Australia election preview: polls suggest result too close to call

The Australian federal election is scheduled to be held on July 2. The opinion polls conducted by various corporate suggest a close call, although market participants expect a win for the Liberal-National coalition. However, markets should be prepared for a surprise, if so, especially after the Brexit win shocked the markets. The extent of minor parties’ seats, both in the House of Representatives and the Senate, is likely to influence the new government’s ability to implement change.

The latest Newspoll, conducted between June 23 and 26, has placed the coalition just ahead of Labor at 51 percent on a two-party preferred basis, down from a peak of 53 percent early this year. Meanwhile, the latest Fairfax-Ipsos poll, conducted between June 14 to 16 has placed Labor ahead at 51 percent versus the coalition at 49 percent, down from a peak of 56 percent in November last year, according to ANZ report.

A detailed analysis shows the Labor party is expected to increase its number of holdings in the lower house, although not sufficiently enough to hold a majority. A poll on the favorable Prime Minister has shown Malcolm Turnbull winning a majority 46 percent favors, compared to 31 percent by Bill Shorten. However, Turnbull’s rating is well down from a peak of 64 percent in November last year, but is on a par with the candidates who won the past five elections.

Meanwhile, an analysis of both the parties’ strategy to win votes shows the Labor party’s policies point to slightly larger deficits over the next four years relative to the coalition, but with larger surpluses in subsequent years.

On the other hand, betting markets suggest a coalition win is more likely. In contrast to the opinion polls, betting markets are much more convinced of a coalition victory. The odds are currently in the coalition’s favor USD1.10 to Labor’s USD7.00, with the trend widening over recent weeks,

However, the outcome of UK referendum has triggered an uncertainty in this election. Besides, the polls are unclear of a close result in the composition of lower as well as of upper house. This is a double dissolution election and the voting will take place for both the House of Representatives and the full Senate.

A greater degree of uncertainty prevails as to how independent parties and minorities will gain seats in the House of Representatives. Currently, independents and minor parties hold four seats out of a total of 150 and some polls suggest that they may end up with 5 to 7 seats. This is likely to see a higher level of uncertainty about the ability of new government to undertake reforms that may weigh on markets.

The composition of Senate is unclear as per the poll findings, though is noteworthy that the senate plays an integral role in Australian policy making since seeking its approval is mandatory for a law to pass. While recent legislative changes may indicate renewed difficulty for micro parties to win a seat, it is worth mentioning that candidates will only need half the usual quota of votes to win because this is a full senate election. This is more likely to create more complications ahead.

Meanwhile, differences between the two parties remain a troublesome issue as they might pose problems for passing laws in the Parliament. While the Labor party plans to limit negative gearing to new housing from July 1, next year, the coalition has no plan of changing the existing policies.

Further, the Labor plans to order an inquiry into all aspects of services industry, while the coalition believes that regulators already have sufficient powers. Lastly, the coalition plans to adopt gradual cuts to company tax, while the Labor is targeting only small business firms.