The 2016 federal election is fast approaching, and regardless of the outcome, there’ll be changes afoot for Australian businesses – and the dollar.
The dollar can experience periods of volatility in the run-up to an election, particularly a closely-fought one like this, due to uncertainty about the future direction of policy. This tends to be followed by a short-term flatness after the result is announced, before a return to normality.
At the time of writing, Labor and the Liberal-National Coalition remain neck-and-neck in the polls: it’s still very much anybody’s race. World First have no allegiance to either party, but here is our quick run-down of the likely implications of each party claiming victory on July 2nd.
The global considerations
There has been a lack of attention paid to the state of the global economy from both the Coalition and Labor in the lead up to the federal election. As we witnessed in the lead up to last week’s Brexit Referendum, these economic events have a substantial effect on the Australian Economy and the next party to lead must promote policies that protect local investors and businesses against these frequently unpredictable events.
We’ve recently seen inflation disappearing across the advanced world, price rises have averaged about 0.5 per cent a year for the past 18 months, compared with a historic average of about 2.5 per cent. There is global concern that commodity and equity prices will venture even lower. This has been, and will further impact, the volume of international trade and business investment which are already in decline. Therefore, it is of paramount importance to understand what effect a Coalition or Labor victory would have on our Economy.
If the Coalition win
The incumbent Coalition is campaigning on a cut to the rate of company tax, with measures that will see more firms paying a lower small business tax rate of 27.5% from July 2016. Ultimately, they intend for firms of all sizes to pay this rate by 2023-24, and in 2026-27 the rate will fall again to 25%.
On the face of it, this looks like good news for business, but don’t start the party just yet – the Treasury predicts this measure will boost Australia’s national income by no more than one per cent in the long term. While small businesses are sure to welcome any reduction in tax, this one might be too slight to really make itself felt in a wider sense.
The Coalition’s wider economic plan is focused on reducing spending, particularly on welfare. It also involves tax incentives for investment in start-up firms, crackdowns on tax avoidance and loopholes, and funding for health, education and roads.
The Coalition has had three leadership changes in as many years – and if there’s one thing currency markets don’t like, it’s uncertainty. A victory for Turnbull and no change in government would therefore be likely to lend some stability to the dollar in the short term, while increasing investor confidence. The importance of this stability was heightened following Brexit.
If Labor win
Labor supports the tax cut for businesses with a turnover of less than $2 million, but larger businesses will see no reduction in their company tax. The party’s ten-year economic plan focuses on more investment in rail, roads and the New Broadband Network, as well as tax concessions for middle- and working-class families.
A Labor win will also mean no possibility of the Australian Building and Construction Commission; the body Coalition wants to reintroduce to increase governmental control over the construction industry.
Meanwhile, the banking and financial services sectors will come under greater scrutiny from Labor’s proposed royal commission into their activities. In the long term, banking reform would benefit everybody, but in the short term, a nervous financial sector could mean more volatility.
If Labor win, we are perhaps more likely to see a negative impact on the strength of the Australian dollar – not just because of the usual degree of uncertainty surrounding a change in government, but also because of Prime Minister Turnbull’s focus on investment in non-mining industries to soften the blow of the mining slowdown. In the long term, a reversal of this policy could weaken the dollar.
The bottom line
What voters have to interpret is if the uncertainty surrounding the state of the global economy continues or worsens, will Labor be able to actually lift school spending by the proposed $37b? Will the Coalition forgo the estimated $48b cut to government revenue if they pass on the corporate tax cuts? Has Brexit caused too much volatility meaning voters will look for stability the Coalition offer?
Australians should consider how well the party they vote for can protect and stimulate the economy to benefit Australian investors and businesses.
DISCLAIMER
IN THIS DOCUMENT WORLD FIRST MAY COMMENT ON THE POTENTIAL POLITICAL OUTCOME OF THE AUSTRALIAN FEDERAL ELECTION AND REFERENCES TO THE UK REFERENDUM ON EU MEMBERSHIP. WORLD FIRST IS NOT TAKING A POLITICAL POSITION AND THIS DOCUMENT AND THE INFORMATION AND OPINION CONTAINED HEREIN ARE NOT INTENDED TO PROMOTE OR PROCURE, OR OTHERWISE BE IN CONNECTION WITH PROMOTING OR PROCURING, A PARTICULAR OUTCOME FROM THE QUESTION ASKED WITHIN THE AUSTRALIAN FEDERAL ELECTION.
THESE COMMENTS ARE THE VIEWS AND OPINIONS OF THE AUTHOR AND SHOULD NOT BE CONSTRUED AS ADVICE. YOU SHOULD ACT USING YOUR OWN INFORMATION AND JUDGMENT.
WHILST INFORMATION HAS BEEN OBTAINED FROM AND IS BASED UPON MULTIPLE SOURCES THE AUTHOR BELIEVES TO BE RELIABLE, WE DO NOT GUARANTEE ITS ACCURACY AND IT MAY BE INCOMPLETE OR CONDENSED.
ALL OPINIONS AND ESTIMATES CONSTITUTE THE AUTHOR’S OWN JUDGMENT AS OF THE DATE OF THE BRIEFING AND ARE SUBJECT TO CHANGE WITHOUT NOTICE.
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