New Zealand elections-towards a two-party system? (Updated 22/09)

New Zealand will be holding a parliamentary election on the 20th of September. National Party leader John Key is the incumbent prime minister, and has been leading in the polls with around 45-50% of the vote since the last election. Opposition Leader David Cunliffe, who is leader of the left-wing Labour Party, has been trailing, with his party only having about 25-30% of the vote.
Under New Zealand's previous single-member plurality system, which was used in all elections up to 1996, Key would win a landslide victory, with about 100 seats in the 120 House of Representatives. However, a series of referendums during the 1990s, the new mixed-member proportional system was introduced. This system made New Zealand elections much more proportional.

The Mixed-Member Proportional system

The Mixed-Member Proportional voting system originated in Denmark, where it was used for some elections between 1915 and 1920. However, it was introduced as a system for West Germany after the Second World War.

Under the system, New Zealand is divided into 70 single-member electorates. Voters have two votes: one vote for a candidate in their electorate, and one party, or list, vote. In the single-member electorates, the candidate with the most votes is elected as the electorate member. But after these members are elected, all the party votes are added up. All parties that have either won 5% of the party vote or one single-member electorate have their votes put into a Sainte-Lague proportional representation allocation (an explanation here). The electorate seats that a party has won are subtracted from the total allocation of seats, and the remainders are distributed to party lists, submitted by the party before the election. If a party wins more electorate seats than its proportional allocation, it keeps these seats, and parliament increases in size accordingly.

This system aims to produce an overall allocation of seats that is proportional to votes, and it has meant that there have been no single-party government, and a significant number of small parties have won seats that they would not have won under single-member plurality.

However, recent political developments have reduced the number of political parties in the New Zealand political system, to the point where New Zealand may become a two or three party system in the near future.

Increased Polarisation

The chart below shows how the New Zealand Parliament stood after the 2011 election.

There have been some changes since this election. ACT's single member of parliament, John Banks, resigned over corruption allegations. A New Zealand First MP, Brendan Horan, resigned from his party to become an independent.
While there appear to be many parties, most of them align behind either Labour or National, and the only 'independent' party appears to be NZ First.
Another notable feature of this is that there are not many medium-sized parties. The two largest parties have 77% of the seats, and adding the Greens to this brings it up to about 93%. Why has this happened? Well, it's all part of the movement towards a two-party system.

"Electorate Seat" Parties

About half of the parties in the New Zealand parliament are dependent on electorate seats to win any seats at all. The electorate seat threshold means that winning an electorate seat can get list members into parliament, a useful mechanism for small parties. The Mana Party was the only party to have serious competition from a party in the same ideological column for its electorate seat. No National candidates stood in any of the seats won by the Maori Party, and while National candidates ran in Ohairu-Belmont (United Future) and Epsom (ACT), they mostly ran to get electorate funding, and their opponents received implicit support from the National party leadership.

Why would National sacrifice these seats, some of which were winnable for the party, to get candidates from minor parties elected? The answer is simple. National needs extra list seats to get a majority, and therefore needs ACT and United Future to pass the threshold, so they can get these seats. If ACT and United Future had won no seats, National would need to get very close to a majority to win government.

The Decline of Medium-Sized Parties

Recently, New Zealand has reduced its number of parties significantly. A good measure of this is the 'effective number of political parties'.  In order to calculate this, all of the percentages of the party votes (or seats) are squared, and added together. The number 1 is than divided by this figure.

As we can see, the number peaked in 2002, and has declined since then. It reached a bottom in 2008, and hasn't moved much since then. Why has this happened? Well, one issue is the issue of coalitions. Small parties in coalitions tend to lose votes after being parts of coalitions. After a coalition with National, NZ First fell below the 5% threshold, and had to rely on leader Winston Peters' electorate seat to stay in parliament. The left-wing Alliance splintered after a coalition with Labour, United Future went from 8 to 3 to 1 after Labour government (2001 to 2005 to 2008), and NZ First was forced out of parliament after a Labour coalition.

If Key falls short of a majority, this record may mean that the Greens and Mana Party (in alliance with Kim Dotcom's Internet Party)  pause for thought before jumping to coalition with Labour. In fact, it may be the ability of the Green Party to win votes that prevents New Zealand from becoming a pure two-party system.

Post-election update-22/09/14

The election is over. The National Party have been re-elected, with an overall majority of 61 members in a 121 member Parliament (Peter Dunne is the overhang). The main surprise of the night, however, was the strong performance by New Zealand First, and the poor performance by Labour. NZ First have had the benefit of eight years out of government (the longest stretch since MMP was introduced). The result is their third-best since MMP was introduced.

The effective number of parties in terms of votes has increased (from 3.15 to 3.21)  There are no new parties in Parliament (and the Internet Mana alliance did not enter Parliament, as Hone Harawira lost his electorate race).The Conservatives (a new right-wing party founded in 2011 by Colin Craig) increased their vote to about 4%, but fell short of the 5% threshold. 

The lack of any significant change in terms of Parliament, other than the slight drop for Labour and the increase for NZ First, means that the effective number of parties in terms of seats has fallen from 2.98 to 2.9, which is not a significant decrease, but is part of a trend.

The election may provoke debate over the level of the 5% threshold. A committee set up to review MMP has recommended that the threshold be lowered to 4%.  My table below shows how the results would have differed with a 4% threshold.

With a 4% threshold, the centre-right's total would increase by 3. National would lose two, and thus not have an overall majority, but the Conservative Party's five would cancel that out. Even if Key wanted to exclude the Conservatives from his government, the current combination of National-Maori-United Future-ACT would still have a majority, with 63 seats. Key could probably count on the Conservatives to support him in confidence votes, so this would really not matter.

The change would have a negative impact on the centre-left. Internet Mana only won 1.26% of the party vote, and thus would not be saved by the change. The Greens and Labour would lose two and one seats respectively, weakening any basis for a centre-left government.

If the National party's support drops significantly during the next 3 years, and the Conservatives stay above 4%, there may be some temptation for Key to accept that recommendation and reduce the threshold to 4%, especially if Peter Dunne resigns or loses his seat. Unless a left-wing party appears on the horizon with support above 4% (unlikely), this decision would make tactical sense for the Prime Minister, and would strengthen National's political position in the near future.