While the federal Labor party has been trailing in two-party preferred polling, there’s growing speculation that the election outcome will result in a hung parliament with a minority government requiring the support of minor parties/independents to govern.
With that in mind, Azzet went searching for clues as to the likely impact on markets.
First some histrionics: Share markets typically track sideways ahead of elections.
If history is any proxy, it’s unclear if victory by either major party is better for shares, with market movement being more fixated on what’s happening offshore, notably in the United States market.
Since mid-February, the ASX200’s slide from 8,5555 points to 7,759 points today can be directly attributed to global market panic relating to U.S. tariff measures.
A study of elections over the last 40 years reveals that in 10 out of 15 elections, shares were up 3 months later by an average of 4.2%.
Here are some useful insights into market performance following the past elections.
- Since WW2 shares have returned (capital growth + dividends) 12.9% pa under Coalition governments and 9.7% pa under Labor.
- During the reformist Hawke/Keating government, shares returned 17.2% pa.
- CoreLogic data reveals that since 1980, capital city property prices rose 7.7% pa under coalition governments and 4.3% pa under Labor.
Government headwinds
With households having experienced a 10% fall in real household disposable income per person, Shane Oliver chief economist with AMP expects cost of living to be a key concern when Australians go to the polls.
Lower living standards reflect wages (up 11% over the last 3 years) failing to keep pace with prices (up 15%).
But that's not all. Other key drivers of falling household income are the surge in tax and interest payments, plus a broader stagnation in real income over the last decade.
While productivity remains the real driver of decent real wage growth, Oliver reminds voters that this requires tax reform, deregulation, competition reform and improving education.
“A good place to start would be to cap public spending as a share of GDP as it’s been exploding and crowding out somewhat more productive private sector activity,” says Oliver.
Wage growth and housing affordability
Beyond wage growth, Oliver notes housing affordability – which has been deteriorating for decades – remains voters’ number two concern.
The Labor Government, adds Oliver, has been lucky with a near-$200 billion revenue windfall on the back of a strong jobs market, high commodity prices and bracket creep enabling modest surpluses.
However, much of this has been spent contributing to the surge in public spending leading to higher than otherwise inflation and interest rates.
"Structural spending pressures around the NDIS, health, aged care, defence and public debt interest are now taking the budget back into deficit when public debt is already high. They need to be checked and/or offset by savings elsewhere,” says Oliver.
“So tough decisions will be needed as we can’t just keep relying on an ever-higher tax burden on Millennials and Gen Z to pay for things.”
Economic policy differences
While Labor is offering a continuation of bigger government, and a higher tax share to eventually balance the budget, the Coalition is promising smaller government, and up to 36,000 cutbacks in public workers saving $6 billion, lower taxes and less regulation.
But beyond committing to nuclear energy over wind, solar and batteries, Oliver also reminds voters that its policy details are so far lacking.
“The Coalition’s nuclear policy is also a huge return to public ownership of the power industry which is contrary to its small government philosophy,” notes Oliver.
“While the Coalition is getting closer neither side is really committing to a reform agenda to put the economy on a stronger path.”
While Trump bumps are likely to continue to dominate public sentiment, Oliver suspects the main risk for investment markets may come if neither side wins enough seats to govern.
This would, notes Oliver “force a reliance on minor parties or independents, further delaying productivity reforms and in the case of a minority Labor government forcing it down a less business friendly path.”
