Buying McMillan Shakespeare shares has become a gamble on the election result Buying McMillan Shakespeare shares has become a gamble on the election result, writes John Beveridge. THE slashing in half of the value of salary packager McMillan Shakespeare's shares yesterday showed off some of the best and the worst features of the Australian share market and political system. Effectively, what has happened is that a well-run and highly respected large salary packaging company has become something of a plaything and a punt on both the outcome of the federal election and the political credibility of the contenders. On the one side, Prime Minister Kevin Rudd has announced - but not legislated - that the statutory formula method of fringe benefits tax on cars will be scrapped, which will leave a large but unquantifiable dent in McMillan Shakespeare's earnings. On the other, Opposition Leader Tony Abbott has said that he does not support a change to the FBT car rules, which would leave intact and growing McMillan Shakespeare's predicted $61 million to $63 million net profit for 2013. That makes McMillan Shakespeare shares an outright punt on the election result, with perhaps the biggest surprise being that so many share market investors seem to think that Kevin Rudd has a very good chance of retaining power. Either that or they think an elected Tony Abbott might be tempted to change his stripes and hang on to the FBT changes as a way of paying for budget holes that are almost certain to emerge after the election. A fourth scenario is that a re-elected Rudd Government fails to get the FBT changes through both Houses of Parliament, - although there seemed little evidence of confidence in that scenario in the market for McMillan Shakespeare shares yesterday. Some commentators such as Business Spectator's Robert Gottliebsen have gone so far as to say that trade in McMillan Shakespeare shares should have been halted entirely until after the election result is known. I understand where he is coming from, given that the wild gyrations in the share price will have created some significant winners and losers - particularly those investors who had used margin loans to hold their McMillan Shakespeare shares and who will have become forced sellers or at the very least will have been adding significant wads of cash to their account. However, the job of share markets is not to smooth things out and leave trading until all the facts are in. If that were the case, markets would be suspended for weeks, possibly months every time a share market crash or a GFC came along, in order to give everybody time to get used to the bad news and companies and investors time to scramble around and get their ducks in a row. The Hong Kong market actually tried to close down for a while in the wake of the 1987 share market crash and the result wasn't pretty, with that exchange losing significant respect and support compared to the better-regulated ones that simply opened as usual and let the inevitable bloodbath ensue. No, share markets are simply a place where buyers and sellers tussle over the correct price daily and part of the deal in being a listed rather than a private company is that those sometimes savage gyrations come with the territory. The positives are that your shareholders are free to trade their shares at any time and that the company can raise money in a free and fair way. So as much as McMillan Shakespeare directors might have wished that their trading halt could be extended until whenever the election is held - potentially months away - that would not have helped its own shareholders, who might have relished an opportunity to pick up some more shares at a much lower price. Similarly, other shareholders may have simply needed to sell but were locked into the company during that long trading halt while other investors who have long admired McMillan Shakespeare might have been waiting for a moment like this to buy the shares. The fact that short sellers will be battling to pick off shares held by people with margin loans is simply one of those facts of life that happens on the market every day. McMillan Shakespeare directors have actually done an excellent job in responding to this regulatory challenge. Their statement on Wednesday neatly summarises the potential effects of the FBT changes on their business and outlines what steps the company is taking to oppose the changes. Unfortunately, the uncertainty is such that even though the changes only impact about a third of McMillan Shakespeare's business, the company cannot give a realistic estimate of the damage to its bottom line. As chief financial officer Mark Blackburn put it: "There is considerable uncertainty as to whether the proposed legislative changes to the current FBT scheme will eventuate." It is that lack of definition that is now driving the McMillan Shakespeare roller coaster and it is set to wax and wane as the election gets closer and then through an entire campaign of polls. The good news for McMillan Shakespeare's full-time employees is that the company is using its substantial cash reserves to keep everybody employed until the election. This is even though the novated leasing side of the business has suffered greatly since the Government's FBT announcement on July 16. Some staff have taken paid and unpaid leave. That hasn't been the case for competitors in the industry who have been laying off staff permanently ever since the announcement was made and car leasing demand started to fall off a cliff. Mr Blackburn said: "Should the legislative changes not proceed, MMS will have a team with the requisite skills to maintain a strong competitive position." That is the tiniest sliver of a silver lining in what has been a fairly dark cloud that has enveloped the car manufacturing and leasing industry since the changes were announced as a $1.8 billion revenue raiser to compensate for the expensive change from the carbon tax to the emissions trading scheme. This is where the real blame for this debacle should be sheeted home: to a political process that waited until the end of the legislative program and for a new leader trying to make a mark in a short period of time. That action has left plenty of questions to answer. For a start, how reliable does anybody think the estimate of a $450 million saving a year for four years will prove to be, particularly if you net out the tax and support payments and productivity losses from unemployed workers? Then there is the unnecessary uncertainty around the changes to FBT statutory formula rules which have been in place since 1986 and were modified as recently as 2011 by this same Government. Just like the mining tax, where was the consultation with industry about the change and the reasoned debate about whether the statutory formula really was a rort that needed to be rubbed out or a logical idea to reduce the compliance costs of FBT compared to logbooks both electronic and otherwise? It simply didn't happen and that is the real reason why trade in McMillan Shakespeare shares will move in step with the opinion polls until the election happens and why more than half a billion dollars of value in the company disappeared yesterday. How Australians vote will determine how much of that value - if any - is restored to McMillan Shakespeare shareholders.