Leadership battles, Government rhetoric and billionaire scoldings … and we are only in March. Now the Treasurer suggests the notion of a fair go is under threat.
As the government moves forward following a bruising leadership stoush, it seems the rhetoric has been dialled up to divert public opinion.
While the banks continue to come under heavy criticism for increasing mortgage rates, they are no longer alone, with Wayne Swan recently singling out some of Australia’s wealthiest individuals for a dose of billionaire bashing.
According to Mr Swan, Australia’s sense of a fair go is under threat.
“ …The rising power of vested interests is undermining our equality and threatening our democracy,” he said recently. “We see this most obviously in the ferocious and highly misleading campaigns waged in recent years against resource taxation reforms and the pricing of carbon pollution.”
It would be safe to assume that the Treasurer is not counting on the votes of Clive Palmer, Andrew Forrest or Gina Rinehart at the next election, though his provocative views are an interesting shift in the political debate away from seemingly unpopular policy to that of the “greed of a wildly irresponsible few”.
Passed off as a form of class warfare by some, it is interesting to note Mr Swan’s contrasting views to other lobby groups, so long as they are in the interests of middle-income Australians.
As it stands, big business and the government appear to remain at loggerheads and the push to resolve more pressing issues – such as lifting the economy’s productivity – could be an arduous process.
As the gap in the ‘two-speed economy’ widens, the need to manage structural change and lift productivity becomes more apparent.
The resources boom and productive policy
While the economy is broadly benefitting from the resources boom, the Business Council of Australia has noted the risk of Australia becoming a ‘high cost, low productivity nation’.
The need to cut red tape and lift employee engagement are seen as important steps, though many industries have been focused on the review of the Fair Work Act, which from some corners has been criticised for creating adversarial and non-productive workplaces.
Submissions are now being considered with a panel due to release its report to the government at the end of May this year. As the Reserve Bank of Australia (RBA) recently highlighted, public policy can promote economic flexibility, which will be an important driver of future macroeconomic outcomes.
As it stands, the RBA seems quite comfortable with the state of the Australian economy. While recent GDP numbers were a little softer than expected, a marked improvement in global conditions kept rates on hold for March.
Positive developments
Pleasingly, economic data in the US remains positive, though China did raise some eyebrows downgrading their economic growth target to 7.5 per cent from 8 per cent for 2012.
This could have some impact on commodities prices, though is more likely a reflection of the recession in Europe rather than something more sinister at this stage.
And while the economic prospects for Europe remain bleak, positive developments continue to ease liquidity and lessen the likelihood of nasty tail-risks.
The private sector involvement deal to restructure Greek debt means that Greece will receive its second bailout package and averts a disorderly default. Coupled with the success of the long-term refinancing operation (LTRO), conditions have eased, though the EU still has a mountain of issues to work through.
While 99.99 per cent of the population does not enjoy the riches of the billionaires, it is nevertheless important that we continue to build on our collective wealth.
Thankfully, the bloodletting has remained in the realm of public debate and has not, as many feared, transpired in corporate earnings.
After a tough end to 2011, markets were sold down to attractive levels. A better than expected macro backdrop along with a subdued, yet reasonable reporting season does make risk assets worth considering.
Despite the strong start to 2012, Australian small companies still offer good value considering long-term valuation metrics.
As many companies will struggle under the burden of the high Australian Dollar, soft consumer sentiment, and continued cost pressures, there are a select number of industrials with good earnings prospects due to their unique business models or niche market positioning.
From a risk return perspective, the share market and small companies do offer value.
Although it may be some time before the next Fortescue Metals comes along, investors should be rewarded if they remain focused on buying companies with good fundamentals at attractive valuations over the longer term.
Patrick Noble is a senior investment specialist at Zurich Investments
