Election Disaster


The 2016 Federal Election is now over but we may not know who won for at least a few days. Regardless of your political persuasion, and whatever the final result, it can only be considered a bad one for Australia.   

No matter which party forms government, it will almost certainly be a ‘hung parliament’ or a ‘minority government’. This will mean that any passage of legislation will require the support of the minor parties or independents. In essence the government of the day will struggle to govern. This will lead to uncertainty and dysfunction; and that is bad for the share market.

It is also being widely reported that our AAA credit rating will be downgraded. This will not only lead to increased interest rates on our ballooning federal debt, but may possibly also lead to a downgrade of our banks, which, whilst rated separately, are still influenced by the sovereign credit rating.  A fall for the banks from AA to A will in turn push up interest rates on home loans.

Banks, ergo investors in banks, should be concerned about the increased chances of a royal commission into the banking sector. Labor, Pauline Hanson and Nick Xenophon are all supportive of a royal commission. One imagines that any royal commission will find some form of misconduct, claim a few scalps, recommend some fines and probably also some legislative changes which will only serve to increase the cost of business to the banks.

With regards to property prices, the chance of negative gearing changes on existing dwellings has increased. Should Labor form government then they can rely on the Xenophen team to support them with the proposed changes, however any impact on property prices will be slow to materialize.

Some welcome news for retirees is that the proposed superannuation changes announced in the last Federal Budget are unlikely to proceed. Likely successful One Nation candidate Brian Burston has spoken against the retrospective changes and The Australian reports today that not one of the 5 potential new senators support a $500,000 lifetime limit on  non-concessional (after-tax) super contributions.

After Saturday’s election, whatever the result, the investment landscape has deteriorated. In relation to that landscape, Kerry Stokes is quoted by The Australian as saying the following about the election result. “I think it’s disastrous. There has been uncertainty for 8 weeks”. Now, he said “the facts are it’s more uncertain”.

The quote of election night goes to Anthony Pratt though:

Quote of the day

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