From: Michael Andrews <mandrews@ips.edu>

Date: August 30, 2010 10:34:19 AM EDT

To: Thad Brown <thad@ips.edu>, Curt Hastings <curt@ips.edu>

Subject: Fwd: Re; Australian Election Status

Begin forwarded message:

From: "Rowe, Trevor" <Trevor.Rowe@rothschild.com>

Date: August 29, 2010 9:39:36 PM EDT

To: <mandrews@ips.edu>

Subject: Re; Australian Election Status

Dear Michael,

The expected final count in the House of Representatives is 72 seats for ALP, 72 seats Coalition, 1 WA National Party member who is planning to sit on the cross benches, 1 Green and 4 Independents (Figure 1). Assuming that the WA National supports the Coalition and the Green supports the ALP, then either Party only requires 3 of the Independents to form Government. The Independents, while appearing notionally conservative, support the national broadband network (NBN) so their decision on which Party they will support forming government remains uncertain and may not be resolved until next week.

The minerals resource rent tax could be passed under an ALP government as it is likely that 2 of the Gang 3 plus the new independent and the Greens likely would support it. But under a Coalition government the tax would not proceed.The NBN is likely to proceed regardless of which Party forms government because the Coalition most likely will need to compromise to gain the support of the Independents. It is too early to know how the major Parties will accommodate the Independents’ “new paradigm” on food security, foreign investment, water, and other policies that bear on regional development.

While the rhetoric of the Independents and the Green is the formation of a stable government, the reality is that a minority government requires 3 of the 4 Independents to vote with it on every single Parliamentary Bill. The markets face a more uncertain political backdrop. The markets will look through this uncertainty provided key macro policy commitments remain in place, including returning the budget to surplus by FY13.

Best wishes
Trevor

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