The political disorder in Canberra last week was a good illustration of how far Australia is lagging New Zealand in the political arena.  The Australian Prime Minister Malcolm Turnbull is threatening an early election after once again failing to pass legislation.  A flawed political structure in Australia is preventing necessary reforms and doing nothing to help the “lucky country” adapt to an economic environment not blessed with the hard commodity boom that had supported growth for the last two decades.

Time for a brief Australian politics 101.  The Parliament of Australia consists of two houses; the Australian House of Representatives and the Australian Senate.  The House of Representatives has 150 members elected for a term not exceeding three years while the Senate consists of 76 members elected for a term not exceeding six years with half of the senators contesting at each federal election.

Legislation has to gain a majority in both houses to be passed into law.  If the Government can gain a majority in both the House of Representatives and the Senate this is not an issue.  But all too often, as is currently the case, the Government fails to acquire a majority in the Senate giving the Opposition and minorities the ability to block legislation.

Source: Parliament of Australia

The current Senate has eighteen crossbench senators; which are members not affiliated with the two major parties: Labor and the Coalition.  Ten of these represent the Greens, who typically align with Labor, leaving eight true crossbenchers.  As Senators are elected by each State, some are elected by a very small portion of the Australian population but have the enormous power of the swing vote.  They can demand significant, and often disruptive, concessions for their support on legislation.

With only 33 of the 76 seats in the Senate, the current Coalition Government requires either the ten Green votes or six of the eight crossbencher votes to pass legislation.  In recent times New Zealand governments have had far better cooperation from minority parties than Australian governments have had from the crossbenchers.

Last week, after legislation relating to regulation of labour unions was blocked for the second time, Malcolm Turnbull has thrown the dice by threatening to call a double dissolution election.  If the Senate cannot pass the required legislation in the next seven weeks, Turnbull will force an election of both the House of Representatives and the full Senate on July 2.  A double dissolution is a rarely used procedure under the Constitution that permits an early full election of both houses of Parliament.  Importantly, it is the only circumstance where the entire Senate can be dissolved rather than the usual half Senate.

A double dissolution election would be positive as it would bring forward the late 2016 election to July and decrease number of months of uncertainty ahead of an election.  It would also give Australia a chance to form a desperately needed majority Government.

William Curtayne

Portfolio Manager

Disclaimer: This is intended to provide general information only. It does not take into account your investment needs or personal circumstances and so is not intended to be viewed as investment or financial advice. Should you require financial advice you should always speak to an Authorised Financial Adviser.