It was widely unpopular by 1999, with much of the public antagonised by a series of free-market economic reforms, and was bedevilled by weakness and instability.

The controversial Employment Contracts Act was repealed, replaced by an Employment Relations Act more friendly to unions and collective bargaining; a state-owned bank, Kiwibank, was created at the behest of the Alliance; a majority stake in the national airline, Air New Zealand, was purchased; and the public health sector was reorganised with the re-establishment of partly elected district health boards.

Labour formed a coalition with the Progressives, and turned to the centrist United Future party for confidence and supply.

This second term was notable largely for its social and constitutional legislation, with the Government establishing a Supreme Court and ending appeals to the Privy Council, decriminalising prostitution, and providing for civil unions, the latter two changes in particular supported by the Green Party and opposed by United Future.

[8] In January 2008, the term 'Helengrad', "a noun used to describe the iron grip of New Zealand's prime minister over Wellington", was reported as having made Australia's Macquarie online dictionary among 85 other new words.

Acting judges were also appointed from the retired judges of the Court of Appeal: The government appointed three presidents of the Court of Appeal of New Zealand: The Fifth Labour government was elected in the 1999 general election, after entering a coalition with the Alliance Party and a confidence and supply agreement with the Green Party.

[36] With this coalition in place the Labour Party returned to government for the first time in nine years,[36] and Helen Clark became New Zealand's first elected female prime minister.

They say that the election was called early to capitalise on high opinion poll ratings before they could be undermined by a potential softening in the New Zealand economic performance.

[41] In order to reach the required majority, Labour entered confidence and supply agreements with New Zealand First and United Future.

[42] After only being formed in 2004 as a result of the controversial Foreshore and Seabed Act, they oversaw a successful campaign based on a critical assessment of Labour's record with Maori issues.