Analysis by Keith Rankin.
Role: Economic historian.
Keith Rankin, 25 August 2026 – My sense is that, noting both the proposed social media ban and the India New Zealand Free Trade Agreement, Christopher Luxon – leader of the National Party and Prime Minister – would be more comfortable working with Labour on a longer term basis than with New Zealand First or Opportunity. But probably only if National is ‘top dog’ in such a grand coalition.
Ireland (STV) and Germany (MMP)
Ireland and Germany use voting systems familiar with New Zealanders (although STV is not familiar to Aucklanders). Both countries have ‘grand coalition’ governments.
In Ireland it’s the traditional parties Fianna Fail and Fine Gael in a minority grand coalition. The main Opposition is Sinn Fein, seen essentially as a party of the populist Left. There is no plausible coalition which could govern as an alternative to Fianna Fail with Fine Gael.
In Germany there is an unfortunate grand coalition which has majority support in the Bundestag, though only getting 45% combined party support in the 2025 election. There, one party (BSW; a party of the conservative-Left) got 4.98% of the vote, and missed out entirely. Another party to miss out entirely was the FDP (4.3%), once a centrist liberal party, but now a right-wing analogue of New Zealand’s Act Party.
The new Opposition in Germany is the populist-Right AFD (Alliance for Germany), which may soon assume government in Saxony-Anhalt (a federated eastern province west of Berlin), but which is no more viable as an alternative government for Germany than Sinn Fein is for Ireland.
The CDU/CSU (Germany’s ‘National’) got 28.5% of the vote last year, and the SPD (Germany’s ‘Labour’) got 16.4%; together these add to 44.9%. As a result of the coalition deal, Chancellor Friedrich Merz controls the Parliament (Bundestag) with the party support of just a quarter of the electorate. The SPD really had no choice but to participate, and the SPD’s ‘gung ho’ Defence Minister, Boris Pistorius, is really a man of the right.
If the BSW had got 5.00% instead of 4.98%, the outcome in Germany would have been a minority grand coalition with Green Party support, or a ‘grander coalition’ with the Green Party in Cabinet. Merz would still be in charge. The Greens and SPD combined have three fewer seats than does the presently all-powerful but unpopular CDU/CSU.
Germany has had CDU/CSU/SPD grand coalitions before. There was 2005 to 2009, and 2013 to 2021, under Angela Merkel. (Also in 1966 to 1969, in West Germany, under Kurt Kiesinger.) We note that all these grand coalitions were dominated by the conservative CDU – ‘National’ in Germany – the leading party of the CDU/CSU alliance.
An Aotearoan version?
As in Germany, I can only envisage a grand coalition in New Zealand with National as the larger partner. I cannot see a Labour-National government led by Chris Hipkins.
In a sense, Opportunity is Luxon’s opportunity. By choosing a ‘sleepwalk’ strategy for the 2026 election, Labour is vulnerable to losing votes to the more charismatic Opportunity Party; meaning that, no matter how small National’s party vote ends up being, it is likely to prevail – as in 2017, and 1993 – in the head to head battle against Labour.
The difference this year is that the only alternative to a National-Labour government most likely would be an awkward four-party arrangement led by a weak Labour Party with spineless Labour leaders. There would not be much of a dog for the tails to wag.
The lesson from Germany though is that, while these grand coalitions have been humiliating for the SPD, that party has survived these humiliations, and has even been able to lead – albeit with little spine – a subsequent government (2021 to 2025).
So a grand coalition in New Zealand in 2027 is a rat that the Labour Party might be prepared to swallow. Most National voters would probably favour such a grand coalition of the establishment-centre over a four-party right-wing government which National couldn’t dominate; most Labour voters would have to bite their tongues, but would still support Labour in 2029 as the most probable lead-party of an alternative government going into the 2030s.
An Aotearoan vision?
This would become a possibility if Opportunity could play a substantial role in a three-party coalition. New Zealand is not condemned to ongoing stale establishment centrism. That was the lesson of 1935 and 1938.
I see the two most probable outcomes for government in 2027 as a New Zealand version of the present reactionary-centrist German government, or a cautiously-radical pro-capitalist centre-left government in which the Greens and Opportunity together can inject a bit of spine and vision into Labour.
A spineful centre-left administration would pursue liberal economic policies, while rejecting the prevalent economists’ narrative of economic liberalism; economic liberalism – the gospel according to Act’s David Seymour – is also known as ‘neoconservatism’.
A spineful centre-left government would move away from fiscal conservatism, and stop prostrating itself to the God of ‘balanced’ Budgets. Governments are meant to be capitalism’s last-resort borrowers, and last-resort insurers, with a duty-of-care towards their citizens; and central banks are capitalism’s last-resort lenders. At present the grand coalition parties are behaving more like insurance companies which look for opportunities to renege on their obligations; like collectives unwilling to perform their societal function.
These days, governments only want to perform their requisite roles as borrowers of last resort (and borrowers of best resort) when they wish to increase ‘defence’ spending. Such military keynesianism – used with initial success in Germany to extricate that country from the 1930 to 1934 great depression – is the now-accepted exceptionalism which reveals economic liberalism as morally bankrupt and profoundly opposed to twentieth-century liberalism.
Germany, with its grand coalition, is once again heavily into military keynesianism. So too is Finland, which like New Zealand is a darling country which doesn’t live up to the hype which emanates around it.
There are ways out of the fiscal conundrum which Aotearoa New Zealand now faces. We start by imagining our way out of the intellectual treacle – the accepted narrative of bankrupt social science – within which we have become enmeshed. As well as good ideas, we also need to imagine some lesser ideas – such as the grand coalition – in order to pre-empt such intrigues, to avoid having them creep up on us as fait accompli with Christmas beckoning.
About the writer:
Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.