These past few years have been packed with financial measures and initiatives implemented by the Government as stimulus levers and actions to address the economic impacts on individuals and business caused by the pandemic. Add to that the recent Federal Budget to take in and the talk around interest rate rises. There has certainly been a lot of info around finances for many to get their head around. So it’s probably not surprising that some people might have queries and concerns around if the upcoming election will have any impact on personal loans, business finance or on interest rates.
These concerns may relate to whether purchase decisions should be delayed until post-election, if the interest rate will change if the government changes, will taxes go up and income be affected and many other possible questions. Adding to this for businesses is the advantages that may be realised by making equipment purchases pre-EOFY and hence not holding off till the election outcome plays out and the high possibility of a rate rise from as early as the June RBA meeting.
Yes, there is a lot of issues going on which may or may not have an effect on personal loans for cars, motorbikes, caravans and boats and for business finance for the acquisition of trucks, vehicles and equipment. To assist in shedding light on some of the issues we address some of the basics around the connection between government and finance.
Policy Changes
A change of government can result in policy change in direction. Parties campaign on their key platforms and approaches. If elected it is assumed that they would act and enact these policies. This does not always happen and often it takes time.
If there is a change in government, some existing policies may be altered but in some cases that involves changing the legislation, which can be a lengthy process. For business owners, campaigning commitments may represent opportunities in some industries or sectors. These prospects may present reasons to proceed in a certain direction and acquire equipment or machinery to be ready to take advantage of such actions.
The timing of this Federal Election could be seen by some as somewhat confusing in relation to the recent announcement of the Budget. That timing was brought forward to March to fit with the May election timing. Some of the measures in the Budget will be required to be passed by Parliament which would happen when Parliament resumes.
Once an election is called, the Government goes into ‘caretaker mode’. In this mode, certain actions cannot be undertaken. In regard to certain key Budget measures such as the Low and Middle Tax Offset, the opposition stated at the time that they would not block any of the budget measures which would ease the pressure on the costs of living.
The Labor Leader and Shadow Treasurer did indicate that if it was to win government, it would release a mini budget later in 2022. So that could include a change to some existing measures or programs. The 6 month reduction in fuel excise did come into effect from budget night.
Lending Rates
With interest rates a major determinant of the cost of personal loans and business finance and the RBA expected to start lifting the cash rate in the near future, the outcome of a Federal Election on interest rates is likely attracting – lot of interest!
To understand how government policies may have an effect on lending interest rates requires a basic awareness of the link between fiscal policy and monetary policy. Establishing fiscal policy through financial measures and budget measures is the role of the Government. Establishing monetary policy by setting the cash rate which then flows onto lending rates is the role of the RBA.
The link is that fiscal policy is designed to have an impact on the economy, especially in this discussion, unemployment and other key dynamics including inflation. These are the two key numbers that the RBA considers when deciding on changes to the cash rate that is setting monetary policy. Creating more jobs is the approach taken by both major parties but often achieving that via varying routers. More jobs effectively means lower unemployment.
The financial markets often react independently and individually to stances taken by government and to the introduction of policies that they see as advantageous or disadvantageous to their position. These moves can potentially affected the interest rates offered on different loans by the individual lenders.
The types of loans available do not get affected by elections and government policies. The features of the range of personal loans and business finance remain constant:-
- Secured Car, Boat, Motorbike and Caravan Loan
- Chattel Mortgage, Lease and Hire Purchase for Business Vehicles
- Rent to Buy, Hire Purchase, Lease and Chattel Mortgage for Business Equipment
In summary, there is a connection between Government policy and lending rates through the effect of fiscal policy on monetary policy decisions. But an election outcome itself should not have a direct bearing on loans and finance options or interest rates.
Contact Jade Finance 1300 000 008 for quotes on business finance and personal loans
DISCLAIMER: NO LIABILITY IS ACCEPTED IF ERRORS OR MISREPRESENTATIONS ARE FOUND IN THIS ARTICLE. THE ARTICLE IS PREPARED AND PRESENTED FOR GENERAL INFORMATIVE PURPOSES AND IS NOT INTENDED TO BE THE SOLE SOURCE OF INFORMATION FOR MAKING FINANCIAL DECISIONS. THOSE REQUIRING GUIDANCE AND ADVICE SHOULD CONSULT A FINANCIAL ADVISOR.
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