Coalition talks: New Zealand’s political stability lowest since financial crisis

Long coalition negotiations from the new Government have seen a major economics consultancy downgrade its perception of New Zealand’s political stability to its lowest rating in more than a decade.

BMI, which is owned by the Fitch Group, one of the three big ratings agencies, docked a couple of points from New Zealand’s score in its Short-Term Political Risk Index (STPRI), which measures a country’s political stability.

The accompanying report said New Zealand’s score had decreased to 78.5 out of 100, down from 79.4 - the lowest score the country has received since 2010. A lower score implies greater political risk.

NZ First leader Winston Peters, National's Christopher Luxon and Act's David Seymour have gathered today for coalition negotiations. Photo / Winston Peters

New Zealand’s performance in the index peaked under the outgoing Labour Government in 2020 with a score of over 85, although New Zealand’s score began its decline under Labour too.

“[O]ngoing coalition negotiations have to address a wider range of ideological differences, and while we expect a government to be formed in the next few weeks, risks to policy-making and the potential of a snap election have increased,” the report said.

A score of 78.5 is still high. The GDP-weighted average for developed markets is 75.7 points. Australia’s most recent score in the index was 81.

The report warned that “internal divisions within the coalition could limit or slow policy formation”. The “policy-making process score” which feeds into New Zealand’s overall score dropped from 86.7 to just 83.3.

It was not all critical. The report said it expected New Zealand to “maintain its status as a stable market and maintain market-friendly macroeconomic policies such as open trade and reduced government spending”.

The report warned that weak economic growth forecasts could make it difficult for the Government to meet its tax commitments. It said GDP growth of 1.5 per cent next year would fall “well below” the pre-pandemic five-year average of 4 per cent would cause “doubts about the Government’s financial capacity to deliver on all promises, which could potentially lead to increased voter dissatisfaction”.

The report landed as coalition talks dragged on with the parties waging war on each other over who gets the role of deputy prime minister.

Incoming Prime Minister Christopher Luxon has been assuring the public that a deal is expected shortly, although that pledge is beginning to ring hollow, having been made, in various forms, every day for more than a week.

Yesterday, Luxon said the parties were in the “final stages of our coalition conversations”.

Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.