Miracle election victory gives Prime Minister Scott Morrison economic authority

Prime Minister Scott Morrison Australia election economic 2019
Prime minister of Australia Scott Morrison has stated his government will prioritise managing the economy and taxes.

The surprise Coalition victory in the Federal Election has left Prime Minister Scott Morrison with lots of authority to run the economy for the next three years.

His “come from behind’’ win will also hopefully inspire some dramatic changes to opinion polls and even betting agencies, all of which were shown to be incredibly poor indicators of what is going on in the electorate.

For a start, this election should hopefully end the practice of ditching leaders as soon as the polls take a dive, given that the degree of precision in these polls is many orders of magnitude times worse than anticipated.

What to expect now

So now that the Coalition has unexpectedly won the election, what can we expect now?

Well, in the short term we will need to wait for counting to be finalised so that we can see whether the government can govern in its own right or needs to recruit an independent to either sit in the speaker’s chair or ensure that the Coalition can get most of its legislation through the House of Representatives.

That shouldn’t be too much of a problem but what happens after that?

More women and talent in the ministry

Prime Minister Morrison will have his work cut out selecting his cabinet and outer ministry, given the number of high-profile retirements by former ministers such as Julie Bishop and Christopher Pyne.

If he is smart, which his victory suggests is a given, we can expect some fresh and talented new ministers and particularly some more female and younger faces to freshen up and add some talent to the Coalition front bench and inject some more energy.

That will be needed because even though Prime Minister Morrison didn’t come close to promising a raft of big new tax and spending policies like the Labor party did, he still needs to deliver on plenty of promises and react to local and global developments as they arise.

It’s the economy, stupid

The number one promise – and the primary reason the Coalition pulled off this surprise victory – is to run the economy well.

That will be a significant challenge because after a world-beating 27 years of uninterrupted economic growth, the Australian economy is showing signs that it might finally be running out of puff.

Employment is showing early signs of weakening, economic growth has been slowing and consumer confidence is poor, putting in peril Prime Minister Morrison’s signature promise to return the federal budget to surplus.

The Reserve Bank is also widely expected to cut official interest rates below the current 1.5% this year to stimulate a sluggish economy and a falling property market.

While Australia’s main exports of iron ore and coal have been enjoying a period in the sun, wages growth has been stubbornly weak and our main source of prosperity – China – remains mired in a trade war with the US.

It is unclear whether a deal between the world’s two biggest economies would be good for Australia or bad, but if growth slumps in China, you can be sure that Australia will do more than catch a cold.

That was shown by the rapid fall in Australia’s GDP, which has dropped from an annualised 4% in the first half of 2018 to just 1% in the second half.

Promises will need to be kept – especially on tax

If strong economic management was a key promise of Prime Minister Morrison, tax cuts came a close second and will demand a tight rein on expenditure so that they can be delivered.

Over a decade, Treasury estimates the tax cuts will cost $158 billion, although many of the larger costs are further down the road.

That delivery starts this year with a $255 tax offset for those earning below $37,000 and $1,080 for those earning between $48,000 and $90,000, reducing from there on until it cuts out at $126,000 or above.

In a phased manner, the Coalition then promises to cut taxes for 10 million Australians, removing the 37% tax bracket and raise the beginning of the 19% tax bracket from $37,000 to $45,000 from July 2022.

The tax scales get even flatter if the Coalition maintains power for longer, with a reduction to the 32.5% rate to 30% and the removal of the 37% rate.

That would produce a flat 30% tax rate for anyone earning between $45,000 and $200,000.

First home buyers get a boost

Other than the key tax promises, there is the new first home owners scheme.

While there are plenty of details that need to be fleshed out, including how many people can access the scheme each year and how it will be worked out in different areas, the government will effectively go guarantor for first home buyers so that they only need a 5% deposit rather than the customary 20%.

There are a range of other policies, although the scope is much more limited compared to the broad-brush approach of Labor, which was planning major changes to franking credits, negative gearing and capital gains tax discounts and also a much more aggressive and expensive approach to climate change and greater funding for schools and hospitals.

Some of these more modest policies which were included in the budget taken to the election include an instant asset write-off for businesses turning over up to $50 million, a $3.5 billion climate solutions package over 15 years that will pay farmers to reduce carbon dioxide emissions and finance the expansion of the Snowy Hydro scheme so that it can act as a big battery to back up intermittent renewable energy.

There is also a national hydrogen strategy to replace fossil fuels, a lifting of the Medicare rebate freeze, a boost to other GP payments, a $4.6 billion package for Catholic and Independent schools, funding for up to 80,000 apprenticeships as part of a $525 million package, $453 million to fund four-year-old kindergarten and several major rail, fast rail and road programs across the country including the scrapped East West link in Victoria.

Companies that might benefit

While these are the policies we know about that were taken to the election, there are sure to be many other priorities and changes that will be required as the daily business of government proceeds.

Usually the government will want to keep a tighter rein on spending in the next budget so that it can unleash a bit more spending closer to the next election but the surprise return of the Morrison government will be expected to also play out on the share market this week.

The end for now – and possibly forever – of the policy of scrapping refunds for franked dividends should support many of the higher yielding stocks on the share market.

Stock prices for property developers might also benefit from the end of the Labor policies on capital gains and negative gearing and from the first home buyer scheme, which could also help the big banks.

Shares in listed childcare providers might weaken due to the lower support for the industry from the Coalition, private health insurers could benefit from the end of Labor plans to cap insurance rate rises to 2%, while the planned tax offset payments which will delivered in the form of a tax refund this year should be supportive for consumer stocks.

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