Time to get down to business, Kevin
Question number one is, when do Australians get to vote?
The expectation on Wednesday evening after Rudd's win was that the election date Julia Gillard set more than four months ago, September 14, would be dumped, and that Rudd would go to the polls in August. On Thursday, the new speculation was that the election would be pushed out towards the end of October.
A longer campaign would not be welcomed by business leaders, who believe that Australian consumers and companies will be in hibernation until an election is held, but Rudd and his deputy, Anthony Albanese, gave few clues in an anticlimactic question time on Thursday afternoon.
The Prime Minister's comment that the September 14 date conflicts with Yom Kippur was taken as a signal that the date would change, but it could be that he will taste-test post-coup polling before deciding which way to jump.
Another issue for business, and for the currency and bond markets in particular, is whether Rudd will close the policy gap between Labor and the Coalition, or widen it. Again, Thursday's proceedings were inconclusive.
Rudd said before and after his successful challenge to Gillard that he wanted Labor to "work together" and early on Thursday it looked as though there was going to be a totemic move on that front as a bill that toughens up 457 visa rules by requiring companies to demonstrate that they have tested the local jobs market before bringing in 457 workers disappeared from the parliamentary program.
The 457 bill reappeared after Rudd was sworn in as Prime Minister, however, and passed in the lower house on a majority of 73 votes to 72 after retiring independent Tony Windsor backed it.
The 457 change certainly doesn't get Rudd closer with business, but if he is looking to get some monkeys off Labor's back, other moves could.
A shift from the carbon tax to carbon trading using Europe's carbon trading scheme as the pricing benchmark ahead of its originally envisaged mid-2015 transition date would, for example, re-base the cost of carbon and carbon emission permits in the economy, at about a quarter of the carbon tax price based on current European prices.
If he did not impose a floor price, Rudd would be criticised for easing pressure to cut emissions, but he could argue that a market-based price is the end-game for Australia.
Such a shift would, however, come at a cost to the budget that raises a broader question about where Rudd is headed.
The 2013-14 budget has the carbon tax collecting $6.27 billion this financial year and $6.4 billion in 2014-15.
Treasury is almost certainly over-optimistic in assuming that receipts will only fall by 27 per cent in 2015-16 as the fixed price tax is replaced by carbon trading on the original schedule, but it is the two earlier years of projected carbon tax revenue that are affected if trading arrives early. Electricity generator and other heavy industry subsidies could also be unwound, but that would recoup only about $1 billion.
Rudd could kill off another of Tony Abbott's big tax wedges at less cost to the budget. Last May's budget estimated that the mining tax that Wayne Swan, Julia Gillard and Treasury negotiated after Rudd was sacked as leader in 2010 would collect only $200 million this financial year, $700 million in 2014-15 and $1.4 billion in 2015-16.
Discussion of Rudd's options only serves to highlight the fact that it is yet unclear whether he will seek to close the policy gap between Labor and the Coalition or widen it. Instead of setting the mining tax aside, for example, he might also decide to announce plans to expand it.
That, in turn, highlights another unknown. In the lead-in to the election, are Australia's fiscal settings going to blow out?
Rudd has already claimed that the Coalition intends to cut and paste a British Conservative government fiscal strategy that saw Britain endure a double-dip recession.
That is a signal that a Rudd government's fiscal settings would be more stimulatory than a Coalition government's settings.
The more intriguing question is whether a Rudd government's settings would also be more expansive than those set out by the former Treasurer, Wayne Swan, when he handed down the government's budget in May.
The budget predicted a $19.4 billion deficit in the financial year that is drawing to a close this week, an $18 billion shortfall in 2013-2014, a $10.9 billion deficit in 2014-2015, a wafer-thin $800 million surplus in 2015-2016 and a $6.6 billion surplus in the following year.
Will Rudd stretch that timetable to give himself some headroom for new policy initiatives? Will the Coalition hold its ground if he does?
We must wait to see.
mmaiden@fairfaxmedia.com.au
Frequently Asked Questions about this Article…
The article says the election date is uncertain. Julia Gillard had set September 14, but after Rudd's return there was speculation he might call a poll in August or push it out toward the end of October. Rudd’s comment that September 14 conflicts with Yom Kippur was taken as a signal the date could change, but no firm date was announced.
Business leaders in the piece warned a longer campaign would be unwelcome because consumers and companies may go into 'hibernation' until the election, delaying spending and investment decisions. That pullback in activity can weigh on company revenues and broader economic momentum.
A bill to toughen 457 visa rules — requiring companies to demonstrate they’d tested the local jobs market before bringing in 457 workers — initially disappeared from the program but then reappeared and passed the lower house 73 votes to 72 after retiring independent Tony Windsor backed it. That tightening would make it harder for some employers to recruit skilled foreign labour.
The article outlines the possibility Rudd could shift from a fixed carbon tax to emissions trading linked to Europe’s carbon market. Using European prices as a benchmark could re-base the cost of carbon to roughly a quarter of the current carbon tax price, which would lower costs for emissions‑intensive businesses but also reduce government revenue and change investment incentives in the carbon‑exposed sectors.
The article notes the budget expected the carbon tax to collect about $6.27 billion this financial year and $6.4 billion next year. If carbon trading is brought forward, those earlier years’ receipts would be hit more than Treasury’s assumption (a 27% fall in 2015‑16 under the original timetable). Unwinding some electricity‑industry subsidies might recoup only about $1 billion.
According to the May budget figures cited, the mining tax was forecast to collect roughly $200 million this financial year, $700 million in 2014‑15 and $1.4 billion in 2015‑16. The article says Rudd could either set the mining tax aside or choose to expand it — the direction remains unclear.
The piece suggests Rudd signalled a more stimulatory fiscal approach than the Coalition. The budget at the time projected a $19.4 billion deficit for the current year, an $18 billion shortfall in 2013‑14, a $10.9 billion deficit in 2014‑15, a slim $0.8 billion surplus in 2015‑16 and a $6.6 billion surplus the following year. If Rudd stretches that timetable or introduces new initiatives, fiscal settings could shift and influence market and investor expectations.
Investors should monitor the confirmed election date, any policy moves on 457 visas, changes to the carbon tax versus carbon trading plans, the government’s stance on the mining tax, and any budget adjustments. The article also flags that currency and bond markets will watch whether Rudd narrows or widens the policy gap with the Coalition — all of which can affect business confidence and company earnings.
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