The Federal Election is coming up on 21 May and now, part-way through the 6 week campaign, news feeds are full of pitches, promises and policies from the candidates. The information covers a vast array of topics and issues which have varying impacts for different individuals and groups. There is a lot of information to absorb and analysis as to the relevance to one’s own circumstances. Adding into the possible confusion at the moment is the discussion about the RBA’s decision on interest rates. For business owners with finance or considering purchasing new machinery and equipment with finance, there may be questions around how it all ties in and to their business. In short, how does, if at all, the result of a Federal election have an impact on equipment finance?
The importance of the answer may be in business owners timing their machinery acquisition decisions. Either acting now, as planned or waiting until after the election when possible new policies are in place. These can be significant decisions to a business when considered in conjunction with the interest rate scenario. Waiting may mean seeking finance after interest rates start increasing. A move which could be significant financially on large value machinery and loan terms over up to 7 years.
This explainer highlights the connection between government policy and equipment finance to show any possible impact on equipment finance of a federal election outcome.
Changes in Policy and Direction
The key difference between the two major parties which are most likely to win government are in relation to policies. Some policies which are already in place under legislation may require new laws to be altered. Measures and new commitments may be brought in straight away or may take time.
In the Budget which was brought down in March, some of the measures are due to commence from 1 July but requiring passing by both houses to come into effect. Should there be a change of government, a new or mini budget may be introduced.
Infrastructure spending, jobs creation through specific projects and other commitments which are regular announcements in election campaigns. As far as individual businesses are concerned, the benefits of such announcements would need to be assessed as far as they may mean new and additional business opportunities. Opportunities which may back a move to invest in new machinery.
Industry associations lobby government and politicians both during and before election campaigns for certain actions that will benefit their members. The Australian Trucking Association has presented a number of initiatives that it would like to see government introduce to create a safer industry and increased productivity.
When it comes to equipment finance, as specialists in this sector, we focus on interest rates. As do most business owners when seeking finance. Interest rates on equipment, plant and machinery are not set or determined by governments but can be impacted by the outcomes of policy.
We explain. The RBA sets the cash rate which then forms the basis for lenders to establish their rates. Currently, the RBA has been focussing on unemployment and inflation figures as a guide to when the economic situation is suited to raising the cash rate.
Government policies focus on creating jobs to drive down unemployment. Thus creating a connection between interest rates and government and in turn elections. A similar approach also applies to inflation. Government policies impact these figures also. This is a simple illustration of the connection between fiscal policy as established by government and monetary policy as set by the central bank, the RBA.
Governments also introduce stimulus and other temporary measures at times. Currently in place is temporary full expensing and IAWO. These are in place until 30 June 2023. It could be considered as highly unlikely for this timeframe to be altered.
Financial markets typically ‘react’ when certain policies are introduced or in response to certain economic data being released. These responses may have an effect on lending guidelines by way of their attitude to lending to certain sectors.
The key issue for businesses to consider at the moment may appear to be the highly expected move by the RBA to increase the cash rate. This may come as soon as the RBA Board May meeting or it could be June. This will have a direct impact on equipment finance interest rates. Business operators are strongly encouraged if at all possible, to acquire new equipment finance as soon as possible to secure the current historic low interest rates.
Contact Jade Equipment Finance on 1300 000 003 for cheap interest rate equipment finance.
DISCLAIMER: IF MISINTERPRETATIONS, MISREPRESENTATION OR ERRORS EXIST IN THIS ARTICLE, NO LIABILITY IS ACCEPTED. THE INFORMATION IS PROVIDED ONLY FOR GENERAL PURPOSES AND NOT IN ANY MANNER INTENDED AS THE ONLY SOURCE FOR MAKING FINANCIAL DECISIONS. THOSE THAT CONSIDER THEY REQUIRE ADDITIONAL GUIDANCE OR ADVICE SHOULD REFER TO AN INDEPENDENT FINANCIAL ADVISOR.