With the Easter break behind us, political campaigning has stepped up a gear ahead of the Federal election on May 18th.
Labor is still favoured to win, but some polls have shown the Coalition received a post-budget boost, and since August last year, the Government has been clawing back ground from a low of 44 points on a two-party preferred basis so investors can’t be certain just who will take power.
What is certain is that whoever gains control of the country will have a significant impact on our financial markets and the economy.
Given that, investors should be looking closely at both side’s policies. Much of the focus post-budget has been on tax cuts for low-and-middle-income Australians, but there are a few areas that we think are of particular interest to share market investors.
1. Energy policy
The first will be how policies are shaped in the energy space. There has been a lack of investment in both gas exploration and electricity generation and any new government is going to look to firm up a policy around this and also encourage investment. Both major parties have announced plans to drive electricity prices down. The Coalition, for example, has introduced a ‘price safety net’ policy through The Australian Energy Regulator, where power retailers will set prices against a default market price. The move is expected to save households and business.
The second is infrastructure and any further infrastructure that can be introduced to our pipeline. In the recent budget, the Government announced a $100 billion infrastructure package over 10 years. That represents an extra $25 billion of infrastructure spending in the next decade.
There are other sectors such as healthcare that could face potentially challenging impacts depending on who wins the election. Labor, for example, has said it plans to cap private health insurance rate increases at two per cent for two years. And we could also see changes around how spending is allocated within the health care budget so watch that space closely.
Housing is another hot button topic and an area we think there may be some support coming through.
Labor, if elected, is proposing to tighten up negative gearing and limit it to new properties from January 1, 2020. They also want to reduce or cut in half the capital gains discount for all assets after that date.
But house prices have been falling at a very rapid clip and we expect national capital city house prices to decline another five to 10 per cent into 2020, led by Sydney and Melbourne. The International Monetary Fund has warned the housing downturn is now worse than first thought, and we think Government policy makers could look to arrest those falls.
That could create some opportunities either on the retail side or for property developers to potentially capitalise on any positive impacts that the newly-installed Government is able to roll out.
The lead up to the election has created significant uncertainty for investors. We will be hoping whoever gets into power has a strong majority and a mandate for policy to create a more certain platform for the economy and investors going forward.
Whoever gains power, the outcome will make for a very interesting end to the financial year, and in particular the first quarter of next financial year, and investors need to be prepared for either a Labor or a Coalition win.
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