Reminder – Milford does not support any one political party. This is simply meant as an analysis of possible economic outcomes from next year’s election.

Whilst Australia has changed Prime Ministers five times since 2010, it has only changed governments once. Tony Abbott led the Liberal/National Coalition to victory in the 2013 election so the other four changes in prime ministers have been determined by politicians and not the electorate. Hence, Canberra is often called the Coup Capital of the democratic world.

The next Federal election is due by May next year and the polls for some time have consistently suggested that the Australian Labor Party (ALP) opposition should win the election. In previous elections, policy differences between the two parties have mostly been minimal. However, this election is likely to see a larger divergence in how each party plans to govern.

Newspoll Two-Party Preferred – 25 November 2018

Source: The Australian

The ALP led by Bill Shorten (Opposition Leader since 2013) is likely to be more left wing than at the last election in 2016 which they narrowly lost. We will get a better idea over the next six months in the lead up to May but we do have some policies and ideas already.

Let’s start with tax. The Coalition Government has focused on tax cuts for business but have achieved limited success in passing these through the current parliament. The Coalition has also pushed for a flatter personal income tax structure from FY20. The ALP is proposing a steeper curve with more of the tax cuts at the lower end. As the Budget moves closer to surplus, expect even more personal tax cuts from both parties as the election draws nearer.

The ALP is proposing to limit cash refunds for excess imputation credits. Morgan Stanley (24 August 2018) believe this will reduce the market’s gross dividends by 5%. The Coalition want to maintain the status quo.

Limiting negative gearing has been a key ALP policy for some time. The Coalition does not support the ALP’s proposal to end investors ability to negative gear existing properties going forward. Along with reducing capital gains tax reductions, the Coalition will try and paint the ALP as bad for house prices whilst those trying to buy their first home may be happy with such an outcome.

Bipartisan support for an energy policy to tackle climate change has not occurred with the Coalition unable to internally agree with a policy. The ALP is likely to go alone by helping to finance new renewables and supply a $2,000 rebate for up to 100,000 households to buy a home battery.

At this stage, an ALP Government would be higher taxing than the Coalition partly due to the removal of several tax breaks. Yet, the ALP is likely to spend more so the net fiscal effect on the economy could be little different to the Coalition. However, some areas like housing and high dividend paying stocks will likely be worse off.

As more details get released in the months leading up to the election, we will be able to have a clearer picture of the winners and losers from each party. What is already clear is that a new Government may see significant policy changes and not just see another Prime Minister.