Monday, October 15, 2007

Alan Kohler: reasons not to vote for John Howard

From Crikey today.

Eureka Report publisher Alan Kohler writes:

The reason I think Kevin Rudd and the ALP will be better for investors is not part of the election campaign, and probably won’t be: they are likely to be better managers of prosperity than John Howard.

Howard has squandered the booming budget surpluses of recent years on re-election rather than the national infrastructure...

There have been huge transfers to middle class welfare designed to attract votes and belated, miserly, spending on national infrastructure.

The centrepiece of the Government’s budget surplus strategy – the Future Fund – is, in my view, largely pointless. There is no problem meeting public service pensions out of current revenue and they are now in rundown so the problem is not growing.

Meanwhile, the conventional wisdom that the conservatives are, in general, better for shares than the Labor Party was exploded by Bob Hawke: equity strategists have studied the performance of the market during various shades of Australian Government in the past but there is no pattern, at least not one you could discern in the short term.

Political parties have been victims and beneficiaries of the cycle rather than creators of it. That includes Paul Keating, who always talked about having his “hands on the levers”.

The hands on the levers mostly had an effect on the sharemarket only after the various lever pullers were gone (with the possible exception of Gough Whitlam perhaps, although the mid-seventies bear market was caused by the Yom Kippur war and oil shock of 1972, not the election in the same year).

Keating left three important legacies that affected the sharemarket after he went: the creation of mandatory super, which is still having a huge impact on the stockmarket today; the introduction of enterprise bargaining, which began an improvement in productivity that produced a generational shift in share of GDP from labour to capital; and raising interest rates to 17% before the 1990/91.

I used to think, and wrote several times, that the 1990/91 recession was a mistake, and not “a recession we had to have”. But I have since changed my mind.

That recession, combined with enterprise bargaining, broke the cycle of inflation expectations in Australia and has contributed to the lack of extreme boom/bust cycles and the 16-year expansion since.

But it was only a contributing factor. The most important foundation of the long boom has been globalisation and the growth of China and India, driving down labour costs around the world and underpinning low inflation across the globe.

Now we are contemplating a change of Government after four years of stockmarket boom and 16 years of economic growth.

On the basis of our boom/bust history, you would say this is a bad election to win because things are bound to turn nasty soon. Kevin Rudd, on this basis, will preside over a recession and stockmarket bust and then be tossed out at the next election in favour of a still quite young Peter Costello.

Actually I don’t believe that for a minute. In my view this is as good an election to win as 1996.

This is an edited version of Alan Kohler's investment column which will be published later today at