Share markets are now preparing for two simultaneous boosts. First, the strong Boris Johnson win, which clears the way for Brexit, and second, the first stage of the US-China trade deal.
To some extent the two events have been anticipated by the share markets, but if either were to have fallen over it would have hit the markets hard. Instead, Johnson has won and the US has announced a trade deal is imminent.
The Johnson win was particularly important marketwise because he defeated a candidate, Jeremy Corbyn, who was hard left and planning actions that would have devastated the share market. The Labour policies in the UK were designed along the lines of those planned by the US Democrat party’s two strong presidential candidate contenders, Elizabeth Warren and Bernie Sanders.
The defeat of Corbyn will make the Democrats think twice about nominating either left-wing candidate, which is again potential good news for the longer-term 2020 market.
But Johnson has proposed a Brexit deal that US President Donald Trump says will make it hard for the UK to engage with the US. To make the UK economy surge ahead, Johnson needs a greater free-trade engagement with the US.
Johnson punted that the hard-left stance of his opponent and the desperation of big chunks of the UK community to get Brexit resolved would overshadow the planned tax attack on small business and contracting - a legacy of the Theresa May days.
Late in the campaign, the UK Liberal Democrats and Labour realised that this was the issue that was sweeping the UK and changed their policies. By contrast, Johnson stayed with the proposed anti-small business/contracting actions. Johnson’s judgment proved correct.
My people in the UK tell me that if Johnson actually carries out the small business attack, it will cause enormous disruption in the UK economy at the same time as the inevitable Brexit disruption.
The British Inland Revenue tax office unfairly attacked surgeons and nurses and the chaos created boosted the UK health service waiting lists. Ministers under former Prime Minister May planned to extend that attack to the whole community and Johnson has not changed the policy.
Modern politicians have got to understand that the way business is conducted is changing dramatically. There are large international enterprises, including Google, Facebook and Microsoft, who very often have the ability and legal clout to avoid tax. As their share of Western economies increases, so does the burden on the rest of the community.
Australian Prime Minister Scott Morrison has picked up that Australians are also angry that the major US tech giants do not pay tax on their big Australian profits.
So far, Morrison is just talking about tackling the problem. Johnson will also need to put it on his agenda.
I believe that the best way to tackle this issue maybe via cash-flow taxing of companies. Last August, I asked the government to study the issue.
There is a growing vast army of people who run small enterprises and they are the biggest employers. They are the engine room of the economy, but do not have the money to fight power hungry tax officials.
The futures of both Australia and the UK depend on both governments waking up to these trends.
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