How good was the Saturday night’s viewing of the Federal Election analysis as the results came to hand after 6pm! Yet, earlier, at midday on election day, the bookmakers had the Coalition out to 7 to 1 to win the election, and Labor was considered unbeatable at 1.1 to 1 to win. Most media commentators believed those odds too. It was the grand final ‘match’ that Labor could not lose. And Labor behaved that way.
But, as the night unfolded, the gloom was lifting, the interest heightened, the eventual outcome was looking quite different. The election ‘guru’ analyst, Anthony Green at the ABC, was making an early prediction that it could appear that the Coalition may just win this. People were listening to him further boldly predicting that the Coalition could actually secure a clean majority to re-form Federal Government for the next three years. And, as the night played out, that is exactly was happened. This was ‘real’ reality TV!
The Coalition won. Scott Morrison, who many had regarded as merely a caretaker PM until their ‘inevitable’ Federal election defeat, was now being considered a visionary strategist, a likeable ‘you get what you see’ leader with authority, a doer, an ‘ordinary Australian’, who had united his party. He led from the front and had a clear message.
More and more people, ‘the quiet, the hardworking and the retired Australians’ in particular, were believing in the positiveness of this all. With both the two fighting and disruptive schoolboys in the Liberal party, Turnbull on the left and Abbott on the right, now gone there is a growing belief that politicians may be finally hearing the message to them from the people that they get on with their jobs (or they get out), and so that we can get on with ours. We are all fed up with what we have seen in the past ten or so years of what generally has been a political circus in Canberra from both sides of politics. The Morrison led government is more centralist in its approach to that of recent governments, which appeals to the greater majority of the Australian people. Morrison and his team have a mandate now so let them get on with the agenda.
A Labor win under the never popular, Bill Shorten, would have been regarded, as many economists and business leaders have articulated, as a quite unpalatable dark cloud for the country because of comrade Shorten’s radically high taxing and socially divisive policies, and the overall perceived negativity in his ‘get the big end of town’ message. As Paul Kelly, The Australian’s editor-at-large, wrote in his recent column, “The most astonishing election result since World War II, is attributable to two forces – Morrison’s superior reading of the Australian character and Bill Shorten’s overreach in his agenda for radical change”. Kelly elaborated on this by saying that really it was a case of the majority of “…Australians who do not want sweeping change, class warfare or progressive ideology imposed upon them, but seek instead a government offering reliable, steady and credible returns. The Abbott-Turnbull era is closed. The Morrison era is launched”.
The markets here responded very well last week to the election result as the growth markets of equities and property rallied strongly on the back of increased business and consumer confidence, for a surging boost to the economy, the returning to budget surplus and, of course, hope for good leadership and practical initiatives. The ASX 200 hit a 12-year high last week buoyed by all this.
The Federal Government’s Budget measures announced in April can now be put to Parliament when it reconvenes likely late next month. It is believed that the upcoming changes to the Senate’s composition should allow a greater likelihood for the passage of the initiatives.
As was noted in last month’s newsletter, there were three main areas that the budget concentrated on, being Taxation, Superannuation and Welfare. There were broad personal tax cuts and tax offsets announced; for superannuation, including increasing the age limit by two more years, up to age 67, where both concessional and non-concessional superannuation contributions can be made without the Work Test restriction; and for welfare recipients including an energy assistance payment for residents. The key measures in these areas were outlined in our newsletter last month post the budget announcement.
Moreover, the feared radical changes proposed by Labor to franking credit refunds, to negative gearing, to capital gains discounts, to superannuation contribution limits, to increased tax on certain superannuation contributions, the flat line 30% tax on trusts, and to a re-imposition of the debt repair levy of 2%, etc. have now gone with Labor’s failure to secure government (and Bill wonder’s why!). Fortunately, there now is more clarity and certainly ahead for investors and for the overall economy.
In a world where there is slowing economic growth or a low growth environment, we can say for Australia that these welcome upcoming personal tax cuts and the almost certain official interest rate by the RBA next month (and another anticipated later in 2019 as well) should particularly provide stimulation to our economy where both inflation and wage growth remain low. The declining housing market and retail market nationally should be helped by all this too.
As a consequence of these fiscal measures and of monetary stimulus occurring both here and abroad, good quality investment growth assets from both the equities and property sectors should enjoy further gains ahead for long-term investors. The returns from cash and bonds, the traditional defensive assets, will only become lower, verging on being insignificant, when certainly compared to the inflationary impact on them. So, people seeking/needing income and growth returns ahead must realistically consider an investment approach using quality growth assets despite volatility risks. Furthermore, utilising tax effective investment conduits such as superannuation become even more valuable in these lower return times.
Yes, there will always be headwinds of some sort ahead. For example, the on-off trade war between China and the US continues to be a concern for global economic growth but, on balance, a resolution is anticipated. China needs this matter to be resolved more than the US as its exports are affected much more. Then there are the usual bursts of geo-political aggravation to help create volatility when all gets too quiet! Part and parcel of investing!
Let us hope that the enthusiasm and perceived stability generated this week continues and develops further.
As always, should you have any queries please do not hesitate to contact us.