Your money: what to look for in an election year

In announcing the date for the next federal election (14th September), Prime Minister Gillard has commenced the longest (unofficial/official) election campaign in Australia?s history. So in terms of your finances, just what can you expect over the next nine months?

Your mortgage

Based on their actions over the past two decades, the likelihood is that your mortgage interest rate won?t alter a great deal in the next few months. Over the past seven federal election campaigns, interest rates have been lowered only once (in 2001). Like much of the business community, the RBA seems to adopt a “wait and watch” approach.

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RBA Cash Rate Versus Australian Home Loan Interest Rates

RBA Cash Rate Versus Australian Home Loan Interest Rates

Having said that, economists are widely tipping one or possibly two interest rate cuts over the next six months and judging by the current price difference between standard variable home loan rates and 3 year fixed rates, it would appear that financial institutions have indeed priced in an official rate cut.

What does that mean? Well, perhaps a quick interest rate cut or two over the next few months, before the campaign proper kicks in, but possibly a silence after that. Don?t wait for the RBA though – download our Home Loans Star Rating Report, check out the home loan interest rates daily, and shop around.

Your other shopping

There could be some sales: consumers generally slow down on spending and delay decisions until after an election. Given the length of this campaign though (be it official or not), retailers really need you to keep spending, so look out for some good value sales and incentives to keep your wallet open.

Your share portfolio

Just as consumers hold off on major spending decisions in the lead up to an election, so do many businesses and this could be exacerbated this year with a change in government widely expected by the opinion polls. Changes in share prices of individual bcompanies will depend on the policies announced by each party between now and September, as well as the likelihood of one party gaining victory. Above all else businesses love certainty, so a close-fought campaign will do nothing good for share prices. A landslide of opinion, on the other hand…

Your hip pocket

The possibilities here are endless and will depend on what voter-wooing policies are announced by each major party between now and the election. An increase in paid parental leave, promises to cut red tape/increase incentives/make everyone happy are the norm.  An increase in income tax would, I?m certain, be off the cards this year – although superannuation concessions for high income earners could well be a target.  The unofficial campaign period will span the 2013/14 Federal Budget, to be released in May, so it should be an interesting time! When assessing the promises made by each party, though, just keep in mind that they will need to be paid for at some point – from a not-very-large bucket of money!

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Federal Spending Chart

The pie chart above, courtesy of the 2012/13 budget papers, show where the money is currently earned and spent. All up it promises to be a long campaign – let?s hope that it?s a good one.

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