Australia to move to environment of 'cutting the pie'

Australia is likely to move away from a growth-focused environment to one focused on redistribution, mimicking movements in the US, according to T. Rowe Price.

In a webcast, Randal Jenneke, portfolio manager and head of Australian equities at T. Rowe Price, said movements in the United States were likely to be replicated in Australia.

Referencing a comment by former Prime Minister, Paul Keating, he said Australia was moving away from ‘growing the pie’.

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“The longer-dated risk is of Government policy being aimed towards redistribution rather than maximising growth, a world where taxes have an upwards arrow next to them. We are not seeing that in Australia yet, we are seeing much more discussions in US and Europe but don’t be surprised if it comes here,” Jenneke said.

“Paul Keating referenced ‘you’re either growing the pie or you’re cutting the pie’, now we are in a world that is more focused on how to redistribute and cut the pie rather than grow it. Productivity has languished for a long time, there doesn’t seem to be any focus on how to lift that and that will impact our long-term economic growth potential.”

Meanwhile, he said T. Rowe Price was watching out for possible sectors that could come under government scrutiny in the future.

“Governments are likely to become more intrusive in scrutinising certain sectors than they have been in the past and we have already seen that in the energy sector domestically.

“I think that risk is going to continue to rise so when I think of stocks and sectors in Australia, compared to pre-pandemic and prior cycles, more time is being spent on the risk of potential intrusion on sectors and businesses.”

The T. Rowe Price Australian Equity fund had returned 24.3% over one year to 31 May, 2021, according to FE Analytics, versus returns by the Australian equity sector within the Australian Core Strategies universe.

Performance of T. Rowe Price Australian Equity fund versus sector over one year to 31 May 2021

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