With the election fast approaching, everyone is getting ready for a potential change in Government, and many are wondering whether the Australian stock market will fall heavily away as a result.
But, according to Wealth Within’s chief analyst, Dale Gillham Government changes are historically neither good nor bad for the stock market.
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“The stock market is a leading indicator of the economy and markets will continually move through economic cycles regardless of who governs the country,” Gillham said.
“So in reality, the government of the day can only affect changes that may speed up or slow down these economic cycles.”
Right now, Gillham says the Aussie share market is bullish, and he predicts it will remain largely bullish in the medium-to-long-term.
Similarly, AMP’s chief economist, Shane Oliver has no great expectations for the stock market, and won’t be changing his forecasts for the end of the year.
What could happen?
If it’s a Coalition victory, Oliver says it will be business as usual, and the share market will be full steam ahead given their policies are well known.
But, if the Labor Party wins, Oliver says there will be a little bit more uncertainty in the share market, and it could cause some short-term weakness.
Even if there is some nervousness in the short-term, Oliver doesn’t expect the boat to be rocked.
“Projections for budget surplus have very little difference in the short-term,” he says.
Looking a little further down the line to 2022-23, the Labor Party is looking a $87 billion larger budget Surplus given it won’t be instilling the tax cuts the Liberal Party has promised.
But while that’s the case, Oliver says that number is only 0.1 per cent of GDP, so it’s hardly any difference, and likewise the year after.
“The next three years, the overall impact of fiscal policy on the economy under Labor or Liberal would actually be fairly similar.”
Who will be affected by a Labor win?
Oliver says what might cause the share market some nervousness in the short-term is Labor’s proposed tax increases: the return of the budget repair levy on high-income earners, the ending of franking credit cash refunds, changes to negative gearing and capital gains tax (CGT) and a 30 per cent tax on trust distributions.
“Those tax changes would obviously cause uncertainty in certain parts of the share market,” he says.
For example, self-funded retirees who currently buy shares of companies where the dividends are highly-franked won’t do so anymore, so the dividend imputation reform could be a negative for high-dividend paying companies where the dividends are franked, like banks and utility companies.
The changes to negative gearing and CGT will also spell bad news for the property market and property developers, material companies and possibly the banks as well.
As well, more aggressive carbon pollution reduction policies could be negative for companies with high levels of carbon emissions, but Oliver says there could be some offset given clean companies stand to benefit from the changes.
But it’s not all bad news
But Oliver says there is an offset to all of this, which is that a lot of the taxed money will be spent and put back into the economy.
“There will be tax raised from changing those concessions or increasing the deficit repair levy, but by the same token, that money will be spent on cheaper child care, schools, universities and the Medicare cancer package,” he says.
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