Bob Katter, it’s often said in Australia, has gone bananas.
The 65-year-old cattle-rancher-turned-lawmaker is famed for his 10-gallon Texas-style hat, conservative views and an aversion to free trade. A quick Google search delivers you to an array of cheesy photos of Katter with banana-costume-clad supporters protesting imports of the fruit from the Philippines.
Never heard of the guy? You will very soon, if you have even a passing interest in the Australian economy. This obscure independent is a kingmaker in a deadlocked election that has investors hanging in the balance.
Neither Prime Minister Julia Gillard nor opposition leader Tony Abbott got enough votes for a clear majority. That leaves the nation’s political future in the hands of Katter, two other rural politicians and a Greens party member.
If anything is clear it’s this: the nation is entering a period of instability unlike anything many of today’s investors have seen and at the worst time possible.
Odds are that the next parliament won’t get anything done. Here are three issues that will now be put on the backburner.
The real-estate bubble: Things are so frothy that Morgan Stanley is advising investors to buy put options on real estate and bank shares to profit from a likely housing-market bust.
Homes are about 40 percent overvalued and prices are vulnerable to rising unemployment and tighter bank lending, Gerard Minack, Sydney-based head of Morgan Stanley’s global developed market strategy, wrote in an Aug. 16 report. Home prices rose at an annual rate of 18 percent in the second quarter, according to the Australian Bureau of Statistics.
The Reserve Bank of Australia’s six interest-rate increases since October haven’t done the trick. Regulatory steps are needed to keep this bubble from destabilizing a nation that has avoided a recession for 19 years, earning it the well-deserved nickname “the miracle economy.”
As of March 31, the nation’s household-debt-to-disposable- income ratio was 158 percent. Sky-high household debt leaves Australia vulnerable to a double-dip global recession.
The “two-speed economy”: One reason that Gillard and her Labor Party ousted Prime Minister Kevin Rudd in June was outrage over his plan for a 40 percent tax on “super profits” of the mining industry. Rudd’s plan was largely about addressing a growing economic imbalance.
Australia needs to close the widening gap between the resource-rich states of Western Australia and Queensland, and the rest of the nation. The current system, focused on state royalties, isn’t yielding a fair share of the nation’s underground wealth for all Australians.
It’s a no-brainer to ship all the iron ore and coal to China that you can. The risk is that Australia forgets its future relies on ideas, innovation and scrappy start-ups that create tens of thousands of well-paid jobs. Digging things out of the ground has its limits. The issue is one of balance.
Carbon emissions: The cost of climate-change denial just went up. That, arguably, is the clearest message from an election that failed to deliver a majority government for the first time in 70 years. The Greens, meanwhile, won its first lower-house seat amid a 50 percent increase in support.
Pundits will tell you the result turned on issues such as the mining tax and the negativity of the election campaign. Gillard, the nation’s first female leader, did get unfair treatment for being unmarried and childless by choice.
While that may be true, climate change played a role. Leaders from Barack Obama in the U.S. to Hu Jintao in China would be wise to see how a dynamic coursing through Australia will soon zoom their way.
Look, Australia’s problems are great ones to have. At a time when Greece’s debt crisis has investors wondering if the U.S. or Japan may be heading the same way, Australia is a stone’s throw from a budget surplus. The nation also is uniquely positioned to ride China’s boom.
Yet politics has grown sclerotic. Today’s prosperity was made possible by bold action from an older generation. Import tariffs were removed, the dollar was allowed to float and a national pension program was created. The financial industry was deregulated and blessed with a sober framework that stood the test after Lehman Brothers Holdings Inc. blew up in 2008.
Katter’s anti-banana stance has me thinking of Paul Keating. In 1986, then-Treasurer Keating warned Australia risked becoming a “banana republic.” Keating, who served as prime minister from 1991 to 1996, worried Australia might become a small, dependent country in the middle of nowhere.
Australia has come a long, long way since then. The handiwork of Keating and his predecessor, Bob Hawke, helped a nation of 22 million people become the 14th-biggest economy.
This election revolved around small issues like trimming a budget barely out of balance, and boat people. Australia needs a fresh dose of visionary leadership to meet infrastructure and technology needs, revamp the tax system, raise productivity and protect the environment.
Too bad the months, and possibly years, ahead will be marked by political paralysis instead of bold legislating. That’s nothing for investors to go bananas about.
(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)
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