Federal Election 2022: Change of government, first impressions

About the author:

Author name:

By Tom Sartor

Job title:

Senior Analyst

Date posted:

23 May 2022, 9:00 AM

Sectors Covered:

Junior (Emerging) Resources, Bulk Materials

Election outcome: Current state of play

It is not yet clear as to how Labor will form a majority government but that currently looks the most likely outcome. The final composition of the Senate is also unclear, though the greens/teals will significantly lift their representation at the expense of the major parties and other independents.

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Summary views

We don’t expect any immediate major market implications, although investor sentiment toward heavy emitters (generation, mining, oil&gas) could plausibly take a knock. The result didn’t surprise the bookmakers, nor the pre polling and is unlikely to surprise the market.

Labor has a relatively small policy agenda, and we think changes to it are unlikely. Climate change policy looks to be an ongoing flashpoint domestically, though macro forces look likely to continue to dominate market direction overall.

Majority government provides better certainty

Markets far prefer the certainty of a majority government – regardless of the major party – over minority governments potentially driving policy concessions and delays. That’s not to say that minority scenarios can’t provide effective government, or that markets can’t flourish under them. Investors are simply averse to unpredictability/ uncertainty, particularly at present.

Passage of legislation

The election saw the replacement of lower house Liberal and far-right Senate seats largely with Teals and Greens. Should Labour need minority support, then it may actually see a more pragmatic working relationship with Teals, than it might under previous Independents, particularly in the Senate (UAP, ONE). This plausibly applies to most legislation where the left side of politics agrees, although Climate change policy is a point of potential tension.

Labor’s immediate agenda is modest

Labor’s policy agenda is smaller than previous incoming governments. Critics branded it a deliberately ‘small target’.

Labor intends to fast track its proposed anti-corruption commission and childcare subsidies, while prioritising a review of healthcare funding including a re-set of relations with the States. (potential impact to Domestic healthcare). Note Labor has said it will retain the legislated ‘stage 3’ tax cuts, due to arrive in 2024.

But the major forces are structural/ external

Labor is facing the structural issues challenging Australia’s economy, including:

1. inflation/ interest rates;
2. budget deficits/government debt;
3. sluggish wages; and
4. productivity reforms (childcare, education/skills) including the transition to renewable energy.

Depending on global forces (e.g. China, Ukraine, supply chains) some potentially unpopular decisions may quickly arise.

While the RBA is independent, with the election now behind us, earlier and more aggressive rate hikes (next RBA meeting June 7) are plausible to dampen inflation more quickly.

A greener political landscape

Major changes to the social-political landscape reflected the views of the electorate on climate change, with the composition of parliament likely to drive more aggressive environmental debate. Pressure on Labor to go beyond its current environmental policies (e.g. 43% reductions target by 2030) could build. Power generation, mining, oil & gas and farming sectors are plausible targets for tighter environmental scrutiny and/or higher barriers to development.

Post-election bounce?

History shows the All Ords tends to rise slightly in the weeks post federal elections, which is often a function an unwinding of flat performance as investors sit on their hands heading into the polls. Again this is about uncertainty. We think a post-election bounce is less likely here given the macro forces overwhelming the political for now.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.