Market Analysis

Outback Ouster

Australia's new leader, Kevin Rudd, talks a big game of change and reform, but when the political dust settles, expect the status quo.

Story Highlights:

  • Conservative incumbent John Howard was defeated in a landslide by Labor's Kevin Rudd to become Australia's prime minister last weekend.
  • Rudd has painted himself as the fresh-faced reformer, but after the election rhetoric settles the most likely scenario is status quo for Australian policy.


He's been called "Pixie" for his fresh looks, "Dr. Death" for his cold disapproving glare, the Ruddinator, Rudd-meister, and "a modern metrosexual man." He's even got a MySpace page with tens of thousands of "friends!"

Now we can call him Prime Minister too.

At age 50, relative political neophyte (a member of Parliament for only 8 years) Kevin Rudd beat incumbent John Howard in Australian elections last weekend.

A landslide Outback conquest, the Labor party gained 24 seats when it only needed 16 for the majority (according to the latest tally). Labor now controls the Aussie federal government, every state, and every territory. Many considered this election a foregone conclusion months ago, feeling Howard had overstayed his welcome and a new face was needed. Howard may even lose his own parliamentary seat, making him the first prime minister to be completely ousted from the political scene since 1929. (The final tally is very close, and official results are days away.)

John Howard's stellar 11.5 year tenure is impressive. Australia's economic status is as strong today as ever. In the midst of its 16 consecutive years of expansion, Australia's real GDP is set to expand another +3% this year. Howard's achievements include major reforms to the Australian tax system, maintaining the independence of its central bank, low unemployment, tame inflation, and 20% real wage growth.

But Australian voters wanted a fresh face, and Rudd successfully positioned himself as the young, hip candidate in favor of change. Rudd is something of a political enigma, at once framing himself an economic conservative and a social reformer. Coupled with his short political track record, it's difficult to get a read on him.

Double-speak is great for the political trail but could lead to trouble in office. Rudd's insistence that Australia will remain a "rock solid" friend of US but at the same time withdraw troops from Iraq; or his pledge to keep the economy strong while simultaneously instituting new social programs are just a few examples. Something will have to give.

Rudd ran a highly populist campaign featuring pie in the sky promises aplenty: Pervasive education reform, a national free high-speed broadband network, ratification of the Kyoto protocol, a national apology to Aboriginals for removal of indigenous children from their parents, and a state-purchased computer for every student age 9 to 12. What a guy!

The Ruddinator's economic policy will likely focus on keeping exports high and inflation low. Australia's economy is tied heavily to global demand for natural resources—iron ore, minerals, and oil, to name a few. Australian exports are growing at a 10% clip year-over-year, and no doubt Rudd will aim to continue that growth.

The Ruddmeister began his political career as a diplomat in Beijing and speaks fluent Mandarin. Some speculate this could lead to a close relationship with China, which hungers for raw materials to continue its own expansion. Such a liaison could strain Australia's ties with the West.

The Labor party has a strong mandate and majority power at all levels of government. That could mean heightened risk aversion to stocks in the near term should Rudd and his Labor cohorts try for some outlandish legislation. For now, however, the risks to global markets seem few, and given Rudd's wishy-washy policy proposals, we expect the status quo.


For more on the election, Rudd, and John Howard's legacy:

Victor in Australia Inherits Challenges
By Patrick Barta, The Wall Street Journal

Australia's New Order
By Elizabeth Keenan, Time

'We will say sorry': Rudd
Misha Schubert and Annabel Stafford, The

Libs turn on Howard
By Phillip Coorey, The Sydney Morning Herald:

Felled by the Young and the Religious
By David Barnett, The Australian,25197,22819424-7583,00.html

If you would like to contact the editors responsible for this article, please click here.

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.