Implications of a Coalition Win For Investors
"From today I declare that Australia is under new management and once again is open for business". This could arguably be the most optimistic/positive quote from a Politician this election campaign and it was made by Tony Abbott after becoming PM. It may set a very good tone for the next three years.
What will the election outcome mean for the sharemarket?
Richard Coppleson from Goldmans put out some interesting charts showing the performance of the market 18 months after a Coalition win....and then 18 months after a labor win.
The overarching trend is that markets tend to do very well under a new Coalition Government.
In three changes of power to the Coalition from Labor since 1949, the Australian share market has been up an average of 26.8 per cent a year and a half after the election.
But, if the ALP takes leadership from the Coalition, then the track record isn't so good. In three such changes since 1949, the sharemarket was on average 7.9 per cent lower 18 months after the win. Sizable declines of 28.6 per cent under Whitlam and -40.6 per cent under Rudd/Gillard/Rudd contrast the 45.5 per cent under everyone's favourite yard-glass destroyer, Bob Hawke.
So - the key takeout here, and it's one we all instinctively knew anyway, is that a Coalition Government is better for the Australian share market - and decisively so in the first half of their first term.
The major changes the Coalition intend to implement which may impact on company earnings and investor returns/dividends are:
1. Cutting the company tax by 1.5% to 28.5% from July 1 2015. However, for companies earning more than $5m, (approximately 3000 companies), a 1.5% levy on profits will be applied to pay for the Coalition’s parental leave scheme.
2. Abolishing the carbon tax and not implementing an emissions trading scheme. If enacted, this will reduce costs for companies, although for some companies these benefits may be offset against any reduction in compensation they currently receive.
3. Abolishing the mining resource rent tax. Whilst the tax receipts from this mining tax have been disappointing, there will be reductions in tax for some iron ore and potentially coal miners.
4. Delaying by two years the phase in of Labor's superannuation guarantee increases.
Please note that whilst these are the Coalition’s policies, they need to pass both the House of Representatives and the Senate. Whilst the Coalition will control the House of Representatives, passing through the Senate may prove much more difficult.
Let’s hope history repeats itself and we see some acceptable returns for patient investors.