Is Tony Abbott about to become the single most important driver of the Australian share market? The consensus view among corporate Australia and stock market participants is that when the conservatives romp to power in September, the benchmark All Ordinaries index will motor higher. Some partisan members of the community have told me the index will jump 10 per cent straight away. This view is grounded in the belief the current Labor government is anti-business and detrimental to stock valuations.
Historical evidence renders this a myth and it would seem share market performance has very little to do with the governing party of the day. No doubt the market will rally in the weeks leading up to the election as it always does but a change in government is unlikely to be a catalyst for a sustained improvement in stock prices.
Since 1970, the Liberal Coalition and Labor have been in power for close to 50 per cent of the time each. Surprisingly, the All Ordinaries has managed to eek out a gain of 12 per cent per annum under conservative governments and about 13 per cent per annum under Labor governments.
It is true the current Labor government has presided over a decline in the stock prices since taking power in November 2007. It would be difficult to apportion Labor all of the blame given it was elected just a few months before the market started to crumble as a result of the global financial crisis.
Putting political preferences aside, it is generally positive for a change of government after two terms. Nearly all tough and progressive economic decisions happen in the early years of a new government, while decision making degenerates over time as the ruling party becomes totally preoccupied with entrenching itself. Unfortunately, the current Labor government didn't even get through its first three-year term before its navel gazing became a dominant feature of its behaviour.
Rather than assuming a new government in September will automatically translate into a higher stock market, we should be focused on what key policy decisions could regenerate a flagging economy.
History tells us that if the coalition wins by a sizeable majority in September it will stay in power for at least two terms, giving it the chance to make some difficult but critical economic decisions.
My wish list of seven initiatives would be:
1. Attack our declining productivity levels. Australia has become an expensive place to do business and we have fallen behind many other nations in terms of competitiveness. Much of this has been smoothed over by the windfall from the mining boom. The Australian stock market's golden years - 1982 to 2000 - saw multi-factor productivity (measuring the return from labour and capital) grow by between 0.9 per cent and 1.8 per cent per annum. Since about 2003 multi-factor productivity has been in decline.
2. Increase spending on mission- critical infrastructure projects nationally. The federal government has to bite the bullet and override sectional state and local government interests to build large projects such as the second Sydney airport. On average $1 spent on essential infrastructure delivers a $1.60 increase in gross domestic product. A more rigorous assessment procedure is needed and funding spent accordingly. A fast-speed train costing $114 billion does not fit this bill.
3. Improve Australia's education standards at all three levels. It is letting our people down and making us less competitive against other countries. Studies have shown the countries with superior education systems are the most productive and wealthiest nations. The Howard Government's decision to feed funding into private schools has gutted the public schools and compromised the wallets of many Australians.
4. A fresh competition policy, not unlike the one under the Hawke Labor government in the 1980s needs to be revisited. Australia has become the land of the cosy duopoly with the banking, retail and airline industries perfect examples. Competition is essential to better services and lower prices - Australia has recently found this wanting.
5. Australia needs a series of initiatives that will see energy costs contained in the coming decades. With enough gas to satisfy Australia's energy needs many times over, it makes sense to follow the US policy of taking care of domestic needs before cashing in on exporting the product. Cheap and plentiful energy is a key element to a productive and expanding economy. In contrast, Australia is on the verge of going from a cheap-energy nation to an expensive one simply because of a policy vacuum.
6. The next government needs to formulate an immigration policy that attracts the smartest people in the world to our shores. Australia is an appealing destination and, the more clever people who join us, the better. This approach needs to be put in place with a policy that will see our overall population continue climb to around 40 million by 2040. This will ensure a sound basis for ongoing economic growth.
7. A strategy needs to be configured on how best to direct the superannuation industry in the coming years. With major concerns about costs blowouts in health, energy, transport and education, the next federal government needs to cleverly explore ways to ameliorate these by using the $5 trillion that will pour into super in the coming two decades. To simply let these funds chase franked dividends and offshore equities would seem to be a lost opportunity.