Australia: The Labor Party remains and, with it, stimulative economic policies keeping RBA vigilant

At the federal election on May 3rd, Prime Minister Albanese was re-elected as Australia’s leader with the Labor Party wining a landslide victory. For sure, the President Trump has arguably helpedAlbanese, as Australian voters superimposed Trump’s strategies on the Coalition’s policies.  Beyond Trump, Albanese’s campaign has focused on alleviating the cost of living and improving housing affordability, which has surely helped towards his re-election.As announced at the March Budget (Chart 1), the Labor’s economic policies are stimulative, providing cost-of-living relief and supporting cleaner energies. While the electricity rebates will be extended to December, the government will introduce a personal income tax cut and expand medical subsidies. It also plans to make further progress on the energy transition, promoting renewables to supply 82% of electricity by 2030.On housing policies, the Labor government will focus on improving affordability. To support first home buyers, the government will invest AUD 10 billion to increase the supply of housing by building up to 100,000 new homes. The government will also guarantee a portion of their loans, to enable them to buy a home with a 5% deposit without paying lenders mortgage insurance. On top of this, a two-year ban will be set for foreign investors and temporary resident buying existing properties.While clearly popular, based on the election results, Albanese’s initiatives are expected to complicate the RBA’s as it can bring renewed inflationary pressure. This is particularly the case since the construction industry has suffered bottlenecks from surging bankruptcy. In other words, housing supply could face challenges to meet increasing demand (Chart 2), which could further raise housing prices and, ironically, worsen -rather than improve- affordability. Furthermore, the fiscal expansion embedded in Albanese’s economic program is coming with a still strong labor market, with the unemployment rate standing at 4.1% in March.Against such backdrop, the RBA will be more cautious in its easing, ensuring that inflation stabilizes within the RBA 2-3% target band.