Published in The Australian (Sydney), 19 August 2026
When New Zealanders go to the polls on November 7, they will be spoilt for choice. In the main, there are two larger (Labour and National) and five smaller parties (ACT, Greens, NZ First, Opportunity, Te PÄti MÄori). Each has its own ideas about a cure for the country’s finances, its hospitals, power supply, education system and so on.
Of course, this being a democracy, these ideas diverge wildly, and some are incompatible. Yet under MMP, the proportional electoral system chosen in 1993, several parties will end up in coalition with each other.
If current opinion polls are anything to go by, the next government might consist of four parties, one more than in the current National-led coalition. That would make any substantial reform exponentially harder than it already is.
Coordinating the different views of three parties has been hard enough. When one coalition partner wants to do A, the second wants B, and the third wants C, the easiest solution is to do none of them and maintain the status quo.
For a practical example, you only need to look at the New Zealand government’s balance sheet. Treasury values all Crown assets at $NZ598bn ($496.6bn), of which the state-owned companies that could actually be sold are worth about $NZ20bn on an independent valuation.
Late last year, Prime Minister Christopher Luxon said he wanted a “mature conversation” about whether the state must own everything forever. Still, he ruled out selling anything this term.
Meanwhile, one of his coalition partners, ACT, thinks the answer is obvious: sell. However, the other coalition partner, New Zealand First, would do the opposite. It has promised to buy the Bank of New Zealand back from its Australian parent, NAB, and fold it into Kiwibank, a state-owned bank.
Between selling and buying assets there is nothing in the middle for a coalition to agree on. And so, the predictable outcome is nothing happening.
This was not the only issue on which the three coalition partners’ views did not align. Another good example was foreign direct investment.
When the coalition agreements were signed in November 2023, the one with ACT promised to amend the Overseas Investment Act so ministers could block a foreign purchase only on national security grounds. However, the one with New Zealand First promised that the ban on foreign house buyers would stay.
But the discrepancy between these positions was not the only problem. An additional complication was that nobody could say how extensively the clause in ACT’s coalition agreement should be read. When I asked a relatively junior minister about it at the beginning of the term, he said he did not know. That was for the party leaders to decide.
Eventually, the reforms on foreign direct investment passed, but it remains a patchwork compromise. Most foreign investments are now decided within 15 working days, with officials aiming for five, instead of having to prove they benefit the country. That is good. But farmland, fishing quota and housing were carved out to keep New Zealand First aboard.
These are the messy things that happen even when the parties agree on paper.
Where they do not agree at all, it is less messy. It just means nothing gets done. For example, New Zealand First will not be prepared to increase the pension age, no matter how much National campaigns on it. And so, it will remain stuck at 65, despite the obvious fiscal pressures from demographic change.
All these examples are from a coalition that governed with three parties that are (broadly speaking) from the centre-right of the political spectrum.
Now imagine what might happen after the November election when four parties might be needed to have a majority in parliament. One of them, the Opportunity Party, does not even neatly fit into that spectrum because it positions itself, rightly or wrongly, as beyond the traditional left-right scale.
The Opportunity Party, previously The Opportunities Party, has contested the last three elections without yet winning a seat in parliament. But it has cleared 5 per cent in each of the last four polls, and on the most recent 1News Verian projection neither bloc could reach a majority without it.
There is a body of empirical work on what happens to public finances when more parties have to agree, and most of it points in one direction.
Back in 1989, Nouriel Roubini and Jeffrey Sachs found that deficits were consistently larger in industrial democracies where governments were short-lived and where many parties sat in the ruling coalition. That sounds a bit like New Zealand these days.
More recent academic work is also sobering. A study by IMF economists, covering 92 advanced and developing countries over four decades, found that each additional veto player in a government was associated with public debt roughly 1.5 percentage points of GDP higher across the life of a parliament.
But an even more interesting finding was that political fragmentation mattered most when countries were trying to bring down their debt. That suggests more parties do not just make governments spend more. They also make them slower to reduce spending.
Unfortunately, this is exactly the situation in which New Zealand now finds itself. The interest bill on government debt was still a modest $NZ1.9bn in 2021. It is around $NZ9bn today, and Treasury expects it to pass $NZ13bn by 2030, almost one dollar in every 11 the government collects.
Therefore, what New Zealand really needs right now is a path towards balancing the books. It also needs that path to be credible because two of the three ratings agencies have put the country on notice. In other words, failure to get the deficit under control could be doubly costly.
But with the prospect of more parties forming the next coalition after the November election, such fiscal consolidation does not seem to be on the menu. Or, to be more precise, it probably would not survive coalition talks.
Despite the various policy ideas proposed by the seven parties likely to enter parliament, the actual outcome of the election might thus be something different: not a new government driven by policy ideas but a multi-party coalition in which the parties can agree only on not closing the deficit.
There does not seem to be a party for which the deficit is the first thing it would spend its bargaining power on in coalition talks. That is the result of the 2026 election, and it is already in.
