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Agent of chaos: The inside story of the Labour/NZ First coalition government

On October 17, voters called time on the Labour NZ First coalition government, sending the self-proclaimed “handbrake” of NZ First into the wilderness and returning Labour with enough support to govern alone. In this Herald Premium article, the NZ Herald’s Claire Trevett spoke to politicians and staff about the three years the two parties and the Greens worked together, and the clashes and issues that vexed them.

The end of hope arrived by letter, and perhaps by coincidence, on Winston Peters’ birthday in 2019. It was delivered to the office of finance minister Grant Robertson on April 11 in an envelope addressed simply to “MOF. (Private).” MOF is minister of finance.

Inside was a short letter from Peters’ chief of staff Jon Johansson on behalf of the NZ First caucus, advising the party would not support Labour’s proposal for a capital gains tax. After a lengthy and expensive Tax Working Group report, and months of work by officials and ministers on policy development and negotiations, there was no phone call or meeting to advise of the outcome.

Just the letter.

Six days later, prime minister Jacinda Ardern announced Labour had failed to get the tax over the line and took it off the table for the foreseeable future.

The capital gains tax was one of a screed of Labour’s hopes and dreams that were stymied, delayed, or watered down by its coalition partner.

NZ First claimed this as a “handbrake” role. But the capital gains tax was also emblematic of some of the core problems in the relationship between the two parties.

Those who knew how NZ First operated were surprised Labour seriously believed NZ First would agree to a capital gains tax, given its longstanding opposition to the tax. But those in Labour saw it as another case in which they believed NZ First had given false hope, only to later feel they had wasted time on an issue which NZ First had already made up its mind about.

“We felt quite let down,” one Labour minister said.

Robertson said at the time he was disappointed, and he says it again now. “I would not have put so much time into that if we didn’t think we had a chance of getting an outcome.”

Green Party co-leader James Shaw had the freedom to articulate what some Labour ministers privately felt, but did not have the freedom to say. He let rip in the lead-up to the election. “An agent of chaos,” was how Shaw described NZ First’s role in the government.

But Peters, too, openly aired frustration, saying in all his time in parliament he had never faced a more difficult three-year period, and he was “surrounded by plain inexperience”.

It was perhaps a sign of her own frustration that led to Jacinda Ardern issuing a stark plea to voters in the last week of the election campaign: to give Labour a strong mandate, so it could make fast progress in the Covid-19 recovery. It was effectively a slightly more diplomatic – and more successful – repeat of former National leader Bill English’s line in 2017 to “cut out the middle man” – ie: cut out NZ First.

The prickliest issues

The first stark lesson in the reality of the coalition arrangement was over Labour’s policy to repeal National and Act’s “three strikes” policy for sentencing serial offenders. Then-justice minister Andrew Little had publicly announced plans to repeal the law relating to serial offenders after a conversation with Peters in which he believed Peters had given it the go-ahead. Little said the paper had gone through a Cabinet committee and was signed off.

It was about to go to Cabinet for the final sign-off, and Peters had assured him he would support it in the NZ First caucus. Soon after that, caucus announced it would not support the repeal and the paper had to be withdrawn.

“That was frustrating. It was annoying, and it certainly wised me up to the fact that just because something has the apparent support of the leader of NZ First, it doesn’t mean it has the support of caucus,” Little says.

Winston Peters and Jon Johansson declined to be interviewed for this article.

Tracey Martin, a former NZ First minister in the coalition, said three strikes was a lesson for both parties. She acknowledged the language being used by NZ First in discussions with Little was not clear enough. “But also he wasn’t listening. They thought we had told him ‘no’, but we hadn’t told him ‘no’ clearly enough, it would appear. And that’s how we ended up where we were.”

Labour learned two important lessons. The first was that there was a difference in how the two parties saw the coalition agreement. Labour’s view was that the agreement set out what NZ First would get – but other than those policies that were specifically excluded, such as its plans for levying water use, Labour could go ahead with its manifesto.

Martin said that belief was behind a lot of the confusion. “I realised about six months in that Labour thought we had just rubber-stamped their manifesto, and that was not our view at all.”

