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After nine years in power and three prime ministers (PMs), Australia’s Liberal-National Coalition (L-NC) and (now-former) centre-right PM Scott Morrison are out. The centre-left Australian Labor Party (ALP) won Saturday’s federal election, and its leader—Anthony Albanese—was sworn in as PM Monday morning. In our view, the market takeaways from this vote are pretty limited. There is the potential, much-discussed by pundits we follow, for a sharper climate policy shift. We aren’t passing any judgment on the wisdom of that, but for investors, we think it is worth watching for potential effects on Australia’s huge mining industry. That said, we wouldn’t overrate the chances of a sharp turn. This seems to us like lingering election uncertainty that should fall in the coming months as that becomes more clear.
The exact scope of the ALP’s victory is still being tallied. As we type, the Australian Electoral Commission reports it is ahead in 75 of 151 House of Representatives races, well ahead of the L-NC’s 55.[i] A smattering of smaller parties lead in 14, and there are roughly 7 seats still too close to call. The ALP could still eke out a House majority, as the tally above implies. Somewhat surprisingly in our view, this matches the outcome polls predicted—unlike 2019’s election.
In the Senate, though, results were much more mixed. Only 40 of the body’s 76 seats were up this year, a structure giving the L-NC an edge. They entered the race holding 17 seats that would continue in the new government, versus Labor’s 11 and the Greens’ 6.[ii] With voting still being tallied, it looks as if the L-NC rode this edge to win the plurality of the Senate’s votes. Labor finished second, leaving the Greens and a handful of independent candidates to potentially play kingmaker.
Some observers we follow suspect that could create a bit of political risk in the Land Down Under—despite the race between Morrison and Albanese resting much more on personality and party bias than policy difference, in our view. Neither touted new taxes on the campaign trail, although Albanese is on board with the OECD’s 15% minimum corporate tax.[iii] Both target use of caps in limiting home price appreciation, misguided policies that we think are unlikely to work well in providing more affordable housing. And even on climate the two were aligned on target dates to cut emissions, although the targets differed somewhat.[iv] All in all, these were not huge divisions, in our view. Hence, we think this turned into an election in which two politicians with high unfavourable ratings tried casting the other as worse.
But the Senate results mean Albanese will now face gridlock—or have to make deals with the Greens to pass bills, a move some observers we follow fear could push his government further on climate. That is possible and will be worth watching as the year unfolds. Australia’s large mining industry could face headwinds—from actual policy or fear of potential moves—as a result.[v] This is the uncertainty that we think is yet to fall in Australia.
That said, it won’t shock us if fears of an overly extreme climate push don’t materialise in new laws. For one, consider the backdrop: Australia’s huge mining and natural gas industries are increasingly in demand, given Russia’s invasion of Ukraine and the associated sanctions. We think that gives Albanese’s government not only a domestic incentive not to move radically due to the industry’s economic importance, but a geopolitical one. Furthermore, whilst the exact tally of his House edge is yet to be determined, it looks likely to be quite small.[vi] It may not be big enough to stomach many defections on a potentially divisive policy vote.
We also suspect the new government will want at least something of a honeymoon period, especially given the history of political churn in Australia pre-Morrison. From 2007 to 2018, the PM post flipped with frequent intraparty leadership votes, rotating from Labor’s Kevin Rudd to Julia Gillard and back to Rudd, before the L-NC won 2013’s vote and subsequently flopped from Tony Abbott to Malcolm Turnbull to Morrison. It was enough of a revolving door to make you dizzy—and, we think, likely is a cautionary tale for Albanese. Why rock the boat if it could cost you your post?
This is why we think this election has so few takeaways. Barring Albanese shifting policy radically from the campaign trail to now, the government looks too gridlocked to accomplish very much, in our view. We will keep an eye out, but our initial impression is inactivity likely reigns.
[i] Source: Australian Electoral Commission, as of 23/5/2022.
[ii] “Senate Results,” Antony Green, Australian Broadcasting Corporation, 22/5/2022.
[iii] Source: Australian Labor Party, Liberal Party, Barclay’s Capital, as of 23/5/2022.
[v] Source: FactSet, as of 23/5/2022. Statement based on the Metals and Mining Industry’s 24% share of the MSCI Australia’s market capitalisation—a measure of a stock or sector’s size calculated by multiplying share price by shares outstanding.
[vi] “Climate Won Australia's Election. Wielding Power Will Be Harder,” David Fickling, Bloomberg. 22/5/2022. Accessed via The Washington Post.
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