Last week many of us received a shock regarding the referendum result of the UK exiting the EU. Many of the experts did not predict this result, and neither did the Prime Minister of the UK from the looks of it.
The world now waits to see what unravels and the next steps that the Prime Minister (whoever that may be now that Mr Cameron has tendered his resignation) will take. The UK parliament does not need to act on the result of the referendum, but politics may dictate they do.
What does this mean for Australia?
Experts and politicians are stating the effect on Australia should be minor, given only about 1.5% of our goods are exported to the UK, and 8% of services. Tourism may be the sector most affected by this in a direct sense. The ramifications for Australia are actually on a broader level and part of the global reaction to this event. Some are predicting commodity prices will fall on the back of lower growth.
The markets have reacted to this event and we have seen people flock to safe havens of the US dollar, Japanese yen, long-term bond markets and gold. Curiously Bitcoin has also increased in value.
With uncertain global economic conditions ahead in the Eurozone and the global outlook for growth in general, experts are predicting the RBA may look to cut interest rates again this year.
With the UK potentially exiting the EU their domestic tax and business issues are numerous. For Australian’s who have investments in the UK or are conducting business in the UK, some issues will be:
- Where should operations now sit if you were using the UK as a base to trade in the region?
- Will the UK company tax rate continue to be so low?
- Will exporting goods from the UK to the Eurozone be more cumbersome going forward?
- What is the value of my UK investments now?
The ATO is likely to be scrutinising the write down of investments held in the UK so close to 30 June where a loss may arise.
Above all, the experts are saying it is early days and little is clear on what will transpire, so do not panic.