Australia: Abbott Wins, But Senate Could Complicate Policy Formation

Australia's Liberal-National coalition won an overwhelming majority in the House of Representatives in federal elections held on September 7, defeating the ruling Australian Labor Party (ALP) that had held power for six years.

In Business Monitor Online today, we discuss in more detail the incoming government's policies, and how these differ (or not) from that of the outgoing government. Overall, we maintain our expectations that the new administration will pursue more business-friendly labour-related policies, which we believe will allow the rebalancing process underway in Australia's economy to proceed more smoothly. Indeed, the increasing strength of the labour unions during the ALP's rule had affected many industries, including the resources sector, where proposed liquefied natural gas (LNG) projects have been held back, due to astronomical wage hike requests by the unions.

Although political risks stemming from the elections have largely abated, the allocation of the 40 seats (out of 76 seats) in the Senate that were elected on Saturday remains unclear (the final results have yet to emerge). The outcome could have a significant impact on the shape of future policies. Given that Australia's Senate is generally more powerful than second chambers elsewhere, the incoming coalition government will likely need to strike deals to obtain support for its bills. Indeed, there is a possibility that the Labor-Green coalition could retain power in the upper chamber and stall key legislation, although many observers expect neither the Liberal-National nor the Labor-Green coalitions to garner sufficient seats for a majority in the Senate.

Although we believe that the incoming coalition government will be able to reach agreement with conservative parties and independents to pass future policies, there are still risks that Prime Minister-elect Tony Abbott's policies may be diluted or delayed due to negotiations.