The incumbent Liberal-National Coalition Government scraped over the line to claim election victory, which very few had predicted based on the polls. Plenty has been said in the media about the reasons why the Australian Labor Party (ALP) lost the "unlosable" election, but two factors proved to be key:
- Firstly, the ALP's anti-growth agenda of wealth redistribution, higher taxes, and more regulation was complex and rejected by the large, older demographic who hold a large portion of the country's assets, as well as the aspiring middle class who want to own the same assets in the future.
- Secondly, the "Queensland factor" was not well managed by the ALP, with conflicting messages about the Party's commitment to the Queensland mining sector and little hope given to the mining workforce about their alternative future.
Now that both sides of politics have recovered from the election frenzy and have announced their senior ministerial (and shadow ministerial) positions, in this, the third and final instalment in our Australian Election Insights series, we look ahead at what the next three years of Federal policy might mean for foreign investors in Australia.
Prime Minister Scott Morrison will continue to lead the country for the next three years and he seems determined to use the 'credit' he has gained from his surprising win to stay in the role until the next election. Mr Morrison has left key top-line ministerial positions unchanged — Treasurer, Finance, Employment, Infrastructure, Resources, Energy, Foreign Affairs, Home Affairs, Attorney General, Immigration, Trade, and Science and Technology — which is expected to stabilise Australian politics after years of change in Federal leadership.
On the other hand, and relevant to foreign investors, there are new ministers in the following key positions:
- Industrial Relations - the Attorney General, Christian Porter (himself a lawyer), will hold this portfolio, signalling how complex the underpinning legal regime is in Australia
- Emissions Reduction - the Energy Minister, Angus Taylor, is picking this up, thereby logically combining the twin stars of energy and greenhouse emission policy
- Environment - Sussan Ley takes this role, giving the government a 'fresh start' on environmental topics following her predecessor Melissa Price's announcement (unpopular to many outside of Queensland) of the Federal Government's approval of the Adani project just prior to the election.
On the opposition side of the chamber, the ALP has also announced its shadow ministry and has drawn a line through a few policies already, which we cover in this bulletin.
With the ministerial positions on both sides settled, the government's focus has now turned to building up some detail on the key platforms of its campaign — economic management, energy policy, and infrastructure.
At the macro level, the Treasurer, Josh Frydenberg, has announced that his focus will be on two things:
- Delivering on the growth measures announced in the government's pre-election budget, including $158 billion in income tax cuts (but not for companies) and an infrastructure program costing $100 billion; and
- Labour productivity enhancing reforms through improved skills programs, innovation, and cutting red tape.
The policies that impact most on foreign investors in Australia
1. Workplace law policy
Leading up to the election, Prime Minister Scott Morrison indicated that there will be no further reforms to Australia's industrial relations system. Consistent with this, the new Industrial Relations Minister has identified that only procedural, not structural, changes are needed to increase the efficiency of the current system, particularly in the creation of enterprise agreements. He has foreshadowed some intensive stakeholder consultation will take place over the first couple of months prior to taking any action.
A significant question is whether more radical action may be taken to assist the static economy. The Head of the Reserve Bank has identified the need for wages growth to fuel the economy. The government has not taken any direct action in this area to date, and is unlikely to do so now. The productivity agenda, which the Treasurer announced earlier this month, indicates a need to consider workplace reforms that could generate improved business performance, which could result in increased job opportunities and wages. This call for discussion does not indicate that any significant industrial relations changes are likely to be seen in the Government's three-year term.
2. Energy and emissions reductions
Post-election, Angus Taylor continues as the Minister for Energy, with Emissions Reductions being added to his portfolio. This makes sense given that energy and the shift to renewables offers the clearest and cheapest path to emissions reduction — electricity generation is the largest source of emissions in the national inventory of emissions at 33.2% (year to December 2018).
There are two key and opposing forces in this area — reducing domestic energy prices and meeting community expectations on climate change action.
Reducing domestic energy prices for Australian business and families is an important strategy for the government if they are to win the next election, and Mr Taylor has publicly promised to work on this. His proposed tools are:
- Increasing supply and competition in the market to improve reliability and price, including by:
- signing contracts with 12 projects that have been shortlisted for government's support, such as the Snowy 2.0 expansion in NSW;
- the potential of underwriting more hydro power in Tasmania; and
- holding a feasibility study into a new coal-fired power station in north Queensland.
