The Australian election and its implications for the mining industry

By Benedict McTernan, The PRS Group

Prime minister Julia Gillard broke from tradition in late January by announcing an election date eight months ahead of time, kick-starting what is set to be the longest election campaign ever in Australia. The prime minister indicated that she set the date for 14 September to reduce uncertainty, but by effectively relegating her government to a caretaker role a full 10 months before the official expiration of its mandate in late November, the actual effect will more likely be just the opposite.

Gillard and her Australian Labor Party (ALP) face an uphill battle to win another term, as recent polls of voter preferences show the opposition coalition of the Liberal Party (LP) and the National Party (NP) coalition holding a double-digit advantage over the ALP. Even worse for the incumbents, the most recent polls reveal that LP leader Tony Abbott is holding a four-point lead (49%–45%) over Gillard on the question of who would make a better prime minister, and Abbott’s large net unfavorable rating, seen as his key electoral weakness, has narrowed from 26% to 13% over the past few months. 

If the recent poll trends hold up through September, the LP-NP coalition stands to win a comfortable majority of seats in the 150-member House of Representatives. One-half of the seats in the Senate will also be contested, and there is a good chance that the opposition coalition will pick up the five additional seats it needs to claim an outright majority in the upper house, which is currently controlled by a coalition of the ALP and the Australian Greens.

Gillard could face another bid to topple her from her position as party leader before the election, but whether such a move would improve the ALP’s chances of remaining in power is debatable. Although the constant speculation about a possible leadership change is undoubtedly contributing to the slump in the ALP’s support, Gillard’s ouster in the middle of a campaign would probably just reinforce the perception that Labor needs a time-out to get its internal affairs in order.

In terms of policy changes that are expected following the installation of Abbott’s government, the most significant of the immediate moves the LP leader has promised are the scrapping of a controversial carbon tax scheme and the Minerals Resource Rent Tax (MRRT), a 30% tax on the ‘super-profits’ of mining operations, both of which went into effect in July 2012. Abbott has confirmed his commitment to eliminating the mining tax after it was revealed that total revenue from the levy for the period July–December 2012 amounted to just US$130 million, compared to the government’s prediction that it would generate $2 billion in revenues in the first year after implementation.

Based on the recent poll trends, it seems likely that an LP-NP government will have the legislative numbers to make good on Abbott’s promises.  That said, the LP leader has acknowledged that the costs associated with repeal of the carbon tax and the MRRT will require a delay in implementing other, as yet unspecified, elements of an LP-NP government’s agenda.  For that reason, the possibility that fiscal considerations might result in a delay and/or a partial retreat with regard to fulfilling the pledge of full repeal cannot be discounted. 

Benedict McTernan is managing editor of The PRS Group, a consultancy focused on the quantification and analysis of country-level political, economic and financial risks. He specialises in coverage of the Americas and the MENA region.

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