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Election2019: Market set for bounce as tax cuts loom

Lex Hall with AAP  |  20 May 2019Text size  Decrease  Increase  |  
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The Liberal-National Coalition is capitalising on Scott Morrison’s sweeping election win to pass through signature tax cuts in a bid to bolster a slowing economy.

Shortly after Morrison’s shock victory, described as the greatest comeback story since 1993, the government suggested parliament would reconvene as soon as next month in a bid to pass the government’s $158 billion income tax cut plan.

Rebates of as much as $1,080 could deliver a crucial boost to consumer spending and help buoy an economy in its 28th year of unbroken growth.

“That is our priority piece of legislation,” Treasurer Josh Frydenberg told reporters after the Coalition’s win, which upended pollsters who had forecast an emphatic Labor victory.

As the numbers stood last night, the Coalition had secured 75 seats in the expanded 151-seat House of Representatives, with Labor on 65 seats. There are likely to be six crossbenchers, with five seats still undecided where the gap was less than 1 per cent.

The stock market meanwhile is tipped to get a short-term bounce on the back of the Coalition's surprise election win, before quickly focusing elsewhere.

The initial focus this week will be the coalition's re-election before attention turns to ongoing global trade tensions and any Reserve Bank signals about the timing of interest rate cuts.

AMP Capital chief economist Shane Oliver expects the share market will quickly move on from the election result.

"With the return of the Coalition with its more pro-business policies and uncertainty now removed around changes... it's possible we will see a bit of a short-term bounce in the share market," he said. 

Oliver said the Coalition win removed uncertainty on excess franking credits, changes to negative gearing and capital gains tax adversely affecting the property market, and increased industrial relations regulation.

Property-related shares, banks and retail shares could be the key beneficiaries.

"Against this though the Australian share market has already performed pretty well over the last few months and is likely be dominated by issues around global trade, slowing growth, interest rates and the iron ore price and so will quickly move on from the election I suspect."

Futures trading was pointing to a very modest rise when the Australian share market opens on Monday.

US stocks dipped on Friday amid continuing US-China trade tensions, with the S&P500 index closing 0.6 per cent lower and the Dow Jones Industrial Average down 0.4 per cent.

The re-election of the coalition is expected to mean business as usual for the immediate economic policy outlook, in line with the policies announced in the government's pre-election budget.

Ratings agency Fitch Ratings expects the re-election to bring broad policy continuity, with the federal government forecast to reach an underlying cash surplus by next financial year.

A challenging economic environment poses risks to this outlook, Fitch associate director Jeremy Zook said.

"The economy is slowing and the unemployment rate has inched up, which could weigh on fiscal revenues," he said.

"A sharper economic slowdown could also lead to pressures for greater fiscal stimulus."

Zook said the likely continued need for crossbench support in the Senate could limit the government's ability to advance some of its policy priorities.

"This poses additional risks to the budget outlook and the government's ability to tackle medium-term economic reforms."

RBA governor Philip Lowe will deliver a speech in Brisbane on Tuesday, immediately after the release of the minutes of the bank's May board meeting when it kept the cash rate at a record low 1.5 per cent.

Oliver expects both events will signal some sort of shift towards an easing bias on interest rates ahead of rate cuts in the months ahead.

National Australia Bank economists expect Lowe will emphasise the bank's easing bias and pave the way for a rate cut in June.

. Lex Hall is content editor with Morningstar Australia

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