Australia’s Landslide Election Still Yields Gridlock

Editors’ Note: MarketMinder Europe prefers no politician nor any party. We assess developments for their potential economic and market implications only.

The Commonwealth’s election calendar ticked off another one this month, this time in Australia, as Prime Minister Anthony Albanese and his Labor party claimed victory in 3 May’s federal contest, winning 34.6% of the vote.^[i] Like Canada a week prior, this marks a massive comeback after Labor polled behind the opposition Liberal-National Coalition (LNC) under Peter Dutton for more than a year.^[ii] Labor won a majority in the House of Representatives, but not the Senate, preserving bullish gridlock—a fine outcome for stocks, in our view, which should benefit from low legislative risk and falling uncertainty ahead.

This was a significant turnaround, in our view. Albanese and Labor trailed Dutton and the LNC since March 2024, fitting a global anti-incumbency wave that ousted sitting leaders in the US, UK, Canada, France and Japan.^[iii] Yet the tide turned in late March, as Albanese and Labor surged shortly after Treasurer Jim Chalmers introduced a friendly pre-election budget featuring tax breaks for millions of Australians.^[iv]

But we don’t think that budget was solely, or even really largely, responsible. There was a bigger factor at play, in our view: As in Canada’s election, US President Donald Trump seemingly held huge influence. Numerous politicians and commentators we follow compared Dutton’s proposals on issues like immigration and energy production with Trump’s—echoing what happened with Canadian Conservative leader Pierre Poilievre.^[v] When Trump’s reciprocal tariffs blanketed publications we follow early last month, it seems to have swung popularity quite a bit.^[vi] Albanese’s opposition, like new Canadian Prime Minister Mark Carney’s, seemingly rallied voters.^[vii]

Officials are still tallying votes, but the results confirm Labor’s House majority, though not in the Senate.^[viii] Five Senate seats remain undetermined, but no single party will reach the 39 seats required for a majority, meaning Albanese and Labor lack the power to unilaterally pass legislation. This likely tees up a confidence and supply agreement with the Greens, Australia’s third-largest party, which has more ideological overlap. As things stand, Labor will likely need 9 of the Greens’ 11 senators to sign off on potential legislation.^[ix] This wasn’t the clean sweep victory many publications we follow have suggested.

Still, we see lots of hype around Albanese’s supposedly strong mandate, with many suggesting the win opens the door for his administration to fix Australia’s economy with big, growthy legislation. This includes key Labor agenda items like expanding Medicare, increasing housing supply and reducing living costs.^[x] We have seen some tout Albanese’s ability to push these through, citing a more one-sided government this time around. His prior government needed the Greens’ support and three bench crossers from other parties.^[xi] The latter is no longer required, but the former still is.

We think all this speculation overlooks some notable disagreements with the Greens. Consider Labor’s flagship policy goals: On Medicare, Labor have outlined pledged A$8.5 billion (£4.1 billion) to improve billing rates and medical professional training, A$1 billion (£480 million) for mental health initiatives and A$644 million (£311 million) to open 50 new urgent care centres.^[xii] The Greens are pushing for more sweeping changes on this front, like Medicare fully covering dental and mental health and ensuring free general practitioner visits at 1,000 new clinics—all funded by taxing big corporations.^[xiii] To us, that seemingly cuts against what seems to be Labor’s tax-cutting mood.

On housing and cost-of-living issues, Labor is focussed on increasing housing supply and making it easier on first-time homebuyers, allocating billions to new property construction and easing lending conditions.^[xiv] Yet here, too, the Greens’ proposals don’t wholly overlap. Its goals include winding back tax discounts for real estate investors, implementing a rent freeze and establishing both a national renters protection agency and government-owned property developer to supply affordable homes.^[xv] This would represent significant state intervention, which doesn’t quite align with Labor’s incentive-based proposals. Outside of this, the two parties also diverge on key issues like taxes, immigration and environmental policy.^[xvi]

We have seen this movie before—not in Australia, but in Europe, where centre-left parties in Portugal, Spain and elsewhere needed support from smaller populist parties to pass legislation in the late 2010s.^[xvii] Despite some big-picture common ideological ground, it resulted in very little passing.^[xviii] Conventional wisdom presumed it would pull legislation in more radical directions, undoing many of the reforms implemented during the eurozone crisis and reducing competitiveness, but it ended up in disagreements and stalemates.^[xix] Whilst not exactly the same, we think Canada’s Liberal government under Prime Minister Justin Trudeau faced a comparable scenario. The minority government relied on the further-left New Democratic Party to stay in power and pass anything of note, and when the latter yanked that support last fall over policy disagreements, it triggered the Trudeau government’s collapse.^[xx] History tells us that sometimes, confidence and supply agreements yield much less-than-expected on the policy front.

Hence, we think political gridlock Down Under looks likely. On balance, that looks positive to us. Whilst we find gridlock tends to frustrate voters, our research suggests it lowers the risk of government policies picking winners and losers, interrupting free markets and raising uncertainty amongst Australian businesses. Yes, it likely also means widespread hopes for big fiscal stimulus prove lofty. But we think that is probably fine, given Australia’s economy was already in fine shape—see five consecutive quarters of gross domestic product (GDP, a government-produced measure of economic output) growth.^[xxi] As for stocks, we find gridlock helps sap negative surprise potential by hindering the legislative process. The Greens’ targeted concessions have been well-known, public information for months.^[xxii] So in our view, stocks have had plenty of time to pre-price their potential effects—we doubt they are sneaking up on anyone.

Stocks should also benefit from falling political uncertainty ahead, in our view. Whilst Australia’s new government is basically set, we think more clarity awaits post-budget. Labor made their goals clear in March, but the Greens’ negotiations likely draw the process out.^[xxiii] Still, a deal will eventually get done, giving Australian businesses a lay of the land—allowing them to factor in any upcoming legislative changes and move forward with investment plans or other business operations. This additional clarity, plus underappreciated gridlock, should be a tailwind for stocks, in our view.

Another takeaway? This marks two major anglophone elections featuring massive swings away from Trump-connected/right-leaning parties in their closing weeks. In our view, this is something to note ahead of 2026’s US midterm elections, as it may be an early warning shot for Republican congresspeople and senators.