The meltdown of the Coalition government in Canberra shows no sign of ending and the likelihood that Australia will have a new Prime Minister in coming months has increased despite the Party room vote. However, the successor might not be from the right faction of the Liberal Party.

Why is this important?
From a self-directed and funded retiree’s perspective, it could become crucial as the Opposition pushes forward with its superannuation policy and franking changes that will go to the next election.
The upheaval in the Government, if it is not settled with solid unification behind its leader, will focus increasing attention in the equity market on the consequences of a switch to Labor and Bill Shorten in The Lodge. Today’s betting odds suggest Labor is 1.4 odds on favourite versus the Coalition at 2.8 to win the next Federal Election.
Having made that point, it is important to understand that the House of Representatives seems to have lost its ability to properly govern the country. Indeed, the upheavals in both parties over the last decade have left the country bereft of high calibre leadership and cemented the influence of minor inconsequential parties in the Senate (the so-called States’ House).
Current polls of voting intentions suggest that only about 70% of voters will give their primary vote to the major parties. A significant and growing part of the voting population is drifting away from the majors. In the Lower House, this means that preferences will decide the government. In the Senate, it means that minor cross-bench parties will rule over changes proposed by the next Government. What a travesty of the democratic process! If it wasn’t so important for our future, it would be laughable.
A further complication is that voting results in the Lower House do not necessarily flow through to the Senate, meaning the protest vote could even be magnified.
Therefore, whoever takes the Treasury benches after the next election will in all likelihood have a major problem in dealing with the Senate. Many of the proposed changes that could affect retirees and their pension income might not occur, or could be substantially watered down, or materially altered. This is deeply unfortunate because long term planning within the context of the tax laws and our understanding surrounding the management of pension accounts is crucial to over one million Australians.
Let’s remind ourselves of the significance and importance of the SMSF sector, and its potential political clout, with this summary sheet sourced from the ATO:

Source: Australian Tax Office
(https://www.ato.gov.au/uploadedFiles/Content/SPR/downloads/smsfs_annual_statistics_overview_2015-16.pdf)
Malcolm is the man in the middle, which can be an uncomfortable place to be when the political extremes are drawing ever increasing support. Perhaps this is the moment Australia aligns with global trends, in the time of Trump, Brexit, Germany, Italy … the list goes on.
Sweden facing political upheaval

Source: FT
Sweden faces an election soon, on Sunday 9 September, where the results will be watched intensely across the rest of Europe. While the European mainstream survived a series of challenges from the far-right in 2017 (almost miraculously French President Macron, with Germany’s Chancellor Merkel holding on by her fingernails), the results anticipated in Sweden will demonstrate that Europe remains extremely vulnerable to the populist message, especially on the topic of immigration. In Sweden, voters are focused on migrants, gang-related crime, a sense that the country has never really recovered from the GFC, and that the mainstream political parties “don’t listen to ordinary people”. Their slogan is “Keep Sweden Swedish”. Throw in climate change policy and rising electricity costs and it starts to sound an awful lot like Australia.
In Sweden’s national elections, the Sweden Democrats – a far-right party with roots in the neo-Nazi movement – are hoping for around 20% of the vote. Such an outcome would be a deep shock to consensus-driven Sweden, which has long prided itself on being perhaps the most open European country to immigrants at the same time as offering a generous welfare state. At the very least, the Sweden Democrats are likely to become potential kingmakers and challengers to the centre-left and centre-right blocs that have ruled for decades. Indeed, the centre-left party has been the largest in Sweden for more than a century.
No one is suggesting that the right wing of the Liberal Party in Australia is anything like the equivalent of the Sweden Democrats or shares its values… but there is clearly something in the political climate across Western democracies that is decimating the political middle ground.
Let’s turn back to Australia
The effective management of energy, healthcare, education, aged care and infrastructure are crucial to all Australians. While many of the governance problems seen in Australia are not unique to us, we should acknowledge that we are just a small part of the world order. Our future is determined by world economic events and more so because we have precious little strategic economic or social vision – we deperately lack management that focuses on our core strengths and unfair advantages.
The debacle surrounding energy is a case in point. Some thirty years ago, the generation and distribution of energy was the responsibility of state governments. However, these governments progressively mismanaged their budget obligations and created debt “black-holes” increased by their unfunded public service pension schemes. They sold off their public assets and thereby directed the control of public energy to a mix of ASX listed companies, private equity, investment banks and foreign companies – all of whom have profit as their over-arching concern rather than the delivery of a national energy policy.
Today’s energy problem was created decades ago by politicians and bureaucrats who had little vision and no intellectual capacity to deal with those problems. The disregard by the political elite to collectively determine and then manage public policy for the needs of both the current and the next generation is an appalling feature of poor governance. Unfortunately no one should expect any change soon.
Meanwhile the world moves on
As noted above, Australia chooses to be a passenger in the world economy as we are swept along by the policies of our friends and trading partners that have little problem in managing their economies for their benefit.
The basics of economics, particularly the management of debt, shows that Australia has to think and behave differently from the rest of the world.
Today, Australia has approximately $0.5 trillion of Government debt, of which about $300 billion is held by foreigners. We also have $2.6 trillion in superanuation, a sum that swamps our funding needs for national debt repayment, secure energy investment and key infrastructure investment. So why are we not creating an over-arching strategic plan to safeguard the future of our country?
Let’s consider a few charts that illustrate that while Australia is small in the global economic context, we share some problems that appear almost universal, while have avoided others.

As we can observe, global sovereign debt still piles up year after year, and yet this is not a particular concern for the Australian economy. In the chart below, you will struggle to even find Australia in the illustration showing government debt as a percentage of GDP (Australia is at around 42% compared to Germany at 60%, Britain and Canada at 86%, France at 96%, the US at 108%, and Japan at 236%).

Household debt (as opposed to government debt) is far more of a concern, and in this regard Australia is rather more exposed.

Australian household debt has steadily risen over the past three decades as more of us aim to own houses and continue to rely on products such as car loans and credit cards. The ratio of household debt to income has more than doubled between 1995 and 2015, going from 104% to 212%, according to OECD data. This means that if the average person earns net $80,000, they are spending something like $170,000 per year.
While some other countries have seen a levelling out of personal debt since the GFC, Australia’s debt levels have continued to increase. As a result, we are now reported to have amongst the highest personal debt levels in the world.
Another aspect of our economy that we share with much of the Anglo-sphere and the Scandinavian countries is elevated house prices (expressed below as a ratio to rent, relative to a long run average).

We will end this publication with some good news: GDP forecasts for 2018 are generally on the rise. The world’s largest economy (the US) continues to surprise “on the upside”, with much of the global economy still benefiting from extremely loose monetary conditions.