FACTBOX-Key political risks to watch in Australia

By James Grubel

CANBERRA, May 31 (BestGrowthStock) – Australian Prime Minister
Kevin Rudd is positioning himself for an election in late 2010
with polls showing his support slipping after a series of
policy backflips, and with the mining lobby outraged by his tax
plans.

Following is a summary of key Australian risks to watch:

* ECONOMIC AND TAX POLICY

Economic management is always a key election battleground.
Traditionally, conservative parties have claimed this mantle,
but the ability of Rudd’s centre-left government to steer
Australia through the global crisis and avoid recession has
given it economic kudos among many voters.

Homeowners, particularly in crucial marginal mortgage belt
electorates around Sydney, Melbourne and Brisbane, are
concerned about rising interest rates. The central bank has
lifted its key cash rate by 150 basis points since October to
4.50 percent, with mortgage rates now around 7 percent.

The booming resources sector is also angry at plans for a
40 percent tax on mining profits, to start in mid 2012, which
underpins his plan to restore the budget to surplus in 2012-13.

What to watch:

— Mining tax: The government is locked in negotiations
with more than 80 mining companies on details of the new super
profits tax. The 40 percent headline rate appears set in stone,
but the government appears more flexible on the definition of a
super profit, and may compromise by increasing the threshold
for the new tax rate, currently set at around 6 percent. For
full coverage of the mining tax, click on [ID:nAUTAX]

— Furious mining firms say the move puts new investment at
risk, and expansion plans have been put on hold. Mining shares
have tumbled and the government faces heavy opposition from the
resource sector, which has financed an advertising campaign
against the changes. The conservative opposition has also
promised to abandon the tax if it wins power, putting the issue
at the centre of the coming election campaign. the government
has countered with its own taxpayer-funded advertising
campaign.

— The changes will come after the election and their fate
will hang on changes in the composition of the upper house. The
post-election Senate is expected to have fewer conservatives
but more crossbench Greens. Rudd also faces an outside chance
of needing key independents to hold a majority in the lower
house. [ID:nSGE64T02H]

— Monetary policy. The Reserve Bank of Australia (RBA)
holds its next policy meeting on June 1 and economists expect
rates to remain on hold after a 25 point rise in May.
[ID:nSGE64R05X]

* RUDD’S POPULARITY

Rudd popularity has fallen dramatically in recent months
after he shelved a serious of policies, including his landmark
carbon trade plan. Opposition policies are similar in most
aspects, although the opposition will abandon the super profits
tax on mining companies. A sudden dive in Rudd’s re-election
prospects would be unlikely to have a major impact on markets.
For a factbox on key policy differences, click on
[ID:nSGE64R07F]

What to watch:

— Opinion polls. The Reuters Poll Trend shows Rudd may be
headed for a hung parliament, although he is still favourite to
win the coming election. The government held a narrow 1.2 point
lead, down from 10.4 points a month earlier. [ID:nSGE64J02A]

* POLICY SWITCHES

Ahead of the election, Rudd is postponing policies that
risk being vote-losers, delaying them to next year and a future
parliament in which he hopes to have a stronger hand. The
government withdrew its twice-defeated carbon emissions trading
scheme from parliament, where it faced a third defeat in the
obstructive Senate where it is seven votes short of majority.
The government also postponed its planned mandatory Internet
filter, which had angered the U.S. government and web
heavyweight Google (GOOG.O: ). Rudd also dumped a troubled scheme
to give free home insulation to all houses after the programme
was blamed for house fires and linked to four deaths.

What to watch:

— Broadband. The government is bogged down in talks with
the country’s biggest phone company, Telstra (TLS.AX: ), and
other telcos on a A$43 billion super-fast broadband spanning
the country. Communications Minister Stephen Conroy says
difficult negotiations on folding Telstra’s telecoms
infrastructure into the network are reaching a conclusion, with
parties either reaching a deal soon or breaking off
negotiations. The government also has laws before the Senate
designed to force Telstra to join the broadband plan by forcing
the company to split its retail arm from its wholesale
business. The laws face an uncertain future, and the row has
weighed on Telstra’s share price.

— Health. Rudd has struck a deal with all states except
conservative-ruled Western Australia to take control of health
and hospital funding, using consumption tax revenues reserved
for states. The deal, popular with voters, could still unravel
if Rudd is unable to reach agreement with Western Australia to
include it in the scheme. If he fails, it will be a major blow
to his authority and could fuel criticism he has not delivered
most of his big reform visions. [ID:nSGE63I051]

— Climate policy. Plans for a sweeping carbon trade plan
have been put on the backburner until 2012 at the earliest.
Rudd has said he will wait until the Senate is more receptive
and the direction of world climate talks is more certain. Once
the likely outline of long-term climate change policy becomes
clearer, the expected impact on corporate profits will be
reflected in Australian stocks (.AXJO: ).

Investment

(Editing by Andrew Marshall)

FACTBOX-Key political risks to watch in Australia