Tag Archives: Reserve Bank of Australia

At about this point before every federal election, someone comes out and complain that political uncertainty is undermining business confidence and hurting investment.

True to form, business leaders were reported by The Australian earlier this week crying that doubts over when the election would be held were “sabotaging jobs and investment”.

We are led to believe that right now across the country, company boards, HR managers and purchasing departments are in a fit of angst about the current state of political flux, delaying crucial hiring and investment decisions as they wait on the Prime Minister to make the short drive to Government House to call the nation to the polls.

If this is the case, it must be an excruciating time for job seekers, merchant bankers, car salesmen and just about anyone else with something to sell.

It would mean that every three years or so – whenever an election looms – economic activity is brought to a virtual standstill as the nation awaits the verdict.

Problem is that, as with much received wisdom, it doesn’t stand up to much scrutiny.

Even a cursory inspection of official investment and employment figures suggests little correlation between election timing and swings in activity.

For instance, in the months leading up to the November 2001 election, private capital expenditure was regaining its momentum after having been savaged by the tech wreck. By the end of the year it had reached annual growth rate of almost 5 per cent – a 10 percentage point turnaround from the March quarter.

And again, in 2004, capex growth slowed in the three months to June to an annual rate of 2.5 per cent before accelerating sharply in the second half of the year to reach above 12 per cent in the December quarter – right when the election was held.

Of course, it has not all been one-way traffic.

Business investment was on a prolonged slide in the months leading up to the March 1996 election, when the Keating Government was dumped in a landslide.

But even here, other factors seemed to be at play.

Quarterly investment growth actually bottomed out the previous June (when it virtually stalled), and strengthened in the six months leading into the election. Maybe it was just that business was confident a change of government was on the cards.

The labour market similarly provides little support for the theory.

Just take these two examples.

In lead-up to, and aftermath of, the fractious August 2010 election, uncertainty about who would form government, and on what terms, was at an all-time high.

But throughout this extremely unsettled period, covering March to October, an extra 180,000 jobs were created, and total employment grew 1.6 per cent.

In 2007, the unemployment rate hovered at or below 4.3 per cent for the six months leading up to the November election, and rose only marginally to 4.5 per cent at election time before quickly reverting to 4.3 per cent the following month.

This is not to say that elections and the prospect of a change of government have no effect on businesses and the investment and hiring decisions they make.

Obviously, if the Federal Government is one of your important customers or a major employer in your area, you could well have a lot riding on the outcome of the poll (though neither side looks likely to unshackle Commonwealth spending any time soon).

But equally obviously, for most employers and investors the election and a possible change of government is only one of a number of considerations, and probably not a major one.

In the ebb and flow of domestic and international commerce, whether it is Kevin or Tony is ultimately neither here nor there – despite what people may claim.