The 1st July 2011 marks a significant change in the formation of the Senate in Australian politics. The balance of power in this house of Government now shifts to the Greens.
Leading Australian businessmen have voiced their concerns that the current Government is anti-business and that they are being dictated to by minority parties (including the Greens). This sentiment is best captured by John Symonds, the founder of Aussie Home Loans who recently said “We’ve got a Government in limbo, dictated to by minor factions”. Gerry Harvey from Harvey Norman called for a fresh election suggesting that the current state of the Government is contributing to poor consumer sentiment.
Usually investors do not have to concern themselves over politics, however given the circumstances Australia now finds itself in politically, we argue that investors must pay attention to this issue as it has the potential to influence investment outcomes.
Given that the Greens now arguably have greater influence over Federal politics, we thought it appropriate to examine some of what they stand for.
We have produced a table that outlines 10 of the Greens policy ideas, and included some of the risks to the Australian economy that each policy idea represents.
| Policy Idea | Potential Risk to Australian Economy
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| Limit Australian Banks ability to move interest rates for housing loans so that they can only move in line with official Reserve Bank rate movements (bill presented to parliament last year, supported by some of the Independants) | During times when Banks have to pay more to buy funds to lend out to consumers like we have recently seen, would lead to housing lending becoming unattractive for banks.
This could lead to banks making less credit available for the housing sector, which in turn would most probably lead to severe stress in housing prices (but at least this would achieve one of the other policy agendas for the Greens which is affordable housing).
Consumer spending is also heavily influenced by state of the housing market.
There was an excellent article written on this issue at Greens Banking Bill article
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| Ensure all employees, including casual, fixed term and probationary workers, and employees of small business have the same rights to challenge termination of employment where it is unfair, with reinstatement to be the remedy except in exceptional circumstances. (source www.greens.org.au)
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Likely to provide disincentive for small business to hire staff.
Small business employ the majority of the workforce in Australia.
This could contribute to heightening unemployment in Australia. |
| Repeal any independent contractors legislation that strips employment rights from individuals (source www.greens.org.au)
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Use of contractors is widely used in construction industry.
Employees rather than contractors makes a workforce less flexible, and arguably more expensive for business.
Probable result is increase in construction costs for housing, NBN, and other constructions.
Seems at odds with the Greens affordable housing idea.
Article on Contractors under attack
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| Legislatively protect the right to strike, as recognised in International Labour Organization conventions No. 87 and No. 98, as a fundamental right of workers to promote and defend their economic and social interests. (source www.greens.org.au)
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Likely to lead to increased industrial action, which could result in businesses opting to run their operations from other countries.
Likely result is to increase costs for Australian business which could lead to business looking to locate more of their operations offshore
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| Limit the tax deductibility of any executive salaries to 25 times the minimum full-time adult wage (source www.greens.org.au)
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Arguably one of the reasons the standard of our political leaders is relatively poor, is that they are poorly paid when compared to leadership positions in the private sector.
This could lead to Australia’s top business leaders being enticed away from Australia and Australian business being run by poorer quality management. This in turn could lead to lower returns for investors from Australian companies.
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| Abolishing the 30% Private Health Insurance Rebate in order to increase funding for public hospitals (source www.greens.gov.au)
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Private system is already overstretched.
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| Removing the concessional arrangements for Capital Gains Tax (source www.greens.org.au)
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Disincentive for people to invest in assets that grow in value such as shares, property and businesses.
Asset values could fall, fewer people start businesses as incentive removed to build assets.
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| Oppose any increase or extension to the GST (source www.greens.org.au)
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One of the benefits of GST is that all those who consume goods or services, pay tax. Even those who operate in the cash economy end up paying tax when they spend money.
It has broadened the tax base for Australia and while we are not necessarily supporting an increase in GST, we would question the wisdom of removing this as an option to increase Government revenue in a broad way if required in the future.
Could lead to further complexity in the tax system as new taxes are introduced to bolster revenue.
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| Increase the Company Tax Rate to 33%
(source www.greens.org.au)
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Reduces company profits, which reduces shareholder returns (virtually all Australians own shares directly or through their super funds).
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| Conduct a full review of the superannuation system with the aim of reducing its complexity and establishing progressive rates of superannuation taxation. (source www.greens.org.au)
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Peter Costello removed much of the complexity from the superannuation system in 2006.
Is this code for increasing taxation on superannuation savings, particularly for those who would be considered as self funded and considered “well off”.
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It would seem apparent that several of the Greens policy ideas are already influencing the current Government’s policy positions.
The Greens until now have not really had to stand up to scrutiny over their policies as they have never been in a real position of power. That has now changed and it is appropriate that the Australian public pays close attention to the effects of what some of the outcomes are likely from what this political party stands for.
There is concern that there are many unintended consequences of the policies being promoted by the Greens, that could not only effect investors, but all Australians. The purpose of this article is to put the spotlight on some of these policies so that informed choices can be made for the good of Australia.
As One Nation discovered, it was relatively easy to be anti policies of the day, but they did not stand the test of scrutiny when they began to develop policies of their own. We are about to see how the Greens fare now that they are in a position where they too have to develop policies that reach well beyond the environment.
This article has been written by Mark Draper, and do not reflect views of the dealer group.
Note: Advice contained in this articler is general in nature and does not consider your personal situation or needs. Please do not act on this advice until its appropriateness has been determined by a qualified adviser. While the taxation implications of this strategy have been considered, we are not, nor do we purport to be registered tax agents. We strongly recommend you seek detailed tax advice from an appropriately qualified tax agent before proceeding. The information provided is current as at June 2011.