Smiling Winston rides to the rescue

Cabinet deal is sweet revenge for leader of New Zealand First, reports David Barber

Wellington - The late Sir Robert Muldoon, the populist who ruled over New Zealand from 1975 to 1984, must have chuckled in his grave as the country's new cabinet was announced yesterday.

There, as Deputy Prime Minister, was his protege, Winston Peters, propping up the National Party government that, to Sir Robert's dismay, sacked him from its cabinet five years ago.

Moreover, Mr Peters was holding the new Treasurer's portfolio, arguably the most important post in government, able to dictate financial and economic policy and write future budgets - equal to the power Sir Robert held as Minister of Finance.

It was a remarkable come-back for Mr Peters, sacked from the cabinet by Jim Bolger, the Prime Minister, for persistently criticising government policy in 1991 and expelled from the National Party's parliamentary group the following year.

Now, Mr Bolger and the Nationals are beholden to him and the rival New Zealand First party he founded for keeping them in office after the inconclusive general election on 12 October.

The new party's 17 MPs held the balance of power after the election, the first under the German-style mixed member proportional (MMP) voting system. After eight weeks of secret, tortuous negotiations they decided to form a coalition with the conservative Nationals, who have ruled for the past six years, rather than the Labour Party, the main opposition group.

It was a sweet deal for a party only three-and-a-half years old which, after the 1993 election, had only two MPs. In the cabinet announced yesterday, New Zealand First had five out of 20 members, three of them Maoris - Mr Peters, John Delamere, who became associate treasurer and Tau Henare, given the Maori affairs portfolio. The party won two other ministerial posts outside the cabinet.

Mr Peters had the added pleasure of forcing his former colleagues to drop many of the policies he criticised that led to his ousting from the party.

Having campaigned on their record of fiscal responsibility, the Nationals not only created thenew Treasurer's post, they christened it with NZ$5bn (pounds 2bn) of extra spending to meet NZ First's policy demands. Scheduled income tax cuts - a key plank of National's manifesto - were deferred to pay for them. They agreed to relax their inflation target of 0 - 2 per cent, ditch health reforms (including running public hospitals on profit-driven lines), to abolish a surtax on pensions and to lift a NZ$lbn sale linked to Maori land compensation claims - all National Party shibboleths until this week.

The turnaround was not all on National's part. Mr Peters' attacks on his former colleagues, especially on Mr Bolger, Bill Birch, the finance minister and Jenny Shipley, the health minister, have been venomous since he was thrown out. During the campaign, he told voters that NZ First was the only party that could get rid of the National government and disavowed any intention of entering a coalition with it. He declared Mr Bolger unfit for his job and said: "If anyone seriously believes that NZ First regards the prospect of sidling up to Bolger, Birch and Shipley, then they have been out in the sun for far too long."

They responded with contempt. Mr Bolger dubbed his former Minister of Maori Affairs a racist for running a virulent anti-immigration campaign and Mr Birch called him a "poll-driven fruit fly".

Like his mentor Sir Robert, Mr Peters has a knack of developing issues that serve him well in opinion polls. His campaign to check immigration and foreign investment on the theme "Whose country is it anyway?" sent his party's support up to 90 per cent of the vote earlier this year.