Australian Elections 2019 | The politics and policies that you need to know - Edition No. 2

The last two weeks in Australian politics have been 'big' — the Liberal-National Coalition Government handed down its 2019/20 Federal Budget with Prime Minister Scott Morrison calling the Australian federal election for 18 May 2019.

Our first edition of Australian Elections 2019 outlined the Australian political system, state elections, and the Labor Party policies on key issues of interest for foreign investors.

In this edition, we discuss the current state of Australian federal politics and detail the two major parties' budget proposals in the lead up into the Australian federal election.

The politics

NSW State Election

The State of New South Wales (NSW) held a general election on 23 March 2019, which saw the State Liberal-National Coalition Government remain in power, as it has since March 2011 — and it made history with the Honourable Gladys Berejiklian becoming the first female directly elected as NSW premier.

Federal election called

Prime Minister Scott Morrison has called the federal election for 18 May 2019, leaving the parties with only five weeks to campaign.

According to an opinion poll published on 7 April 2019, the Labor Party is ahead of the Government at 52% to 48% on a two-party preferred basis, although the Liberal Party leader (Australia's current Prime Minister) is ahead as the preferred leader with 46%. Heading into the election with a minority government, it might appear that the Liberal Government will struggle to win, however, it is running a strong campaign based on being the better 'CFO' for the country — but much can happen in a five-week election campaign!

Federal Government

The 2019/20 budget, which was delivered on 2 April 2019, was clearly designed with the election in mind and, therefore, foreshadows many of the policies that the government is expected to announce over the next five weeks. Similarly, and in accordance with tradition, Labor has given its formal response to the budget where, in effect, it has done the same.

This publication covers both parties' budget announcements which, in large part, reflect the policies that were voter hot-buttons in the recent NSW and Victorian State elections.

The policies that impact most on foreign investors in Australia

1. Workplace law policy

The government has recently announced initiatives to upskill the workforce in industries such as human services, care, and digital technologies due to low wage growth. It plans to raise wages through personal income tax cuts and by investing $525 million in the vocational education and training (VET) sector to encourage people to enter occupations experiencing skills shortages.

Labor's budget reply opened with a focus on education to bridge the skills gap, and further support to vocational training campuses in regional and outer suburban Australia. It also proposes a 'living wage' review to determine what a living wage is (being minimum income necessary for a worker to meet their basic needs) rather than set a national minimum wage which may not meet such needs. Labor's policies also call for 10% of positions on all federally-funded infrastructure projects to be apprentices, and increased funding for apprenticeship training and support.

2. Renewable energy

Climate change and renewable energy continue to be big political issues.

The government has set a 2030 renewable energy target of 26%, with renewable energy to reach 23.5% of Australia's electricity supply by 2020. This is lower than Labor's target due to the government's continued support for new investment in coal and the extension of existing coal fired generators.

To meet the target, the government is promising investment for projects that support reliable and sustainable energy such as $1.4 billion for the Snowy Hydro 2.0 and a second Bass Strait interconnector that will provide increased energy capability to Victoria (from Tasmania's hydro capacity). The government is also promising additional funding for the private sector to invest in energy and emissions reduction and energy efficiency projects, as well as for micro-grids in remote and regional Australia. There is also a small allocation (less than $1.5m) towards developing an electric vehicles strategy, which some may see as an inconsequential investment given the huge movement towards electric cars in other parts of the world.

Labor is also campaigning heavily on renewable energy and has included more aggressive 2030 targets of 50% of electricity to come from renewables and 50% of all new car sales to be electric. They also propose to pay $2,000 to every family who installs a battery storage system in their home, providing a huge spike in demand much like the effect of the solar panel subsidy in the late 2000s.

For both parties, it is not yet clear what the cost will be to upgrade the major transmission infrastructure, which is needed to receive and distribute the promised new supplies of energy around the country. Support will also be given to micro-grids to harness local energy generation for regional and remote communities, but more will be needed for either political party to deliver on the great promise of cheaper, greener energy to a wider group of consumers.

3. Transport infrastructure

Both the government and Labor are promising substantial investment in transport and infrastructure. The government is proposing to invest $100 billion over the next 10 years in major road projects to ease congestion in major cities, and address other critical road and rail infrastructure needs in most states of Australia.

