Change of Leaders Won’t Save ALP

In late June, the governing ALP held a leadership vote in which Prime Minister Julia Gillard was defeated by Kevin Rudd, a former prime minister who lost a similar vote to Gillard three years ago.  Rudd was replaced shortly before the 2010 election, at which the ALP fell just short of retaining a majority of seats, but managed to remain in power with the backing of independent lawmakers.  While it is possible that the more recent reshuffle at the top could spur the ALP to a come-from-behind victory at this year’s election, the more realistic goal of party leaders is to avert what had been shaping up as a potentially catastrophic defeat at the hands of the opposition coalition of the LP and the NP.

Predictably, the ALP enjoyed a poll bounce following Rudd’s return to the premiership.  However, it is doubtful that Rudd’s return as prime minister will do much to revive flagging support for high-profile Laborites who left the Cabinet upon Gillard’s departure.  Moreover, with real GDP growth continuing to run below 3% and the unemployment rate creeping upward, voters will not be inclined to stick with the clearly dysfunctional ALP when it comes time to actually cast a ballot.  Although Rudd’s appeal may be enough to stave off an utter disaster, and could even change the dynamic enough to produce a close election, a Labor victory would rank among the top electoral upsets of all time.

The centerpiece of the LP-NP’s policy platform is Abbott’s “pledge in blood” to repeal the controversial carbon tax that went into effect in July 2012.  Even assuming Abbott has the numbers to pass the necessary legislation, fulfilling that promise may not be as easy as Abbott has suggested.  The government is unlikely to take action until the new Senate convenes in mid-2014.  As such, moves to dismantle the new system will not commence until the scheme has already been in place for two years, all but ensuring that the repeal process would be rather disruptive.

Abbott has also promised to scrap the MRRT, a 30% tax on the “super-profits” of mining operations, which also went into effect in July 2012.  Critics contend that the tax is so complex that it will cost both the government and mining companies millions of dollars to verify compliance, while the many loopholes will mean that actual tax payments by the largest operators are less than compliance costs.  The political and logistical obstacles to repealing the MRRT will not be nearly as great as in the case of the carbon tax.  Given the weak revenue-generating power of the MRRT, an economic argument for retention of the tax is unlikely to be persuasive.

Forecast Summary

SUMMARY OF 18-MONTH FORECAST
REGIMES & PROBABILITIES *LP-NP Coalition 55% Divided Government 25% ALP 20%
RISK FACTORS CURRENT  
Turmoil Low Same Same Same
Investment
Equity Moderate SLIGHTLY LESS Same Same
Operations Low Same Same SLIGHTLY MORE
Taxation Low Same Same Same
Repatriation Low Same Same Same
Exchange Low Same Same Same
Trade
Tariffs Low Same Same Same
Other Barriers Moderate Same SLIGHTLY MORE SLIGHTLY MORE
Payment Delays Low Same Same Same
Economic Policy
Expansion Moderate SLIGHTLY LESS Same SLIGHTLY LESS
Labor Costs Very High SLIGHTLY LESS Same Same
Foreign Debt Moderate Same SLIGHTLY MORE SLIGHTLY MORE
SUMMARY OF FIVE-YEAR FORECAST
REGIMES & PROBABILITIES *LP-NP Coalition 50% ALP 40% 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

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