Peters, a man with a background in the law, saw the coalition agreement as a contract. His interpretation was that only things specifically listed in the coalition agreement were guaranteed. Everything else had to be negotiated. Those negotiations often proved protracted and difficult.

The second lesson was that, despite the public perception, Peters did not necessarily have the final say in NZ First – its caucus did. Wiser ministers learned not to take apparently encouraging assurances from Peters or other NZ First MPs as gospel until after an issue had gone to the 10 MPs in the caucus. Those MPs also started briefing relevant backbench NZ First MPs before the caucus was due to meet on an issue. Success could depend on personal relationships as much as policy work and compromise.

Jacinda Ardern and Tracey Martin at Premier House in Wellington (Photo: Hagen Hopkins/Getty Images)

Tracey Martin quickly became a favourite of the Labour ministers, often prevailed upon to act as a go-between. NZ First ministers who were in a pickle would also dispatch Martin to try to unknot things. Her own portfolio areas were relatively smooth in terms of coalition management, and Martin had a strong relationship with Ardern. But Martin spent a lot of time dealing with other ministers’ issues.

“Tracey was someone who, if things weren’t working, I could test an idea with,” one Labour minister said. “Fletcher [Tabuteau] was a little bit like that, too. Tracey was a problem solver.”

Other ministers also pointed to Tabuteau and Mark Patterson as straight-shooters, and Labour and even Green Party ministers said they had an “unlikely” good relationship with Shane Jones. However, it was harder dealing with Darroch Ball on justice issues or Clayton Mitchell on workplace relations.

Former NZ First MPs point to the likes of Megan Woods and Stuart Nash as effective in dealing with NZ First – but eyes rolled at the mention of Iain Lees-Galloway.

How it worked

A cabinet circular set out how the relationship would work. It emphasised the need for good faith dealings and early consultation by ministers on significant policy and legislative plans, and especially matters that could be sensitive or controversial.

There was a distinction between consultation on portfolio matters, and “political consultation”. Political consultation was to be overseen by the prime minister, but mostly done by the chiefs of staff. It set out a process under which, when an issue became too complex, it should be kicked up to the PM and party leaders’ offices.

Overall management of the consultation process was the responsibility of the prime minister’s office, and the chiefs of staff of all three parties were the key figures.

Cabinet collectivity applied to all cabinet decisions, and bound NZ First ministers to keep quiet if they disagreed with a cabinet decision. But there was provision for an “agree to disagree” clause to be invoked sometimes. When NZ First wanted to call on that, it had to be decided on by the very top: between Ardern and Peters.

If ministers and staff could not resolve an issue, it was escalated up to leaders. The key players in the leaders’ offices were the staff teams: Raj Nahna was the prime minister’s chief of staff, former Victoria University academic Jon Johannsson was NZ First’s and Tory Whanau was the Green Party’s.

Beneath them, other staff were also charged with handling coalition management. Holly Donald did that role for the Green Party, before moving to the prime minister’s office. In Peters’ office, policy adviser Kirsty Christison – Tracey Martin’s sister – had a key role in coalition management work.

Martin said it ended up being fairly simple. “We realised early in that we needed to get the conversations between NZ First, Labour and the Greens really tight. It had to be people who knew the party’s stand and policies and could speak with confidence about what the party was likely to accept and not accept, but were very apolitical. For NZ First, that person ended up being Kirsty.”

She said the staff doing the triage work were “worth their weight in gold”. If things got “twitchy”, it escalated to the chiefs of staff, and if there was a massive showdown, such as Ihumātao, it would go to the leaders’ level.

It proved a practical enough working arrangement for most issues. But things never quite work in practice as they are supposed to in the rule book.

Things took a lot longer than some ministers expected, and the processes were sometimes de-railed by human nature, fractious personal relationships, or simply by mistake. Labour ministers in particular got frustrated by the length of time seemingly simple issues took.

One Labour minister described NZ First as “quixotic” in its dealings. “It looked pretty chaotic inside NZ First from the outside. It didn’t seem to have a clear plan for what it was doing.”

