Broadband a goer, but not much else is clear

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This was published 13 years ago

Broadband a goer, but not much else is clear

By Elizabeth Knight

We have a victor in Australian politics, but it is neither certainty nor stability. We will operate for an unknown period with a Labor government that can deliver supply - but that is about all.

The government's policy positions carry no guarantees of success, and the markets will continue to sweat on the outcomes of many issues that will affect their direction.

The biggest of these will be tax reform. Mining tax has been the highly publicised element of this debate, but there is now a sense from the independent MP Rob Oakeshott that he has agreement from the government to revisit Treasury's larger tax reform agenda.

This may also lead to a rethink on corporate tax and superannuation. Yesterday's decisions could raise more questions than answers.

Markets do not like uncertainty. The immediate response to the decision of two independents to support Labor and one to follow Tony Abbott's Coalition was all over the place. Both the sharemarket and the dollar gyrated following their announcements. And they will undoubtedly move around as we receive further clarification.

Markets are not adept at reading politics at the best of times. Right now they are running in an information vacuum. At first glance only one thing appears to be a given, the national broadband policy, which has received the green light.

All three independents support the roll-out of fibre to regional, rural and urban areas. It was clearly a big factor in Labor getting support from Oakeshott and Tony Windsor. Bob Katter also clearly supports the national broadband network.

As such, companies in the communications markets know where they stand, for now at least. Telstra shareholders and its management can feel secure in the knowledge that under this new regime $11 billion is coming their way as long as this precarious political arrangement stands.

Earlier suggestions that Telstra would prefer the status quo, including retaining its position as a wholesale monopoly supplier, are misplaced.

Telstra has done a deal with the government on the national broadbande network that it believes is better for shareholders. It is one the board will recommend when (or if) it comes to a vote. It has no wish to battle on losing customers from its copper wire network. Its future is to embrace the new fibre network and receive handsome compensation for doing that.

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But the path is not so clear for investment markets in most other respects. We have no idea how long Labor will retain office and when it may call an election, but this is likely to take place before its term is complete. Some are even tipping an election before Christmas.

However, let's assume for a moment that this government can hold office for a while. Under this scenario the Labor government would be looking to introduce a mining resource rent tax.

But this may be compromised by Katter, who will vote against it, and Oakeshott, who wants a review of the Treasury tax package before he will deliver a verdict. Windsor's position remains cloudy.

The Greens, who will hold the balance of power in the Senate from next July, want a more onerous tax regime for miners. It's a situation riddled with uncertainty. Gillard has made it clear she will not seek to reinstate the super tax on mining, and the Greens have said they will support (reluctantly) the watered down mining resource rent tax version.

So at this point under the current government we may get a mining resource rent tax or the abandonment of any additional tax on miners. We could also see a totally different outcome if there is a transparent review of the Treasury tax package that is properly debated between the government and the industry. This could result in no new tax on miners or a different mining tax entirely.

Indeed, it is hard to imagine how any major policy decisions will get through this convoluted process. So for all the talk during the election campaign from both sides of the need for a reforming government and one that will be strong, we will probably have neither.

Despite his long-winded speech yesterday, Oakeshott, who has been offered a place in Gillard's ministry, made an extremely important point: that his vote of support only went as far as guaranteeing supply and confidence in what inevitably will be a cautious government. It was not necessarily a mandate for a range of sweeping changes.

Gillard's administration, therefore, will be more of a caretaker government, whatever is said to the contrary.

From the public's perspective this may be the perfect operation of democracy. It could work well for a period. But governments ultimately need to make big decisions, ones that may not be able to be made in the current circumstances.

The downside for governance is that this hiatus only works for a while. In order to make longer-term investment decisions businesses, be they small or large, need certainty.

The outcome yesterday will not satisfy businesses that want to make commitments based on a longer term tax regime.

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If those in power can settle on, for example, a mining resource rent tax, investors can make a decision on whether Australia is the best place to park their dollars.

The worst outcome is no outcome.

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