Policy Changes May Be Held Back By Senate Politics

BMI View: Australia's Liberal-National coalition, led by Tony Abbott, was awarded 86 out of the 150 seats in the House of Representatives, taking the helm from Prime Minister Kevin Rudd's Australian Labor Party (ALP) after six years of rule. Over the course of the elections, the policy stance of both major parties has converged, suggesting that the sombre trajectory of Australia's fiscal finances will not change under the new government. Although we believe that the coalition government will attempt to improve the business environment, its lack of a majority in the Senate suggests that there are risks that its policies will be diluted and delayed.

Australia's opposition Liberal-National coalition was awarded an overwhelming majority in the House of Representatives in federal elections held on September 7, defeating the ruling Australian Labor Party (ALP) that has held power for six years. Indeed, as we noted in our earlier pieces (see, 'Last-Minute Leadership Change No Panacea', 27 June), the deteriorating economic performance remained the key issue during the elections, and in line with our expectations, ALP's last minute political manoeuvres to provide little boost to its election chances. With this victory in the lower house, where the coalition now holds 10 more seats than the 76 it requires to form government, coalition leader and Prime Minister-elect, Tony Abbott, has now a chance to effect his policies and promises.

Similar Spending Policies...

Swinging To The Other Side...
Australia - Seat Allocation In House Of Representatives After 2010 (RHS) & 2013 Elections

Policy Changes May Be Held Back By Senate Politics

BMI View: Australia's Liberal-National coalition, led by Tony Abbott, was awarded 86 out of the 150 seats in the House of Representatives, taking the helm from Prime Minister Kevin Rudd's Australian Labor Party (ALP) after six years of rule. Over the course of the elections, the policy stance of both major parties has converged, suggesting that the sombre trajectory of Australia's fiscal finances will not change under the new government. Although we believe that the coalition government will attempt to improve the business environment, its lack of a majority in the Senate suggests that there are risks that its policies will be diluted and delayed.

Australia's opposition Liberal-National coalition was awarded an overwhelming majority in the House of Representatives in federal elections held on September 7, defeating the ruling Australian Labor Party (ALP) that has held power for six years. Indeed, as we noted in our earlier pieces (see, 'Last-Minute Leadership Change No Panacea', 27 June), the deteriorating economic performance remained the key issue during the elections, and in line with our expectations, ALP's last minute political manoeuvres to provide little boost to its election chances. With this victory in the lower house, where the coalition now holds 10 more seats than the 76 it requires to form government, coalition leader and Prime Minister-elect, Tony Abbott, has now a chance to effect his policies and promises.

Swinging To The Other Side...
Australia - Seat Allocation In House Of Representatives After 2010 (RHS) & 2013 Elections

Similar Spending Policies...

While the coalition began with very different policies at the start of the year, promising an early return to surplus and the repeal of various taxes put in place during the ALP's reign, the policies of both parties have converged over the course of the election campaign. The ALP, from its initial stance to stick to its Clean Energy Bill, proposed an early transition to floating prices (reducing the effectiveness of the carbon tax on reducing emissions). This move brought it closer to the coalition's stance of axing the tax completely. The coalition, too, abandoned its initial criticisms and offered to match the ALP's agreements with various state governments on education spending. Indeed, the new coalition government is likely to increase fiscal expenditure as a means to support the weakening domestic economy, which is broadly similar to its Labor predecessor. While we note that the coalition government is keener to expand on cheaper and smaller infrastructure expenditure (mainly roads), the overall impact on the trajectory of Australia's fiscal finances remains negative, and we maintain our expectations for the fiscal deficit to remain until the end of fiscal year 2020/21 (July-June) versus the pre-election forecasts of FY2017/18. Moreover, there are risks that the infrastructure projects undertaken will fail to yield the returns that were projected, doing more harm to the fiscal outlook of the country.

Much Work Needed
Australia - Global Competitiveness Report Rankings

...But Possible Improvement Of Australia's Business Environment

Despite the sombre outlook for the fiscal accounts under a coalition government, we maintain our expectations for the new government to pursue more business-friendly labour-related policies, which we believe will allow the rebalancing process underway in Australia to proceed more smoothly. The increasing strength of the labour unions during the ALP's rule has affected many industries including the resources sector where proposed liquefied natural gas projects have been held back due to astronomical wage hike requests by the unions. While the coalition government has promised not to return to the previous Work Choices scheme where the employer was seen to have far more bargaining power (and was in force from 2006-2009 under the previous coalition government), we believe that further streamlining of the current Fair Work system is likely in an effort to promote flexibility and productivity of the Australian workforce that has been on the decline. Indeed, this decline has been evidenced by the fall in Australia's placing in global tables in the latest Global Competitiveness Report 2013-14 by the World Economic Forum.

Politics In The Senate Could Dilute And Delay Policies

Although political risks stemming from the elections have largely abated, the outcome of the allocation of the 40 seats (out of 76 seats) in the Senate, the upper chamber of the Australian parliament, remains unclear and could have a significant impact on the shape of future policies. As the more powerful of the two Houses (able to block bills passed in the House of Representatives) with a preferential block voting system that promotes plurality, the incoming coalition government will likely need to strike deals to obtain support for its bills. Indeed, there is a possibility that the Labour-Green coalition could retain power in this House and stall key legislations, but many international observers expect neither the Liberal-National nor the ALP-Green coalitions to garner sufficient seats for a majority in the Senate. Although we believe that the incoming coalition government will be able to strike deals with conservative parties and independents to pass future policies, there are still risks that public policy may be diluted or delayed due to negotiations.

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