That minister gave as one example the decision not to back Andrew Little’s proposal to offer commercial rent relief during the Covid-19 lockdown. “A decision was made that they were part of and then they just backed off, they reneged on it. I find it bizarre.”

Another minister said there was confusion about who you were dealing with and what authority they had. A third minister who had to deal with NZ First a lot said negotiations were often “plain barmy”.

“I expected the policy differences, but I didn’t expect the chicanery around it. There was no coherence, you never knew from one meeting to the next what position they would take on an issue.

“Their best tactic was they would just stonewall. They just wouldn’t get back to you. You’d try to use the consultation processes, and you’d wait weeks and weeks and weeks for someone to get back to you.”

On the NZ First side, there was frustration when they felt Labour was only giving consultation lip-service – or omitted to consult them at all.

James Shaw said on some issues, such as the capital gains tax and Auckland light rail, NZ First would give the go-ahead for work to be done on the proposals – only to pull the pin after months of work had been done.

He said there sometimes was a sense NZ First had always intended to pull the pin, but dragged things out for dramatic and political effect, so it could claim the “win”. “On light rail, years of work went in that basically got destroyed at the last minute. To me, that’s bad faith.”

Grant Robertson says now it was not all rough going. “While there were obviously strains in the relationship, we still managed to achieve a lot in the three years.”

He points to the harmony in portfolios such as education, children’s policy, the establishment of the Infrastructure Commission and the Provincial Growth Fund, which by and large, went more smoothly than many expected.

But when things went wrong, it got a lot more attention than when everything went smoothly.

Jacinda Ardern and James Shaw (Photo: Hagen Hopkins/Getty Images)

In the early days, Megan Woods managed to get Green Party and NZ First consensus on her plan to ban further offshore oil drilling and exploration fairly easily. The compromise for NZ First was that it would not affect those with existing permits.

Other ministers were not so lucky. Phil Twyford ran into strife with NZ First over the light rail project and urban development. Tracey Martin said ministers such as Nanaia Mahuta and Willie Jackson sometimes struggled to get Māori initiatives past Peters, given Peters’ long-standing opposition to Māori-targeted funding.

Two ministers were universally acknowledged as having a tougher time of it than any others: Andrew Little and Iain Lees-Galloway. One person said the two were “at the front line of the differences between Labour and NZ First”.

Little and Lees-Galloway were partly cursed by their portfolios. Little had Justice, and Lees-Galloway had the double-whammy of Workplace Relations and Immigration.

The chasm between the policy positions of the two parties in those portfolios was greater than in any other. Little had success dealing with Martin over abortion reforms, but was delivered a string of blows on law and order issues by the harder-line NZ First. “There were issues where they clearly obstructed progress, against expectations.”

There was also a sting in the tail for Little at the end of the term: NZ First stonewalled Little’s attempts to provide a relief package for businesses on commercial leases during the Covid-19 period.

Jacinda Ardern and Andrew Little (Photo: Hagen Hopkins/Getty Images)

Little puts this down to his belief NZ First was trying to appease donors who were commercial property owners. He says there was always a danger for NZ First that it would start to look obstructive, rather than constructive. “And I think that was the verdict of this election on NZ First. In the end, New Zealand voters thought NZ First was being unhelpful in an otherwise good government.”

Lees-Galloway also had an early run-in with NZ First over workplace relations. There was progress on Labour’s plans, but every step required a compromise. The first came over the repeal of the 90-day trial period employers could use for new workers. That had to be watered down to allow small businesses to continue to use it.

Labour’s big promise to the trade unions was Fair Pay Agreements – agreements that would apply across a whole industry. After a review, headed by former PM Sir Jim Bolger, the policy got put on the back burner because NZ First refused to push ahead with it.

Martin said the relationship with Lees-Galloway was “incredibly fraught”. That was partly because he was minister of immigration, one of NZ First’s hot issues. NZ First had not got its way on immigration in the coalition agreement, and one Labour minister said that had been a sore point for NZ First from the outset.

