The Race is On

Prime Minister Malcolm Turnbull has fired the starting gun on the federal election campaign, with the poll set for 2 July, when the electorate will vote for both the House of Representatives and the full Senate. The latest polling by the major media organisations has the Liberal-National Coalition and the Australian Labor Party (ALP) running neck and neck, although Prime Minister Malcolm Turnbull still leads by a long way in the preferred-prime minister stakes.


Doing the numbers, Labor starts the campaign with a notional 57 seats after redistributions, which means it needs to win 19 more seats in the 150-seat lower house to have a majority. Meanwhile, the Coalition can afford to lose as many as 15 seats before it is unable to form a majority government in its own right.


Broadly speaking, the Coalition is running on its budget plan for $48 billion in business tax cuts over 10 years, which are designed to spur job creation and economic growth, along with minor income tax relief for those earning more than $80,000.


The ALP, on the other hand, is opposed to the tax cuts unveiled in last week's federal budget and is arguing an election platform based on heavy government spending on schools, largely via reinstating Gonski funding, and on hospitals, along with cuts to negative gearing concessions and capital gains tax discounts.


On an issue close to investors’ hearts – the treatment of superannuation – the Coalition has introduced a cap of $1.6 million that can be transferred into the tax-free pension phase (earnings from balances above this will be taxed at the concessional rate of 15%). Contribution limits have also been tightened.


Labor has attacked the Coalition’s $1.6 million cap as a retrospective change and is opposed to it, but its own policy is to introduce a 15% tax on superannuation earnings above $75,000 a year.


TheCoalition’s proposal to reduce tax concessions in superannuation is likely to slow the growth of superannuation, affecting wealth managers like AMP, and asset managers. However, the impact is unlikely to be material, given it is targeted at the wealthy, with the Treasurer noting that 96% of Australians with super should be “unaffected by, or better off as a result of the changes”.


Also in financial services, Labor’s promised Royal Commission into financial services industry misconduct and its planned limits to negative gearing present additional headwinds for the banks in terms of management distraction and increased costs of compliance.


Limits to negative gearing also pose potential risks to residential property-related companies, a possible negative for residential developers such as Stockland, Mirvac and Lend Lease. In any case, broader questions remain about residential supply exceeding demand, especially in apartments.


Listed REITs are a general beneficiary under a Coalition win. Residential developers will continue to benefit from negative gearing staying in place, but retail REITS, such as Scentre, GPT, Charter Hall Retail and Vicinity Centres, may see marginal gains from a potential increase in spending by consumers and businesses as a result of the proposed tax cuts and sweeteners.


Those tax cuts – an extension of the third-tier tax threshold from $80,000 to $87,000 – will provide some advantage to retailers, however slight. And the sweeteners – including an extension of the small business $20,000 accelerated depreciation allowance for small business – will also benefit Harvey Norman and JB H-Fi.


Labor’smore aggressive emissions reduction targets are likely to negatively affect large carbon emitters, such as Bluescope and Alumina. Additionally, it will raise energy costs, resulting in higher operational costs for miners, at a time when they are trying to deal with low commodity prices. Those with coal assets may be further hit by a move towards renewable energy and a phasing out of coal-fired power stations. Companies with coal assets in Australia include Wesfarmers, BHP Billiton, Rio Tinto, South32 and Whitehaven Coal.


Transportation stocks are unlikely to receive much attention, although talk of curbing carbon emissions will not go down well with the like of Qantas Airways and Virgin (jet fuel) and Aurizon (coal), but the full force of the previous Labor carbon scheme is not envisaged.


In utilities, Labor will campaign hard on renewable energy, with likely promises of support. AGL Energy, Infigen and, to a lesser extent, Origin Energy, are likely beneficiaries given the renewable energy assets in their portfolios.


Meanwhile, expect plenty of talk about infrastructure projects, especially in marginal areas such as western Sydney. The benefits of any firm commitments should eventually trickle down to construction groups such as CIMIC and Lend Lease, as well as building materials suppliers such as Boral and Adelaide Brighton.

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