I’m hearing from the hill that the conversation has turned to an October 2012 election … sportsbet is making it ~27% chance (see below).
This makes some sense to me. A number of things are pointing to an election in the near term. A key reason to go early is to avoid the November/December MYEFO (though the Government will still have to release the PEFO).
The decline in the price of Iron Ore is going to take a hunk out of the budget. The problem is not just the 2012-13 surplus (which is surely now gone) but that the 2013-14 budget surplus is also slipping away.
I doubt we’ll see much earnings growth across the 2012-13 and 2013-14 financial years … and without that i cannot see the growth in company tax receipts, super-tax payments, and capital gains tax payments that the budget is relying upon. Maybe we’ll get some income tax growth …
The other reason an election in Q4’12 makes so much sense to me is the timing of fiscal policy — the pre-payment of carbon-tax compensation in Q2 and the tax cut all the non-Qlders got as the Qld flood levy rolled off in Q3 means that fiscal policy swings from modestly supportive in H2’12 to sharply restrictive in H1’13.
According to the IMF, the cyclically adjusted tightening is ~1.75ppts of GDP in both calendar year 2012 and 2013 … so right now it feels as good as it’s going to get for the next year.
The ALP has had a bit of a bounce in the polls, and fiscal policy is as supportive as it’s going to get. The longer they wait the greater the risk of the blown-budget being exposed (not that it was ever a smart policy) and that the fiscal stance starts to annoy voters (as it is doing in Qld).
This way, at least, Gillard is sure to lead the faithful to the polls …