With the introduction of the MMP electoral system for the 1996 elections, New Zealand First won over 13 per cent of the vote, gaining 17 seats, including all five Maori seats. Neither National nor Labour had enough seats to govern alone so entered negotiations with the new party.

New Zealand First went into a coalition with National because Labour could not muster sufficient votes to guarantee confidence and supply – even with New Zealand First. This was because Labour could not guarantee the votes of Jim Anderton’s Alliance Party. Peters was also concerned about the prospect of dealing with two parties who were bitter enemies at the time.