Martin says NZ First had expected Labour to go further on its own policy to reduce net migration, but that had not happened. A NZ First source also said Lees-Galloway had come across as “arrogant”. “That did not help.”

A Labour cabinet minister at the time laughed at that description: “[Iain] was not very good at hiding the dismay on his face. Even when he was silent, you could see how pissed off he was.”

Very little progress was made as NZ First tried to show it was bringing down migrant numbers, and residency numbers. Attempts to ease a backlog of people who were eligible for residency but could not apply for it because there were not enough allocated slots came up against the NZ First brick wall.

“Every single immigration issue was absolute torture,” one Labour source said.

Not a one-way street

Life was not all rainbows and lollipops for NZ First, either. Those on both sides acknowledged that as well as the policy differences, there was a lack of understanding by most in Labour of the culture of NZ First.

Tracey Martin said the early battles were because Labour seemed to assume NZ First had simply rubber-stamped the Labour manifesto. She also felt NZ First was unfairly blamed for some troubles, such as holding up cameras on fishing boats. “That wasn’t our fault.”

“Anything we stopped, we owned. We went out and said we had stopped it.”

There were times when it felt it was dealt with in bad faith by the other parties. One came in 2020 after Comalco announced it would close the Tiwai Point aluminium smelter. Peters was blindsided by Labour’s announcement of a transitional funding package for the region, an announcement made as a government announcement rather than Labour policy.

There had been no discussion with NZ First about whether the government should instead step in again to try to keep the smelter open for longer: NZ First’s preference. Peters made his disgruntlement clear, going to Tiwai Point to promise to do just that. He regarded Labour’s failure to consult as a breach of the requirement of consultation on potentially sensitive issues: it was clearly a significant issue for a party with a strong regional and industry focus.

Some of the most intractable stoushes were not between NZ First and Labour, but between NZ First and the Greens.

The granddaddy of all scraps was over Green Party co-leader James Shaw’s work on the Zero Carbon Act. The development of the Zero Carbon Act was in the coalition agreement, with some caveats around agriculture and the need for an independent Climate Commission.

NZ First’s main concern about the content of the law change centred on the methane reduction targets that would apply to agriculture. National wanted the targets removed from the Act, and for an independent Climate Commission to set them. NZ First wanted the targets to stay in the Act, believing politicians should be responsible for them. NZ First won in the end.

But the party’s gripe was the discovery Shaw had negotiated with National before coming to them. One NZ First source said the list of what National had agreed to was then presented to NZ First, almost as a done deal, to sign off on.

A senior Labour minister also acknowledged NZ First was justified in being angry about that, since it was the government partner. Shaw believed he was delivering on Ardern’s request to get cross-party agreement by going to National, and alleged NZ First dragged things out for six months longer than they needed out of pure pique.

NZ First’s talks were mainly handled by Johansson. Shaw is open that his relationship with Johansson was not strong – he felt Johansson had blocked access to Peters, and had not passed on information Shaw had asked him to.

The talks got so fraught Shaw ended up effectively absenting himself, leaving it to the prime minister’s office to deal with.

NZ First now claims credit for being the ones who managed to get it over the line. Labour ministers say it was Ardern herself who managed to break the various deadlocks on the issue and get both National and NZ First over.

After the Zero Carbon negotiations, NZ First also sent the Greens’ “feebates” scheme out the window. That was the Greens’ plan to charge levies on imports of higher-emitting vehicles and use the money for subsidies for electric and hybrid cars. Then, just three months before the election and after years of work, NZ First said no to light rail in Auckland, one of the projects in the Green Party’s agreement.

The Zero Carbon Act was one of three issues in which talks became so toxic that Johansson asked Labour to bring in Heather Simpson to try to find a way through. Simpson was Helen Clark’s former chief of staff, and has done some work for the current government, including a review of the health system. She was regarded as effective at cutting out the personalities and politics, and getting to the nub of an issue.

Simpson was also called in to help with talks over the use of stewardship land, and Labour’s plans for industry-wide “fair pay agreements”.

