Australia’s Least Followed But Most Important Election
Australia’s upcoming 2025 federal elections are largely centred on the cost of living debate, and rightly so. At the same time, these elections are also widely regarded as a ‘meh’ event with voters expressing little enthusiasm for the main contestants. However, amidst the ongoing trade war, we would like to remind readers of the longstanding economic issues facing Australia that need urgent action for the country’s economic future. In this elections primer, we lay out the importance of this debate and what the ruling Labor Party (ALP) and the opposing coalition (LNP) plan for the country’s future.
Where The Election Will Be Won And Lost
Australia will elect its 48th Parliament on May 03rd, as announced by Prime Minister Anthony Albanese recently. 150 seats of the House of Representatives and 40 of the 76 Senate seats will be contested.
In what is shaping up to be a close contest, cost of living is front and centre on the election agenda with both the major parties campaigning on policies they argue will alleviate the burden on households – without stoking inflation. Curiously, however, this election is being held when Australians are politically disengaged and not particularly enthusiastic about the major parties or their leaders.1
To make matters worse, the campaign agendas of the main contestants are distinctly devoid of big thinking and very focussed on the short-term. The incumbent ALP’s agenda includes tax cuts (announced in the budget recently), providing cheaper childcare and energy bill relief, among others. Whereas, the LNP intends to alleviate inflation by reducing fuel prices (through a reduction in the fuel excise for 12 months), reducing wasteful government spending and delivering cheaper energy through a balanced energy plan including gas, renewable energy and nuclear energy (in the medium term). We have highlighted the key campaign promises in the table below.
Table 1: Key Campaign Promises Of ALP and NLP In Australia
| ALP/Incumbent | NLP/Opposition | |
| Cost of living/Taxes |
|
|
| Price of PBS-listed medicines to be slashed to A$ 25 | Matches PBS medicine price cut | |
| Lower student debt by 20% | Up to a A$ 20,000 tax deduction for small businesses | |
| Overall cost estimated at A$ 20 bn, majority being tax cuts | Overall cost estimated at about A$ 8.75 billion | |
| Health | A$ 1.0 bn for public mental healthcare, backed by Medicare | |
| A$ 8.5 bn investments in Medicare | Matches the ALP's proposal of A$ 8.5 bn and adds to it | |
| 2000 new GP trainees a year | ||
| A$ 644 mn investments in urgent care clinic network/50 new centers by mid-2026 | Includes a A$ 400 mn for financial & leave entitlements for junior doctors | |
| Invests in women health | Also matched the Labor's investments in women health | |
| Housing/ Infrastructure |
A$ 1.2 bn allocated for 'Road Blitz' to upgrade roads in Victoria (38/151 seats in HoR) | |
| Ban on foreign ownership (matches the NLP proposal) |
|
|
| Will expand the "Help-to-Buy" scheme, where the government contributes a part of the cost |
Will allow first time homebuyers to access A% 50,000 from their superannuation | |
| Will raise the maximum price limit and cut the minimum earning requirements | Will ban ALP's A$ 10 bn Housing Australia Future Fund |
Source: SSGA Economics, ABC, ALP & LNP
Despite the general lack of enthusiasm among the electorate, we believe this election is Australia’s most important in recent times. This may seem like an exaggeration given the relatively minor policy differences of the major parties, unlike in the recent US election. However, when seen in the context of the extreme challenges ahead for the domestic and global economy, the next administration is being presented a once in a generation opportunity for Australia to chart a new course to prosperity.
The Economy Heading Into Elections: Substantial, But Manageable Risks
The Australian economy has just begun recovering after a lull due to higher interest rates and inflation. GDP growth is expected to converge into its long-run average led by recovering household consumption. Inflation has been cooling as restrictive monetary policy had been working its way through the economy affected by high cost of living after the Covid pandemic. Employment growth consistently surprised to the upside, but has been led by a handful industries, especially healthcare, while participation rate hit an all time high recently.
Nonetheless, the incoming administration is bound to face Australia’s long term risks from secularly slow economic growth. The plans laidout above mean that government expenditure is set to be a key driver of growth in the years ahead with critical implications on the low productivity and potential growth rate. The OECD projects Australia’s potential growth to slow to 2.20% in 2026 from a peak of 3.86% in 1998 (Figure 1).
Figure 1: Australia's Potential Growth To Slow Further
In addition, the largest trading partner, China is also facing a lower growth future which is exacerbated by the ongoing trade war with the US – Australia’s security partner. There is an urgent and unappreciated need to diversify Australia’s growth drivers from resource exports, particularly those headed to China. Nearly 33% of Australia’s total exports of goods and services are to China, with about 80% of these exports to China being natural resources.2
These risks have been gaining recognition among policymakers, but there has been little to no debate on solving them sustainably in the run-up to elections.
Figure 2: Aussie Exports To China: Sustainable?
Against such rapidly evolving risks, Australia will benefit from adapting a long-term approach and diversify its growth drivers. We expect at least some public discussion in this direction, but note that the country is falling behind at a rapid clip in comparison with peers such as the US as shown by the amount spent on Research and Development in Science and Technology (Figure 3).
At the same time, there is an inadequate debate on reviving manufacturing, which is a sector that has the capacity to drive employment and drive economic resilience. As seen in Figure 4, Australia’s share of manufacturing in GDP has fallen from about 17% to about 5% over the last 40 years – much lower than the OECD average of about 13%.
To be fair, both the LNP and ALP have discussed manufacturing and research, but the plans are not sufficiently clear or ambitious. Various research papers, including from the Reserve Bank of Australia (RBA) have highlighted their secular decline due to the country’s low tariff rates3 and the need for revival.4 Not to mention two other domestic policy challenges that have had more attention on them, but still yet to be addressed. These are tax reform and boosting productivity (including industrial policy).
Clearly there are massive policy challenges ahead for whoever wins the election, within the context of global uncertainty as the Trump administration tries to reset the global trade system. With this backdrop, it is a little surprising to us why the electorate seems so disinterested ahead of the election. Nonetheless, the risks are very clear and Australia needs an urgent head-start to fix these issues.
Economic and Investment Implications
Given the lack of urgency displayed by either major party on addressing these key challenges and opportunities, the natural conclusion would be a continued decline in Australia’s potential GDP growth. Further, in a deglobalizing world where Australia has opposing economic and geopolitical links this could cast a shadow on commodity demand, pressuring an already weak AUD. One potential offset is that so long as output is being produced somewhere, it will require raw inputs and so there is a baseline demand for commodities We expect these risks coupled with easing inflation to let the RBA lower the cash rate to 3.10% by December, above the current market pricing of 2.85%.
With the less than rosy outlook for Australian growth, it would follow that investors should seek investment opportunities in global markets. However, as has been displayed emphatically in recent weeks, the global economy is facing a period of uncertainty and market volatility. With this backdrop, the challenge for Australian investors is significant.
We would recommend maintaining medium to longer term timeframe when setting investment strategy and focussing on diversification and defensiveness in the portfolio. Specifically, this means that within equities, investors should look to tilt portfolios towards quality and low volatility factor exposures. Other asset classes that would be attractive in the current environment would be fixed income, particularly government bonds, with interest rates likely to fall with a lower growth outlook. Gold is another asset class that currently warrants attention and, together with fixed income, will help investors weather the volatility ahead.