Mining tax may go, broadband to stay
- — 23 August, 2010 16:28
The mining tax is all but scrapped, high-speed national broadband could go ahead and Australian markets are likely to be in for a rocky ride over the next few days, economists say.
CommSec economist Savanth Sebastian says investors are largely sitting on the sidelines as uncertainty remains about the federal election result, but the mining sector is being "dragged higher".
There's a lot of speculation on that front that you're not going to see a mining tax, no matter whichever major party gets into power," Mr Sebastian said.
The sitting independent MPs in the hung parliament have vowed to work as closely together as possible in negotiations with Labor and the Coalition but final results for the election may not be known for more than a week.
Mr Sebastian said BHP Billiton and Rio Tinto shares were up more than one per cent on Monday on the prospect that Labor's proposed mining resource rent tax could be binned.
"It's definitely an uncertain environment, but mining sector seems to be the one sector at the moment which seems to be benefiting," he said.
In a research note, CommSec chief economist Craig James said a hung parliament was not the worst possible outcome because there was likely to be three to four well-regarded independents holding the balance of power.
Mr James also said currency investors would "trim positions" until the election uncertainty was resolved.
The Australian dollar rebounded almost half a US cent in local trade after losing a cent on the election news in morning trade.
Economists said the Australian currency would be regarded as cheap given the nation's positive economic outlook.
Mr James said that although the mining tax may not proceed, the independents were more likely to support Labor's proposed broadband network.
He also suggested that foreign investors might be less concerned than Australian investors about a minority government as it was more common overseas.
JP Morgan economist Ben Jarman said the biggest factor of the unclear election result was the uncertainty for the markets.
"There's a theory the longer you have of uncertainty, the more that weighs on households and markets."
Mr Jarman said the negotiations over who governs could bring some good outcomes.
"You might get some changes in the polices that were affecting areas like telecommunications and mining."
Mr Jarman said the unclear Australian election is not the only thing at play for the local currency.
"Towards the end of last week markets were getting increasingly worried about the numbers coming out of the US.
"Given there's more risk about the US growth outlook, that's the kind of thing that weighs on risk currencies like the Aussie as well so you've got that factor as well," he said.
ICAP economist Adam Carr expressed concern about the Greens winning one lower house seat and nine Senate seats.
"These guys aren't exactly market friendly, with anti-free market statements like, `the free-market economy by externalising the environmental and social costs of greenhouse gas emissions is creating the greatest market failure of all time, namely climate change'," Mr Carr said.
"That's straight out of their manifesto and while they also talk about markets having a role to play, it's clear they believe this should be a minor one.