Jacinda Ardern and Winston Peters

The relationship between Ardern and Peters was always one of respect, and was perhaps the relationship that bolted the coalition together. Neither of them bad-mouthed the other, not publicly at least.

Jacinda Ardern and Deputy Prime Minister Winston Peters (Photo by Hagen Hopkins/Getty Images)

It was a professional relationship, rather than the whisky-oiled one Peters had with former PM Jim Bolger. However, both would occasionally enjoy a whisky together: Ardern is a keen whisky taster.

Tracey Martin said Peters had a high level of respect for of the office of prime minister, as well as for Ardern personally.

Peters had been quick to offer NZ First support for the gun reforms after the mosque attacks, and the party stuck to that commitment.

There were some tests early on in the foreign affairs portfolio. Peters had a more positive view of Russia than Labour, and a less positive view of China.

One source observed that between them they covered the globe: Peters took care of relations with Russia and the Trump-led United States, while Ardern tended to western Europe, the United Kingdom and China.

“She picked her battles,” one source said, when asked how Ardern handled the differences in opinion. Asked what battles she had picked, the answer was swift: “Covid-19.”

2020: The hardest year of all

Things got more tricky as 2020 dawned. NZ First had clearly made the strategic decision to try to differentiate itself more in election year.

Andrew Little said he had approached NZ First early in 2020 to try to get adoption law reforms underway. He got an abrupt note back to say NZ First would not be considering any more social policy, with no further explanation. “It was a very strange thing.”

Then came Covid-19, a period sources said was the most constant conflict between the parties. That was partly because of the timing in an election year, but also because big decisions had to be made quickly. “Everything got more tense in Covid. Everything,” Martin said.

All but the core ministers were away from the Beehive during the first lockdown period, including Winston Peters, who had backed the initial lockdown and early response, such as the wage subsidies.

He returned after the first lockdown period, and the differences started having an impact. Ardern’s priority was the health response, and eliminating Covid-19. NZ First believed more consideration needed to be given to the pressure on business.

It was not known at the time that in cabinet, Peters and NZ First frequently pushed back over the restrictions that applied to the lockdowns, alert levels and the severity of border controls.

Peters revealed the differences in opinion around the cabinet table later on, in the lead-up to the election campaign. It was arguably a breach of cabinet collectivity, which Ardern simply ignored, just as she had ignored the push-backs.

Peters took the step of invoking the “agree to disagree” provisions in September, to publicly note NZ First disagreed with the PM’s decision to keep areas outside Auckland, including the South Island, at level 2 of the Covid-19 alert system during the second community outbreak in Auckland.

But the only issue NZ First is known to have pulled out the ultimate threat over was Ihumātao. The details of what Labour was planning for the land remain sketchy. It never made it to cabinet, because NZ First said no before it could.

In a speech at Orewa, Peters revealed he had refused to invoke the “agree to disagree” clause to deal with NZ First’s objections. Instead, he had written to the prime minister advising it was a matter of confidence for the party. In short, if Labour went ahead with it, it would put the coalition at risk.

It was the only time NZ First is known to have threatened to bring down the government.

Breathe out

After the October election, it took Labour a wee while to recalibrate to the freedom governing in its own right afforded. The first glimpse came in Ardern and new foreign minister Nanaia Mahuta’s early message of congratulations to US president-elect Joe Biden, even as US President Donald Trump was filing law suits left, right and centre.

Peters’ tendency is to wait if legal proceedings have been invoked, so he would likely have preferred to wait until the situation was clearer.

The closing weeks of 2020 saw that tap start to flow faster with a string of measures, all of which NZ First had blocked earlier. There was a motion to declare a climate change emergency, a move to double sick leave, and legislation to allow pill-testing of drugs at music festivals.

A deal over Ihumātao is widely expected to follow – Robertson has suggested it could be announced before the end of the year. The unions are hopeful the Fair Pay Agreements will see the light of day.

Peters has not spoken publicly since NZ First was booted out at the election. He did return to parliament for a formal farewell as foreign minister at the start of this month.

Ardern accompanied him, and spoke of her respect for his work in foreign affairs.

Andrew Little was otherwise engaged.




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