JAKARTA (TheInsiderStories) – The surprise election victory of Scott Morrison’s Liberal-National Coalition in the Australian national elections held on 18th May reflected a mandate from the Australian electorate for sound fiscal management and a return to fiscal surpluses under the Coalition government’s medium-term Budget outlook.
While the Labor Party had also promised to deliver a return to fiscal surpluses over the medium-term, their extensive plans to increase public expenditure on health, education, politically-sensitive taxes likely eroded the confidence of the Australian electorate in Labor’s fiscal credentials.
Commenting on the election, Rajiv Biswas, Asia Pacific Chief Economist at IHS Markit said that the election result signals that the Australian electorate is becoming more sophisticated in its ability to assess the economic policies of political parties, particularly as the average wealth of Australian households have continued to rise.
There has been significantly greater reliance on private savings and superannuation (pension assets) to fund retirement over the past two decades. Australia’s superannuation savings have reached an estimated Australian Dollars (AUD) 2.7 trillion, which has made it among the highest in the world on a per capita basis.
“Helped by the boom in superannuation savings and rising property prices, Australia is estimated to have the second-highest average wealth per adult in the world after Switzerland,” Biswas said an official statement today (05/20).
Despite opinion polls showing that the Labor party were expected to win on a two-party preferred basis, Scott Morrison’s Coalition won the election by a nose, in horse racing terminology. Prior to the election, Scott Morrison had said that if he was riding Winx, Australia’s legendary racehorse, the horse could never win as it would be carrying too much weight.
The Labor Party’s economic policies were also carrying too much excess baggage to win the race, notably the plan to remove dividend franking credit tax refunds, which would have hit many low-income households, especially retirees, hard.
State-specific issues also impacted on the overall result, notably the strong election results for the Coalition in Queensland, helped by a backlash over the Labor Party’s position on the Adani Carmichael coal project. There had been concerns about the loss of job opportunities in the state if the project did not proceed.
The Australian electorate were also likely sceptical of the ‘tax and spend’ track record of the Labor Party during its recent terms of office under former Prime Ministers Kevin Rudd and Julia Gillard, which had rapidly eroded the strong government surplus position they had inherited from Prime Minister John Howard’s term of office leading a Liberal/National coalition government.
This weak fiscal track record of the Labor Party had created uncertainties amongst some voters about the ambitious plans of Labor Party leader Bill Shorten to play Santa Claus, with planned large increases in public spending that some voters may have feared would erode Australia’s fiscal position despite the Labor Party’s plans for fiscal surpluses over the medium-term.
The Coalition’s economic policies were better attuned to the new, more affluent Australian economic landscape than the Labor Party, with a focus on achieving fiscal surpluses and delivering tax cuts for Australian households, combined with policies that encouraged Australian households to build up their own private savings to fund their retirement.
Prime Minister Scott Morrison’s election success has been helped by the intellectual firepower of his Treasurer, Josh Frydenberg, who has glittering credentials from his education at Monash, Oxford and Harvard universities as well as strong ministerial experience as well as his private sector track record at Deutsche Bank and Australian law firm Mallesons Stephen Jacques.
IHS Markit forecasts that the Australian economy will grow at a steady pace of 2.5 percent in 2019 and 2.6 percent in 2020, with growth momentum supported by the tax cuts announced in the Coalition’s April Budget, as well as strong Federal and state spending on public infrastructure projects over 2019-2020.
The economic outlook is also being boosted by the strength of iron ore prices, a key Australian export, and a source of fiscal revenue. Australian iron ore prices and exports have been pushed up following the Vale tailings dam disaster in Brazil, which has significantly cut Brazilian iron ore exports in 2019. Australia is also benefiting from the large ramp-up in LNG exports since 2017 as major new projects have come on stream.
Australia may also benefit from some trade diversion effects from the United States (US) – China trade war. An important aspect of the Chinese countermeasures applied in US-China trade war is that China has announced a hike on tariffs on imports of US LNG from 10 percent to 25 percent with effect from 1st June.
A protracted trade war could, therefore, act as a major constraint to new Chinese investment in US LNG projects, diverting Chinese LNG supply contracts and project investments to other global LNG suppliers, including Australia.
Still, there are some downside risks to the Australian economic outlook, notably from declining residential property prices in major cities such as Sydney and Melbourne, which could dampen consumer spending due to negative wealth effects on households as property prices decline.
However, the tax cuts that were announced in the Budget, together with a likely further near-term easing of monetary policy by the Reserve Bank of Australia, will likely help to mitigate the impact of recent declines in residential property prices on overall consumption and GDP growth.
Written by Lexy Nantu, Email: firstname.lastname@example.org