- Achieving reasonable wholesale prices by legislating price benchmarks that would commence on 1 July 2019.
The government is continuing to progress its pre-election energy policy, including its push for "big stick" legislation that could allow the government to force divestment by energy companies found to be engaging in anti-competitive behaviour and failing to pass on price reductions to consumers. This legislation would also allow the Government to force gas exporters on the east coast of Australia to increase supply and lower the price of gas by diverting more resources for domestic consumption. It is still unclear if this legislation will be passed after ALP and the Green Party indicated earlier this year that they would block it — a move that was strongly supported by the energy industry. Since the election, the ALP opposition has made it clear that it will not support, directly or indirectly, the government's proposed lower emissions reduction targets, making it difficult to get their support for price reduction policies that don't also involve emissions reductions.
On climate change/emissions reductions, the government set an underwhelming target for Australia — to reduce carbon output by 26% below 2005 levels by 2030 — which attracted much criticism during the election. The government continues to point out that there are trade-offs between the energy cost, energy reliability, and emission reduction. Emissions reductions at high cost is likely to be an unpopular policy at the domestic level. Further, Mr Taylor has a history of advocating against wind and solar farms, arguing there are too many in the system to ensure reliability. Instead, the government continues to advocate for and invest in hydro-electricity schemes, and it is not yet clear whether it will change its policy and provide government support for other renewable energy sources over the next three years. Meanwhile, the state governments are expected to continue with their own renewable and storage investment priorities.
Mr Taylor will face intense pressure to do more on climate change or to at least give it greater weight when balancing up the three trade-off factors: cost, reliability, and emissions. The emissions data released earlier this month shows a continued increase in Australia's emissions, including a big jump in the December 2018 quarter, and the Government is under pressure to acknowledge and address this statistic. A significant test will come at the UN Climate Change Summit in September 2019. The government's response at that time will give a strong indication as to whether it is prepared to accept a more robust approach to emissions reduction and, consequently, the energy mix. At the moment, the government has set the renewables part of the energy mix target at 23.5% by 2020.
For now, Mr Taylor is seeking to achieve most of the targeted emissions reductions by continuing to support the government's Emissions Reduction Fund, newly renamed as the "Climate Solutions Fund". The Fund targets a wide range of emissions reduction projects, including in the agricultural, energy efficiency (but not energy generation), mining, and waste sectors, with a "low cost" approach in mind.
Unmissable in any climate change discussion is the question of the role that coal should play in the energy mix. Matthew Canavan, who remains as the Minister for Resources and Northern Australia, has promoted the government's support for the coal industry, particularly for a new coal-fired power station in Queensland and the continued investment in coal-fired power. It is worth noting that the Minister's electorate is in Queensland and he has recently rejected calls for a carbon tax on the basis that it would hit his own central Queensland region hardest. He is not a fan of "the polluter pays" principle, preferring all taxpayers to bear the cost of reducing carbon emissions given that all Australians benefit from the use and development of coal-fired power. He sees the Climate Solutions Fund, described above, as a fairer response.
Since the election, Mr Canavan has come out strongly to defend the resources sector. It is clear where he sits on the issue of the future of coal in the Australian energy mix.
Noting that the ALP's election defeat is widely blamed on the party's lack of support for the coal industry, especially in Queensland, some ALP ministers have now recognised the continued importance of coal to the Australian economy, particularly in light of expected increases in global demand for coal. Even so, the reliance on coal remains a hot political issue — while early signs seem positive for the coal sector under the current government, nothing is certain.
4. Transport infrastructure
Heavy infrastructure spending was promised by both major parties leading into the election, and the Treasurer has already signalled, post the election, that big infrastructure spending will be a key part of his growth agenda. This is not surprising given that annual economic growth fell to a nine-year low of 1.8% in the year to 31 March 2019. Indeed, the government is now examining how quickly it can bring forward some of the intended public infrastructure projects in order to fill the gap. That said, the state premiers in Victoria and New South Wales have quickly claimed that the decision on infrastructure priorities is a state matter — the government may not, therefore, have the ability to unilaterally drive the infrastructure agenda in a way that meets its federal-level objectives.
