once before, winning four consecutive terms in 1935, 1938, 1943 and 1946 - but under two leaders, Michael Joseph Savage and Peter Fraser.

National has done it, winning four elections, under Sir Keith Holyoake, in 1960, 1963, 1966, and 1969. Labour has never won four elections in a row with the same leader and no one underestimates how difficult it would be.

The average gap between Labour and National in the polls in January was 14 per cent. The party had just finished the worst year in its now-8 1/2 years in Government including the forced resignation of a minister - David Benson-Pope - after a drawn-out employment case, the indignity of senior Cabinet Minister Trevor Mallard fighting in the lobbies, and a constant diet of bad publicity, led by the Herald, over the flawed Electoral Finance Act. Christmas couldn't come soon enough.

Labour deputy leader Michael Cullen, like Williams, remembers last year with no fondness. "As soon as we started getting better we were knocked back or something would go wrong, largely internally. This year that hasn't happened. And last year, although we knocked a few bits off National, it didn't seem to last more than a couple of weeks."

Cullen now says the party is in "remarkably good shape".

Williams' diagnosis echoes that: "It is actually extremely healthy."

It hasn't got as much money as it had at the same time last time, but he expects to end up in a "not dissimilar situation".

The party reserves took a hit repaying Parliament the $824,524 identified as unlawful expenditure from the 2005 election but money-wise the party would be fine, he says - assisted by the Herald.

"Every time you attack us, our mail appeals get better in Auckland."

So why is the party in such good heart in such a short time and with such poor odds against it? Cullen gives three reasons.

The first is general satisfaction within the caucus and wider party that the Government is sticking to its core principles.

"There is a feeling we have been doing good things for New Zealand, which is consistent with our traditions and our philosophy."

The second is stable leadership. "There is no leadership issue. It is absolutely obvious to anybody that Helen is absolutely secure in her position. That issue is not even discussed in the Labour caucus. It is not a matter for any speculation."

Reason No. 3 is that the party has regained policy momentum. "After some problems last year, I think we feel that we are re-establishing slowly that image of competence, of getting on with the business of Government and, indeed, to a significant extent we've captured the policy agenda so far this year - we have been leading on policy, which is a happier place to be in than feeling as though you are being entirely reactive."

He is referring to a plethora of new initiatives that have continued after Helen Clark's state of the nation speech and her statement on the first day of Parliament. The first was setting a new "education and training leaving age" of 18 - now dubbed Schools Plus in a presentational relaunch because it was rubbished as simply raising the school leaving age.

The list in the last two months goes on: housing affordability initiatives, secure funding for private providers of social services, more mega-roading projects for Auckland, the Fast Forward scientific research fund, moves to stop Auckland International Airport falling to foreign control, the Rotorua Lakes clean-up, territorial settlements with East Coast iwi under the Foreshore and Seabed Act, major advances on the Central North Island "Treelords" claim, anti-tagging laws and moves to guarantee under law lunch and rest breaks for workers who don't have them.

Expect a whole heap more and many with big price tags: the more popular and expensive the policies that Labour forces National to commit to, the less National has to promise in its election campaign. The free trade agreement with China to be signed on Monday - with National's backing - could also have a significant impact on Labour's sense of momentum.

Labour's strategy is to rely less on its record - because voters "bank" what they have already got - and to stress that it still has "plans for the future," the well-worn catchphrase of Australian Labor last year.

No story about Labour's renewed confidence is complete without reference to National - and John Key's patchy performance this year has Labour's tails wagging.

The first sign that he had lost his mojo was his equivocal response over the share sale of Auckland International Airport - after which Labour have labelled him as "slippery." Cullen won't divulge who thought of the word but says the term was well planned in advance.

"He is not looking shiny and new any longer, that's for sure," says Cullen.

"As Key has come under scrutiny there is a growing realisation that this is not a perfect story, that this is not the dream from Casting Central, that there are problems there."

Cullen says Key is at a disadvantage because he doesn't have the depth of National Party tradition to fall back on. The long term for a foreign exchange dealer is six months, he says.

"And that is his difficulty that he hasn't got that firm anchor which, when things are getting a bit difficult, gives you the stability to respond."

ONE of the more remarkable features of the Fifth Labour Government has been its relative internal discipline, all the more unusual after nearly three terms in power under the same leadership.

Cullen pays tribute to Clark for that. "When the chips are down, the ability of Helen to manage through periods of turbulence and difficulty with the Government gives people a huge feeling of confidence."

He also pays particular tribute to Benson-Pope, a colleague and friend who replaced him in Dunedin South when he moved to Napier.

Pope had acted "with incredible self-discipline and integrity" not just in standing aside but when he lost the nomination, a blow that is very hard in politics. Benson-Pope lost out to Clare Curran, a communications consultant who worked with Australian unions. Hers has been a rough ride into contention.

For the most part, the rejuvenation in the party that has taken place under leader's orders since the last election has been achieved with minimal trouble. The result has been new ministers, new MPs in on the list and a swag of new young Labour activists as candidates.

Many aren't expecting to make to Parliament this year in their seats or the list but have their sights on 2011.

Williams says the party has met the rejuvenation challenge and that's one of the things that has made him so chipper. He also learned from the Australian election, where a new face heading Labor swept away an old Government. Williams refuses to see that as an omen for a National landslide. In fact the reverse.

"Everyone talks about a landslide but it wasn't. It was a very near-run thing. The difference between the primary vote for the Coalition and the Labor Party was 2 per cent."

He also learned that mobilising the vote was an important as policy. And, he says, it showed him that tax was not necessarily the crucial issue. Exit polling in Australia showed that Workchoices, the Coalition's unpopular industrial relations policy, was more influential.

"In 1990 we knew we were going to get thrashed. There was all that 'change the leader, change the policy' kind of stuff. There is certainly not that sense. I think there is a sense out in the party that we are in with a chance."

DRUMMING UP VOTES FROM FAR AFIELD

One of the new Labour candidates causing excitement is Jacinda Ardern, a former Beehive staffer who will be a list-only candidate.

She will spend the campaign working up the party vote in London, where she has been working in the British Cabinet office and has just finished working on a review of policing in England and Wales.

She is also president of the International Union of Socialist Youth, to which Young Labour is affiliated.

More certain faces in the next Parliament will be Chris Hipkins (replacing Paul Swain in Rimutaka), Iain Lees-Galloway (replacing Steve Maharey in Palmerston North), Clare Curran in Dunedin South, and Carol Beaumont, the CTU secretary who is expected to win selection in Maungakiekie, now held by Mark Gosche.