National Party faithful gathering in Auckland will think back wistfully to election night 2011 when they had to step their way between the streamers and balloons to celebrate a record election win.

This weekend they meet for what is supposed to be their "victory" conference - the reward for winning a second term.

But just eight months on, National is looking more punch drunk than celebratory.

Even the venue of the conference, the SkyCity Convention Centre, reads like a line in a long running gag at the expense of the John Key-led Government.

Traditionally, this year's conference would have been held in Christchurch. But a lack of post-quake accommodation forced National to Auckland and a venue dogged in controversy over Mr Key's plan to allow more pokie machines at Sky's casino in return for a national convention centre.

If the story of National's first term in Government was crisis management and being buffeted by factors beyond its control, its second term has been a story of bungled policy, scandal and self-inflicted pain.

The catalogue of bad news stories includes the Crafar farms sale to a Chinese buyer, which ran up against a deep vein of anti-foreign ownership feeling in the electorate; the Nick Smith resignation, sparked by a letter revealing the former ACC minister intervened in the case of a friend receiving ACC compo; a concerted campaign against the part sale of state-owned assets; minor party ally John Banks becoming embroiled in a donations scandal; the teapot tapes saga revisited and a penny-pinching Budget.

But it was National's screeching U-turn over class sizes - executed after a late-night phone call between John Key in Europe and senior Cabinet ministers - that marked the low point.

Right-wing commentator Matthew Hooton says National's few bad months, culminating in the class-sizes backdown, have had the benefit of shocking ministers out of their complacency.

“They have a prime minister whose political talents are just so off the scale that perhaps ministers have become lazy. They know, if they have a political problem, John Key can save them."

Former Labour Party president Mike Williams has some unexpectedly upbeat advice for National.

“If I was the Nats, I wouldn't be slashing the wrists yet.”

Mr Williams says the first few months of National's second term remind him of Helen Clark's “winter of discontent”, when she faced a backlash from business and a dip in the polls. She did what John Key did over class sizes - and pulled back on unpopular policy. That is why Mr Williams thinks there is unlikely to be any lasting damage to National from the class-sizes debacle. “I think he [John Key] probably got away with the cock-up in education by backing off really quickly.”

But there are signs the months of bad news headlines are wearing ministers down all the same.

Insiders moan that ministers are increasingly blaming their staffers for failing to placate what they perceive to be a more hostile media. Some ministers have shown the door to media staffers to bring in someone new.

But the point at which the slow drift turns into an exodus is when National should be worried. The movement of staff in and out of Beehive offices is a barometer of their prospects of a third term.

If it is true that National is not taking a third term for granted, it is also clear that many within the party hope the past few weeks have marked a turning point.

The focus has shifted back from National to Labour's front bench and David Shearer's leadership, which is starting to come under scrutiny now more water has gone under the bridge.

The row over Maori water rights, meanwhile, has given Mr Key a platform to beat the race relations drum and may have even shifted the argument around asset sales into one about National refusing to bow to Maori interests.

Says one Cabinet insider: “It feels a lot stronger in the last few weeks. We're back on the horse.”.

Meanwhile, while National's support is trending downwards, it has not taken the big hit in the polls that Labour might have hoped for over the asset sales.

The view within National is that, while polarising, the debate has mostly hardened attitudes against National among those who don't support the party anyway.

Some commentators have tipped that National might jettison asset sales if it drags the party down too far, but Right-wing commentator David Farrar says there is “no chance” of that happening.

Mr Farrar, who also happens to be National's pollster, says it would be a kick in the guts to the party faithful and would probably wreck its re-election chances. “I think it would be an absolute disaster for them.”

Mr Hooton agrees: “The consequences of backing down . . . are so great it's unthinkable.”

Certainly, the policy is fundamental to National's economic plan. Backing down would blow a $5 billion to $7b hole in the books and also blow any chances of getting back into surplus early. National's economic credibility would be in tatters.

Mr Farrar says National is banking on voters having moved on once 2014 comes around.

The numbers mean that to win in 2014 you're going to have to go into it with a good record. And in a way there has been a bit of a trade-off. National is willing to take some hits in the first six months but it is not going to get re-elected in 2014 without having a tally of achievements.

"The economy is going to be very important. And if you have the view that foreign investment is good for the economy, that mining is about making better use of resources, and revitalising the stock exchange are all good things, that puts into context what they have been doing.”

But the yardstick voters will use in 2014 is likely to be closer to home - can they pay the bills, are there jobs for their kids, or is New Zealand increasingly nothing more than an airport departure lounge for younger generations?

Mr Farrar admits it will be a tough ask for National to win if the economy is still in the doldrums in 2014.

Mr Williams agrees the next election will be all about the economy. He says National has painted itself into a corner over getting back into surplus by 2014-15. “Getting back into surplus when you've got an eroding tax base is going to be extremely challenging.”

If it fails on that score, its tax cuts will look like a massive economic blunder.

CAN SOME of National's pain in recent months be down to speed wobbles? It has seemed more aggressive pursuing unpopular policy than during its decidedly cautious first term.

“You have to move quickly in the first two years of your term because, by the time you get to the last year, it gets harder, particularly in your second term,” says a Cabinet insider.

Mr Hooton agrees that National has been focused on getting away unpopular policy early in its second term. But he says there has been a noticeable shift in gear in the last few weeks.

“John Key has begun the 2014 election campaign . . . I think what has happened is there has been a shutdown of unpopular policies.”

He does not foresee any lasting damage from the last few months.

“They haven't done very well at all and they've made a whole lot of political errors which are well documented but actually it's probably not a problem.

"At the 1991 [conference] for instance in Christchurch, they were surrounded by riot police and they won the 1993 election. So I think overall the worst of it is behind them and . . . we won't see fiascos like the class sizes one again.”

But if that sounds more like wishful thinking, Mr Williams points out that even remaining error-free for the next 2 years may not be enough to guarantee National a third term.

He points out National picked up just 4000 extra votes in 2011 compared with 2008 - in other words, its record win under MMP was more a product of low turnout than a massive swing to the Right.

A no-show by many one-time Labour supporters, who also stayed home in 2008, makes that group a huge unknown.

It could be, Mr Williams suggests, that they didn't bother to vote in either 2008 or 2011 because it looked like the election was a foregone conclusion.

“And the reason also why so many people didn't vote is that Key really hadn't given offence."

If that is true, a tighter race in 2014 could have a dramatic effect on the electoral landscape. John Key's challenge will not so much be to woo across undecided voters, as to ensure he doesn't wake a slumbering taniwha with policies that give them a reason to vote.

But Mr Hooton believes National will do a deal with NZ First leader Winston Peters, and a change to the electoral rules lowering the threshold for minor parties from 5 per cent to 4 per cent will see Colin Craig's Conservative Party sweep into Parliament.

"My pick at the present time will be National, NZ First, Conservative Government in 2014."

- © Fairfax NZ News

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