A summary from Goldman Sachs on the implications of Julia Gillard's election on policy and markets.

In a historic moment for Australian politics Prime Minister Kevin Rudd stepped down and did not contest a leadership challenge from his deputy Julia Gillard. Julia Gillard and the current Treasurer Wayne Swan were elected unopposed to the positions of Prime Minister and Deputy Prime Minister by the 112 members of the ALP's caucus.

Australian now has its first female prime minister and for the first time a prime minister did contest the election at the end of his first term. The decision to not to contest the leadership ballot was based on evidence of a large swing in support by the Labor caucus towards Ms Gillard. Press reports (The Australian) put the likely votes in favour of Gillard at 70 as at 2:00am last night and when reports that Mr Swan had also moved to support Ms Gillard this morning surfaced the result was put beyond doubt.

In terms of policy implications we would note;

- Ms Gillard has always had strong support from the ALP-left side of the party and the decision to challenge was precipitated by the movement of the ALP-right away from Mr Rudd and facilitated by shifting allegiances of key unions including the Australian Workers Union. In effect, Ms Gillard now has complete support from the union movement. Markets will be concerned if this presents a shift back towards union power in the policy arena and what the implications are for wages, industrial relations and inflation. Australia is less than 0.5% from full employment with a strong profit recovery in prospect so the fear that the union movement will feel emboldened to push for strong wage rises cannot be ignored.

- With respect to key policy areas of the Resource Super Profits Tax, the NBN and climate change policies we are unlikely to get clarity in the very near term. We believe the RSPT will be greatly watered down rather than abandoned. Ms Gillard has consistently stressed her bias towards consultation and negotiation on the tax. The options include, a carve out of coal seam methane gas projects in Queensland, excluding quarry projects, lifting the cut in rate at which the tax applies, removing the 40pc guarantee on project losses. Much work has already been done on these compromises and clearly the party believes that it is better to have a new leader announce the changes and that it has been listening to industry concerns.

There is also the possibility that the RSPT is removed as official policy ahead of the election with an acknowledgement that further study and consultation is required although we would ascribe a lower probability to this outcome. The election of Mr Swan as deputy is a key signal that the tax will remain in the policy platform for the election. Regardless, we see this as a modest positive for resources sector.

- The NBN will likely proceed, given the heads of agreement between Telstra and the government has recently been signed, however we may see the scale of the project wound down somewhat. It is very hard to know if there will be a shift of position here.

- The carbon trading scheme was dropped by the Rudd government at the strong suggestion of the NSW ALP right. Interestingly, it is the NSW ALP right that also had a hand in now removing the prime minister. Climate change policies are still strongly supported by the union movement in Australia, however, the return of the initial carbon trading scheme is unlikely. Indeed, since the minister responsible for the strategy, Penny Wong, reportedly remained loyal to Mr Rudd through the last 24 hours its likely a new strategy will be adopted.

- While we are yet to know what Kevin Rudd's plans are it would seem unlikely that he will remain in a key cabinet position into the election.

In short, we see the change as presenting upside inflation risks, relief for the resources and mining services sectors and given the extent of capital exit following the announcement of the RSPT some potential upside for the A$.