The government's pre-election infrastructure program was more heavily weighted towards road infrastructure ($27 billion) than public transport such as passenger rail ($13 billion). However, the urgency for the government to accelerate infrastructure projects is expected to result in the small-to-medium projects (roads, railways, and local community infrastructure) coming to market before the longer-term, larger-sized projects. It may be that the large foreign investors, who have long supported the mega projects, will need to be patient. The scheduling of projects is signalled by the government's independent adviser, Infrastructure Australia. It published a priority list of infrastructure projects in February 2019, but it is expected that the ordering of the list may change due to the soft March quarter growth numbers.
5. Banking and financial services
The market reacted well to the Liberal-National Coalition Government's win at the election, with the share prices of the big four banks adding $33 billion in the first two days post-election. In part this may have been a sigh of relief after having assumed an ALP win would have negative effects due to its wealth re-distribution policies, such as its proposed $120 billion in changes to superannuation, negative gearing, and dividend imputation.
It is expected that the government will now commence the task of implementing the recommendations from the Hayne royal commission into the financial services sector. Much will focus on improving the financial advice sector — both to remove the conflicts for advisers and to ensure that quality financial advice is priced so that it remains accessible to all Australians. The industry is keen to help shape the proposed reforms and manage their impact through close consultation with the government.
The superannuation industry is also expected to be a priority, with the Government likely to announce a review of the entire $2.7 trillion superannuation industry.
6. Immigration and visas
Following the election outcome, it is expected that we will see no substantial change to immigration policy. The government went into the election with a proposed decrease in the permanent migration program ceiling by 120,000 over four years. This policy actually aligns with the current visa approval rates, therefore it reflects a no-change outcome.
There will be a continued emphasis on regional work locations for future visa applicants, reflecting the desire to reduce migration to the major cities of Sydney and Melbourne. The barrier to visa status for refugees who arrive by boat, as opposed to these that arrive by plane, will continue along with compulsory off-shore processing. The government has foreshadowed an attempt to repeal the medical transfer law for ill refugees located in off-shore processing centres.
For Japanese companies seeking to transfer Japan-based employees to Australia, the existence of the Trade Agreement between Australia and Japan — the Japan-Australia Economic Partnership Agreement — continues to support these transfers for four years without having to meet the labour market testing requirements.
7. Research and Development
In the R&D sector, Karen Andrews has been reappointed as Minister for Industry, Science and Technology. Notably, there is no separate Innovation Minister, which was fleetingly a ministerial position while Malcolm Turnbull was Prime Minister. Innovation is subsumed into Ms Andrews' portfolio.
Aligned with the Treasurer's productivity agenda for this term of government, Ms Andrews has said that the government's policy priorities will be: Australia's approach to AI capability, procurement reform to improve the outcomes of government spending for the industry, and the reconsideration of the National Innovation and Science Agenda.
In the 2018 Federal Budget, the government introduced a somewhat meagre $4 million cap on research and development cash refunds, which was targeted at the startup sector (made available only to companies with an annual turnover of less than $20 million), leaving the scaleup sector feeling a little cold, and the wider tech industry positively chilled.
In the 2019/20 budget, Treasurer Josh Frydenberg said that the government is “backing the industries of the future” and laid out specific funding allocations for medical research commercialisation and genomics research. The budget committed an additional $1.2 billion to Australia’s Medical Research Investment Plan, on top of the existing $1.5 billion investment. This is good news for the biotech sector but leaves other sectors still searching for support. The government has not made any promises about R&D tax incentives, or the ongoing review into the scheme, neither before or after the election.
Given the surprise outcome of the election, both consumers and industry are keenly watching both sides of politics for signs as to how they will engage (and how much cooperation there will be) over the course of this next three-year term of government.
Our team at Lander & Rogers can assist in planning for and implementing the strategies necessary to position your investments, consider your existing operations, or set the timeline for foreign investment activities. If you would like to discuss any issues that the election outcome has raised for you and your organisation, please get in touch with your usual contacts at Lander & Rogers or one of our team listed below.
Previous editions of the Australian Elections Insights series
All information on this site is of a general nature only and is not intended to be relied upon as, nor to be a substitute for, specific legal professional advice. No responsibility for the loss occasioned to any person acting on or refraining from action as a result of any material published can be accepted.