How the Rudd Government deals with business and manages the massive global issues of climate change, the drought and the ramifications of the US sub-prime mortgage collapse will have a huge impact on investors. Mike Dobbie looks at who will handle what in the new Canberra make-up.
The sky hasn't fallen. Kevin Rudd is in the Lodge, Kyoto is being ratified, former union officials are in the Cabinet, negotiations have taken place with leaders of our nearest neighbours, meetings with Labor state premiers will take place... and the sky hasn't fallen.
Early indicators are that the policy implementation of the Rudd Government will be centrist, and consultative. The scare campaign run by the Coalition during the six weeks of electioneering is looking, in the first bud, to have been met with a yawn by the business community.
But there are significant changes in the wings that have huge implications for investors.
Finance Minister Lindsay Tanner, has been given a new wing to his portfolio: Deregulation. It is an important symbol and signals the government's intent on encouraging business activity. Tanner also wants to reduce overlapping federal, state and local government regimes that continue to bog down businesses activity.
Tanner also says he wants to aggressively push financial services reform. While the "pillars" policy is likely to remain in place, a thorough clean up of outdated legislation should be a boon for the sector which is bogged down by overlapping and unnecessary paperwork that has been growing on an ad hoc basis as the sector has ballooned and new products have been developed.
Julia Gillard's moves to dilute WorkChoices are the big unknown. It is clear that while AWAs will be scrapped some form of individual contract will still exist and collective bargaining will be encouraged. For business this may not be the big bogey the Coalition tried to paint it. Contracts will clearly restore many of the "rights" that WorkChoices discarded, perhaps including penalty rates, holidays and other allowances. Unions have clearly not been able to get the hearing they expected from the ALP and rights of entry and other aspects designed to curb union power will probably remain in place.
But whatever package Gillard comes up with, everything will depend on the Senate. After July, the new Senate will see the balance of power shift to the Greens, who want to tear up WorkChoices entirely, and Independent South Australian Nick Xenophon. The horse trading will be fascinating to watch.
Senator Helen Coonan's performance in Communications has left plenty for new minister Senator Stephen Conroy to fix. The poisonous relationship between Telstra and Canberra must be repaired and the ALP's agenda to spend $4.7 billion to create a truly national broadband network and the ALP's plans for a "wired" education revolution give Conroy plenty to bargain with.
However, Telstra's Sol Trujillo is not enthused by the network plan and is opposed to the ALP's suggestion of joint ownership. The ALP is determined to get this key plank up and running and will certainly be aggressive in its handling of Telstra. Conroy may also attempt to rein in some of Coonan's pandering to media moguls with her unnecessary media ownership laws although tackling these powerful interests will have to be done adroitly.
Innovation and Industry Minister Kim Carr faces immediate issues from the car industry which claims it is struggling to maintain profitability from a flood of imports - he will conduct a review of the industry which will have massive implications for thousands of people directly and indirectly employed in the sector.
A key development has been the Rudd Government instituting regular briefings with the Reserve Bank. While the bank retains its independence of government, the move will mean that the two key arms of economic policy, monetary and fiscal, will ensure the bank is informed about actions taken by government that may have an impact on the economy.
The upheavals from the US sub-prime mortgage crisis will still need careful management. While central banks in Europe and America are desperately pumping money into their economies, the crisis has yet to be fully felt here, aside from the All Ordinaries index being buffeted by mood swings on Wall Street. However the Australian economy's growth is predicated on our major trading partners China, Japan and increasingly India and their appetite for our raw materials - which will keep Resources and Energy Minister Martin Ferguson extremely busy. If demand continues, Australia will be able to ride out the storm reasonably well. But if a global economic downturn is triggered by the sub-prime backwash, Australia will need to be wary.
The Bali climate change conference was marked by confusion and vastly different commitments to solving global warming. For Australia, everything hinges on Professor Garnaut's report due out mid-2008 and the degree to which the Rudd Government will act on the report's recommendations and what will be required to meet the targets Garnaut recommends. There will be pain from whatever Garnaut and the Government determine needs to be done and this will have to be managed carefully - both economically and politically.
Before that, Australia's farm sector must ride out another year of severe drought that will cut our livestock and grain exports and savagely reduce farm incomes. And while the sky hasn't fallen, neither has the rain and the longer below average rainfall continues the increasingly dire position our farmers will be in. Federal Labor's ability to work with the states on water issues is also vital and requires immediate action.
The Rudd Government will enjoy a honeymoon period well into early 2008. But that can evaporate quickly through missteps, poor judgement or zealousness by new ministers. Kevin07 is in the past. The challenge of the years ahead will require plenty of hard work and careful management.
By Mike Dobbie, CompareShares.com.au - for more articles like this click here.
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