Punters backing the majority rule
By listening to the punters, not the pundits. Since money speaks the loudest it's worth checking Centrebet, which has never been wrong. When I last looked it was tipping a Coalition win with a 30-seat majority. Guess that's also why it sees Bill Shorten as Labor leader by year's end.
This might change after Labor's policy speech, which we don't hear until almost walking into the polling booth, but I can't see us risking a minority government again though goodness knows how the Senate will finish up. Ever since Federation the market has on average done better under the conservatives, according to a study by Andrew Worthington for the University of Wollongong. The wonder is that it hasn't popped up in the Coalition's advertising.
Maybe it's because the sharemarket had a rollicking time when the Hawke government won.
Then again there was also a global bull market, which wouldn't have cared who was running the shop here.
You'll be pleased to hear that for 30 years the sharemarket has typically gained 5.4 per cent three months after an election irrespective of which side wins. The average three-month gain over that times was 1.8 per cent according to Shane Oliver, head of investment strategy and chief economist at AMP Capital.
And this time the market has something to look forward to - the Coalition's 1.5 per cent cut to company tax. That has to be good for shares, surely.
Not so fast. It doesn't start until 2015 - a delaying tactic the Coalition learnt well from former treasurer Wayne Swan - and companies with profits over $5 million will be slugged by the paid parental leave levy anyway. Oh, it'll also trim the tax credit from dividend franking to 28.5 per cent.
Abolishing the mining tax would be good for resources stocks if they were paying it (they aren't). The Coalition also wants to review the banking oligopoly, which doesn't sound promising for bank stocks.
One thing we know about the market is, it likes the sight of blood. And the budget deficit has been fattened up for the abattoirs (should that be the Abbottoirs?).
Trouble is, Tony Abbott might be portrayed as a slasher but his list of promises reveals it doesn't come naturally. As another former treasurer, Peter Costello, once said, Abbott's spiritual home is the old Democratic Labor Party (DLP), which though socially conservative saw nothing wrong with government spending - especially on welfare and defence.
Which brings me to tax and the Coalition's promise of a review. Didn't we have one of those?
If it's done by economists, then surely they'll come up with identical recommendations to the much-ignored Henry report.
Henry's committee wasn't allowed to look at the GST but the new review will, with the bizarre proviso that the government won't accept whatever it says about it.
When both sides promise not to expand the GST, better watch out.
No, the real difference for the market will be wages costs. The playing field has been tilted so far towards more union power it's no wonder small businesses are sliding right off it.
Labor won't change the rules since it doesn't need to, and the big unknown is how far the Coalition, seared by the politics of Work Choices, would go.
Read David Potts in Weekend Money, with
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The value of victory
Frequently Asked Questions about this Article…
Historically the sharemarket tends to do well after elections. The article notes that over a 30-year period the market typically gained about 5.4% three months after an election, and Shane Oliver (AMP Capital) cited an average three-month gain of around 1.8%. Overall, markets often recover after the election uncertainty passes.
The article points out that punters (via Centrebet) were backing a Coalition win with a large majority, and the author argues that money-based odds can be informative because 'money speaks loudest.' That said, betting markets reflect expectations, not guarantees, so they’re one signal among many for investors to watch.
A 1.5% cut to company tax could be positive for shares in theory, but the article warns of caveats: the cut wouldn’t start until 2015, companies with profits over $5 million would be hit by a paid parental leave levy, and the policy also trims dividend franking credits to 28.5%, so the net benefit for investors may be limited and delayed.
The article says abolishing the mining tax would help resource stocks only if those companies were paying the tax — and in practice they aren’t. So the direct upside to resources from abolishing the tax may be smaller than it sounds.
The Coalition’s proposal to review the banking oligopoly is described in the article as 'not sounding promising' for bank stocks. Increased scrutiny or policy changes aimed at the big banks could introduce uncertainty or competitive pressure that investors in bank shares should monitor.
According to the article, wages costs are a key differentiator for the market. The writer argues the playing field has tilted toward more union power, squeezing small businesses. Labour is unlikely to change rules, so the bigger question is how far a Coalition government would go on industrial-relations reform—changes that could affect company costs and profitability.
The article notes the Coalition promised a broad tax review that can look at the GST (unlike the Henry report), but with the odd proviso that the government won’t accept whatever it recommends. Investors should watch the scope and likely outcomes of the review, since tax changes or the prospect of GST reform can influence business profitability and market sentiment.
‘Likes the sight of blood’ is the author’s way of saying markets generally prefer to see fiscal tightening or clear steps to reduce budget deficits. The article suggests deficit-cutting can be welcome for markets, but also cautions that political promises and actual spending commitments may complicate whether meaningful cuts materialise.
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