Gillard Flailing

Prime Minister Julia Gillard’s minority ALP government is continuing to hang on to power with the backing of members of the Australia Greens and three independent lawmakers. However, the fragility of the government’s parliamentary majority has forced Gillard to cede a substantial amount of influence over policy to her non-ALP partners, at the risk of further eroding her already sagging popular support, which has left her vulnerable to a challenge from her predecessor as party leader, Foreign Minister Kevin Rudd.

The government recently managed to secure approval of a controversial carbon-tax scheme that Gillard only pursued under pressure from the Greens, but passage of a bill that would impose a 40% windfall profits tax on mining companies has been blocked by one of the government’s independent backers. Gillard is counting on revenue from the mining tax to fund tax breaks for businesses, increase pension benefits, and finance improvements to regional infrastructure, all of which she hopes will boost her approval rating.

The next election does not fall due until 2013, and the virtual certainty of a landslide victory for the Liberal-National opposition coalition in the event of a snap poll will probably ensure the survival of the government for the time being. However, policy implementation will remain erratic, and the opposition’s pledge to abolish the carbon-tax plan if returned to power can only heighten the level of uncertainty, with negative consequences for investor confidence.

Forecast Summary

SUMMARY OF 18-MONTH FORECAST

 

REGIMES & PROBABILITIES

Minority ALP
45%
LP-NP Coalition 40% Divided Government 15%
RISK FACTORS CURRENT
Turmoil Low Same Same SLIGHTLY MORE
Investment
  Equity Moderate Same Same Same
  Operations Moderate SLIGHTLY MORE Same Same
  Taxation Low Same SLIGHTLY LESS Same
  Repatriation Low Same Same Same
  Exchange Low Same Same Same
Trade
  Tariffs Low Same Same Same
  Other Barriers Moderate SLIGHTLY MORE Same Same
  Payment Delays Low Same Same Same
Economic Policy
  Expansion Low SLIGHTLY LESS SLIGHTLY LESS SLIGHTLY LESS
  Labor Costs High Same Same Same
  Foreign Debt Moderate SLIGHTLY MORE SLIGHTLY MORE SLIGHTLY MORE

SUMMARY OF FIVE-YEAR FORECAST

 

REGIMES & PROBABILITIES

LP-NP Coalition 55% ALP
35%
Divided Government 10%
RISK FACTORS BASE
Turmoil Low Same Same SLIGHTLY MORE
Restrictions
   Investment Low SLIGHTLY LESS Same Same
   Trade Low SLIGHTLY LESS SLIGHTLY LESS Same
Economic Problems
   Domestic Moderate Same Same SLIGHTLY MORE
   International High SLIGHTLY LESS SLIGHTLY LESS Same
   * When present, indicates forecast of a new regime

For more information, check out the Australia Full Report!