With the Coalition having secured a majority victory in the weekend’s election, much of the investment press’s attention has turned to which sectors will benefit most from the Coalition policies.
Most know them, but the key policies include: repealing the carbon tax, abolition of the mineral resources rent tax, a drop in the company tax rate by 1.5% to 28.5% replaced conveniently by a 1.5% levy on big business for paid parental leave, and a watered down NBN. Of these, the carbon and mining tax will likely have the largest impact on the business themselves, while the new 1.5% levy may impact Australian shareholders.
The reduction in company tax rate by 1.5% means that investors will now receive 5% less franking credits for every dollar of franked dividend they are paid. This will be most detrimental to those relying on the franking credits to offset tax on the dividend income, such as retirees. Overall the effect should be small but analysts have noted that companies with excess franking credits may pay out special dividends in the next 6 to 12 months to maximise shareholder value.
The repeal of the mining tax will obviously have an impact on Australia’s miners, though the direct financial benefit may be limited due to the small contributions large miners have been paying so far. The removal of the tax may increase foreign confidence in Australia and lead to greater investment, with junior miners expected to be prime beneficiaries.
The removal of the carbon tax will likely provide the biggest single benefit to Australian companies. Key industries include airlines and utilities. Major airlines Qantas (ASX: QAN), Virgin (ASX: VAH) and Regional Express Holdings (ASX: REX) stand to benefit from lower fuel costs, which analysts believe may be worth as much as an extra $100 million profit for Qantas. Utility companies AGL Energy (ASX: AGK) and Origin Energy (ASX: ORG) stand to benefit from lower electricity prices which may stimulate demand from households and result in higher revenue and profit margins.
While changes to key policies will likely have an impact on companies within industries affected by government decisions, the quality of the underlying company must always come first when selecting investments. For example, the Coalition policies will likely boost profitability of Australia’s airlines significantly; however risks remain that increased competition may continue to erode profit margins on key international routes. Investors should assess the company on profitability and outlook before considering the likely effect government policies will have on its fortunes.
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Motley Fool writer Andrew Mudie does not own shares in any of the companies mentioned.