Following today’s vote, current federal Treasurer Scott Morrison will be Australia’s new Prime Minister, marking the end of Malcolm Turnbull’s leadership. Australia has not seen a prime minister finish their term since 2007.
The decision follows a roller-coaster week in Canberra with key ministers, including assistant minister to the treasurer Michael Sukkar, resigning.
Despite Roy Morgan polling revealing Julie Bishop was the easily preferred prime minister as of this morning, Treasurer Scott Morrison has received the most support within the Liberal Party.
A significant shift? Maybe not
According to independent economist Saul Eslake, a Morrison government won’t herald a significant shift in policy given Mr Morrison’s role in building them.
“It’s hard to imagine him reversing the decisions he announced and legislated as Treasurer with regard to superannuation, personal income tax or negative gearing,” he told Nest Egg.
“He’s unlikely to reverse this week’s decision to abandon the proposed cut in the company tax rate for large businesses, but it’s possible that he may take up the idea of accelerating the proposed cut in the tax rate payable by ‘small’ businesses to 25 per cent (because that would probably get through the Senate).”
A new leader could try to cozy up to retirees
Grattan Institute fellow, Brendan Coates said it’s unclear what a new prime minister will mean for retirees, but suggested a more conservative prime minister could look to “shore up the Coalition’s position with older Australians”, in contrast with Labor’s proposals to reign in negative gearing, super tax breaks and dividend imputation credits.
“The politics of housing are shifting now that prices are falling in Sydney and Melbourne,” he added.
“While recent price falls are unlikely to make housing much more affordable — the falls do little to unwind the price rises in Sydney and Melbourne over the past five years — the Coalition effectively declared victory on housing with few new measures announced in the 2018-19 budget.
“The debate over Labor’s [push] to abolish negative gearing and halving the capital gains tax discount to 25 per cent will be a key battleground in an upcoming election, especially now that house prices are falling on much of the eastern seaboard.”
A Labor government now a 'very real thing'
Chief investment officer at Prime Financial Group Jonathan Bayes argued a Labor government is now a “very real thing” and that has major ramifications for dividend income and housing investments.
“Make no mistake, this federal election stands as a potential catalyst for a sea change in the way retirement portfolios are constructed in this country,” he said.
“Buoyed by the combined tax benefits of both dividend imputation and Australia’s superannuation system, Australian retirement portfolios have leaned heavily on Australian-listed, income generative, large cap corporates.”
A change in dividend imputation policy could mean retirement investors will need to undertake the “big psychological change” of accepting they may need to drawdown on their capital.
Additionally, Labor’s policy towards negative gearing is cause for concern for property investors.
Mr Bayes commented, “For well over a decade, investment lending has comprised over 30 per cent of all mortgage lending, giving you some sense of its importance to the Australian housing market. Whilst Labor have said existing agreements will be grandfathered and that negative gearing can continue on new builds, the broad removal of these tax incentives lessens the attractiveness of property as an investment asset for all new potential housing investors.
“Like in any market, when the value of an income stream is reduced, the marginal buyer lowers his price.
“Making this potential policy change all the more concerning is Australia’s current degree of household indebtedness.”
A bad sign for Australian politics, but investors have been 'beaten blue' already
To Propertyology head of research Simon Pressley, the fact federal treasurer Scott Morrison is now leader represents how Australia is “littered with lots of dickheads in high places”. He argued the real battle will come with the next election and the policies they implement.
“Today’s decision in Canberra is yet another spin of the merry-go-round, making it six prime ministers in just 11 years. Twenty-five million Australians continue to pay the price for the complete absence of true leadership since before the onset of the GFC. Most state governments across the country have a similarly deplorable record,” Mr Pressley said.
“Regardless of who is in office, what I’d genuinely love to see is a revolutionary investment to significantly improve financial literacy of all Australians. A paltry 18 per cent of Australia’s 3.7 million people aged 65+ years are financially independent, meaning that last year $47 billion of our taxes went towards paying aged pensions.
“Every Australian ought to be embarrassed by our inability to set financial goals, save a portion of every pay packet, prioritise good advice, and strive to become self-sufficient by the end of our 40-odd years in the workforce.”
However, he said Mr Morrison does bring with him the "important mix of political and business experience", having spent time overseeing finance, welfare, immigration and sport.
"Property forms part of his diverse background. He’s a property investor, commercially minded, and has previously demonstrated a preparedness to tidy up parts of our welfare system which encourage apathy.
"Personally, I’m not overly concerned about him implementing policy changes which disadvantage property investors and / or retirees. Let’s face it, investors have already been beaten black and blue over the last few years. Some unintended consequences such as a significant reduction in government revenues from property taxes will soon bite the bastards on the bum."
The chairman of Property Investment Professionals of Australia, Peter Koulizos, is more concerned that continued infighting will trigger an election and a Labor government.
“The Labor party are going to go to the election with changes to negative gearing and that's going to be disastrous for property investors. So if the Liberal party could get their house in order and stop changing leaders, then property investors will be better off,” Mr Koulizos said.
Mr Eslake added that the political demise of Mr Turnbull represents a “distinct rightward shift for the government”.
“In my view, the most disappointing thing about Malcolm Turnbull was his failure to run the ‘thoroughly liberal government’ which he promised to do immediately upon becoming prime minister. But both Morrison and Dutton would take the coalition government in a more Trump-like direction: Dutton would simply take it further in that direction than Morrison.”
More to come.