It also proposes to invest in fast rail projects between capital cities, and between capital cities and regional towns, as well as invest in the Inland Rail Project to enhance supply chains, connect regional Australia to markets, and provide consumer and producer cost savings. The Inland Rail Project (a fast rail, freight only project) is comprised of numerous individual projects spanning more than 1,700km along the east coast from Melbourne (in the State of Victoria) to Brisbane (in the State of Queensland). The Government has committed $9.3bn in funding to the project. The project is already underway and is partly being run as a Public Private Partnership (PPP), providing opportunities for the private sector to be significantly involved in financing and delivering key sections of the project together with Australian Rail Track Corporation. The project has created significant activity as logistic hub developers seek to gain early access to industrial property sites along its route. Other major infrastructure projects include the Western Sydney Airport and an $800 million motorway extension in Brisbane.

Labor is also proposing significant investment in infrastructure to tackle congestion through improved public transport, as well as major road and rail projects and a $10 billion fund to support private investment in public projects. It has also signalled that it may provide extra funding for the Inland Rail project. Separately, Labor is a proponent of a high speed (350km/h) rail line from Brisbane to Melbourne via Sydney and Canberra, which is estimated to cost $144 billon. A project of this size and scale requires a party who is confident of gaining more than one term in office — it will be interesting to see if Labor goes to the election with such a huge and conceptual plan.

The rail projects will be of great interest to foreign rail operators who have deeper experience in developing and operating high speed rail networks.

4. Banking and financial services

The aftershocks of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry are expected to continue and will remain the focus for the industry and government for a while to come. The Royal Commission's report set out 76 recommendations that included referrals for potential action against bankers and the major banks, increased oversight and enforcement by the regulators, the ending of conflicted remuneration, and the establishment of a compensation scheme of last resort.

The regulators are set to receive $600 million in additional funding from the Liberal budget to increase surveillance and pursue enforcement options, with the Australian Securities Investments Commission (ASIC) stating that it will take a 'why not litigate?' approach.

Should it win the election, Labor has committed to implementing 75 of the Royal Commission's recommendations and will require the banks and regulators to create an action plan with regular reporting on progress against their own targets.

5. Immigration and visas

Immigration and visas are a federal responsibility, so the election will be decisive in this policy area. At this stage, the government is planning to introduce measures to cap immigration and reduce the permanent migration program ceiling by 120,000 over four years, as well as requiring migrants to settle in regional areas or capital cities other than Sydney and Melbourne. This is likely to impact organisations that are already based in Sydney and Melbourne and rely on skilled overseas migrants or prefer to place their home country executives in senior roles in their Australian operations.

Amongst other immigration policies, Labor is proposing a new 'SMART' visa (Science, Medicine, Academia, Research and Technology) to be targeted at world leaders in these sectors.

6. Research and Development

The government is not committing additional funding for research and development (R&D) generally in the 2019-2020 budget. It has, however, undertaken to fully fund the Medical Research Future Fund (amounting to over $20bn by 2020/21), making it the largest medical research sovereign wealth fund in the world. The Fund has a list of planned initiatives that give guidance to medical research bodies to target their work.

Labor is promising increased spending (of 3% of GDP, up from 1.8% GDP) to be allocated to research and development, including commitment to support scientists and investment in research and clinical trials. It has also flagged possible new measures to the existing R&D tax incentive scheme to incentivise private-public collaboration, but no details are currently available.

7. Multinational Entities and Export

The government introduced hybrid mismatch provisions targeted at multinational corporations and apply to international transactions, which come into effect for income years commencing on or after 1 January 2019. The provisions clamp down on practices that give the taxpayer tax benefits in more than one country. The government has now announced that it will make corrections to the provisions to ensure that they capture more complex arrangements such as those involving Multiple Entry Consolidated (MEC) groups and trusts.

The government also proposes to provide additional funding to the Export Market Development Grant scheme to encourage Australian small to medium enterprises (SMEs) — this is to develop export markets for SMEs that have an income of less than $50 million and promote their products to international customers.

Not dissimilar to the government's proposal, Labor is promising measures to increase the transparency of multinational companies, including by removing the safe-harbour thin capitalisation and arm's length tests for interest deductions of multinational firms, and removing tax advantages and inconsistencies between MEC groups and Australian-owned consolidated groups.

What next?

Australia continues to be a stable country with a strong 'rule of law', making it a desirable place for foreign investment. On 18th May, Australians will decide what direction they want for the country after considering the campaigns from the two major parties, which have nuanced differences in policy in some areas and widely different approaches in others. The impact on your business will depend on the nature of your business strategy, structures and operations in Australia and whether they will be affected by the policy changes being promoted during the Federal election. We will be closely watching as further details emerge in the lead up to the election in May.

Our team at Lander & Rogers can assist in planning for and implementing the strategies necessary to position your investments or set the timeline for foreign investment activities. If you would like to discuss any issues that the forthcoming election may raise for you and your organisation, please get in touch with one of our team.