Wednesday, June 23, 2010

Julia Gillard is the first female prime minister of Australia...

Julia GillardImage via Wikipedia
Julia Gillard is the new prime minister of Australia...

Julia Gillard became Australia's first female prime minister today when Kevin Rudd stepped down, as the Labor government sought to avoid election defeat later this year by changing leaders.

Gillard is expected to present more of a change of leadership style than substance, but investors hope she will soften a controversial super profits mining tax, which is threatening $28 billion worth of investment and has rattled voters.

The Australian dollar briefly jumped after the leadership change, while shares in BHP Billiton, the world's biggest miner, and Rio Tinto rose around two percent, on hopes of a mining tax compromise.

"The market is going to assume that the (mining) tax is going to be amended, and hence the worst case outcome they were staring at is not going to eventuate," said Richard Schellbach an equity strategist at Citi.

Rudd become the shortest-serving Australian prime minister since 1972, with his leadership falling apart after a string of poor opinion polls showed him losing ground over recent decisions to shelve a carbon-reduction scheme and impose a new mining tax.

Government lawmakers believe Gillard has a better chance of winning back voters ahead of an expected October poll because she is a warmer personality who can sell policies more effectively.

Miners expect tax softening

Miners have launched multi-million dollar advertisements warning of widespread job losses, spooking voters, if the 40% tax goes ahead in its current form in 2012.

Global miners such as Rio Tinto, BHP, and Xstrata are expected to campaign strongly against the tax, if it is not changed, at the next election and help a resurgent conservative opposition's bid to oust Labor.

"If they've gone to the trouble to put a new leader in to get their re-election chances up, then obviously they're going to water down the mining tax as well - all part of that strategy to shore up voter support," said Mark Taylor, senior resources analyst at Morningstar.

"I think you'll find that they might do something fairly radical. They might either say they're going to put it on the backburner and look at the whole thing all over again from a fresh start, or they'll make a fairly large concession on the uplift rate or the headline rate."

Despite investor hopes that a leadership change might spell a major backdown on the mining tax, left-winger Gillard's backers expect her to mount a much more effective defence of it.

Some economic analysts expressed concern over Gillard's left-wing, trade union background.

"Clearly this is a positive for the Australian dollar and stocks in the short and medium term," said Su-Lin Ong, senior economist at RBC Capital Markets.

But Ong cautioned: "She has been more left-wing than Rudd; she favours more regulation and spending. So maybe it means the budget deficit shrinks more slowly than otherwise."

The big question in my mind is...when will John key follow suit?

One news/ Reuters

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