Why the re-election of the Coalition is positive for the economy and investment markets

By Gregory Harris

Parliament House in Canberra

In their pre-election campaign, Labor proposed significant reforms to tax legislation by way of removing the refund of excess franking credits, removal of negative gearing provisions (apart from newly built properties) and reductions in the CGT discount. 

Whilst the intention was an increase in tax revenue for the federal Government, we expected this to dampen consumer and business investor confidence as the benefits from investing in general would have reduced.

Given the Coalition has been re-elected with a majority Government, there is little by way of change in relation to the reform of tax. In fact, the Coalition are planning to reduce individual income taxes and increase small business write-off provisions.

A stable Government is positive for the economy. Little change allows for clarity and ease of decision making for business and consumers. This positivity should flow through to keep unemployment low (keeping people employed) and allowing people to expend excess income.

The Reserve Bank of Australia is poised to cut interest rates by the end of 2019 as a means of monetary stimulus. In addition, the financial regulator APRA is proposing to remove its guidance of applying a minimum 7% interest rate when assessing the serviceability of loans and allowing ADI's (banks and lenders) the ability to set their own interest rate floor. 

Coupled together, these changes allow for increased liquidity into the economy which increases consumer and business confidence and promotes further investment.  

The Australian currency relative to the USD is below $0.70 and this is attractive for foreign investors looking at Australia for investment opportunities. 

Along with this, you have investors and fund managers holding high cash reserves adopting a cautious approach. When it eventuates, this flow of funds will be positive for both shares and property investment markets.

So with a stable Government, a strong currency and an imminent interest rate reduction, the Australian investment market is looking positive for the remainder of 2019.

Find out more

Greg is a Certified Financial Planner®. He enjoys simplifying the many complexities around investing and assisting his clients to meet their financial needs and objectives.

If you would like to learn more about diversifying your investments, you can contact Greg on 02 6583 1735 or gregory.harris@morgans.com.au.