Bloomberg News

Gillard Hurdles Multiply After Australian State Poll Wipeout

March 25, 2012

Julia Gillard, Australia's prime minister. Photographer: Carla Gottgens/Bloomberg

Julia Gillard, Australia's prime minister. Photographer: Carla Gottgens/Bloomberg

Australian Prime Minister Julia Gillard confronts mounting challenges to her own re-election after her Labor party suffered a landslide poll defeat in Queensland, leaving her with allies governing just two of the nation’s six states.

The opposition Liberal National Party ended 14 years of Labor rule in the resource-rich state that generates a fifth of Australia’s wealth, winning 78 out of 89 seats in Queensland’s parliament in the March 24 poll, according to results on the electoral commission’s website.

Campbell Newman, a 48-year-old former army lieutenant who replaces Anna Bligh as premier, is pledging to cut Queensland’s unemployment rate to 4 percent from the current 5.7 percent and restore its AAA credit rating, lost in part after Labor spent A$54 billion ($56 billion) to improve infrastructure. The scale of Labor’s defeat, its worst at a state election in Queensland, underscores the difficulties facing Gillard as she seeks to turn around the party’s flagging popularity before a national ballot due in 2013.

“There are federal ramifications to this annihilation,” said Paul Williams, a political analyst at Griffith University in Brisbane. “The Labor brand is on the nose at a state and federal level and Gillard should be very concerned. If voters believe the party should still be punished, they’ll do it in any election that comes up.”

Labor leads in seven Queensland electorates, down from the 51 seats it held in the previous state parliament, with more than 70 percent of votes counted, according to the electoral commission.

National Barometer

With national elections due within 20 months, the poll served as a warning at the depth of discontent with Labor in the state that accounted for more than half the federal seats it lost in 2010. Should the 15.7 percent swing away from Labor be replicated, the party would lose all eight of its federal seats in Queensland, including that of Treasurer and Deputy Prime Minister Wayne Swan.

National opposition leader Tony Abbott sought to capitalize on the ruling party’s reversal, saying the “Labor brand has become toxic.”

The result is a “disaster” for the party and indicates that “governments which are all about spin, which don’t deliver for the Australian people” will be ousted, he said in an interview on Sky News yesterday.

Abbott’s Liberal-National coalition leads Gillard’s Labor party by 12 percentage points, according to the latest Newspoll. The survey of 1,153 people, conducted March 9-11, had a margin of error of plus or minus 3 percentage points.

Newman’s Priority

Gillard needs to spend as much time as possible in Queensland selling her government’s policies, former Labor state Premier Peter Beattie told the Australian Broadcasting Corp.’s “Insiders” program yesterday. Labor “can lose the next federal election in Queensland alone,” he said.

Newman has set as a priority restoring Queensland’s top credit rating, stripped in May 2009 by Moody’s Investors Service, which cited Bligh’s capital-spending plan for roads, hospitals and schools, along with slowing economic growth. Bligh, 51, who announced yesterday she is quitting politics, helped funded the infrastructure spending by raising A$15 billion in sales of state assets such as coal-train operator QR National Ltd. (QRN)

Investors demand 31 basis points more to buy Queensland Treasury Corp.’s 6 percent bonds due in April 2016 compared with similar-maturity debt issued by top-rated New South Wales, according to data compiled by Bloomberg.

‘Sunshine State’

“We don’t for a moment underestimate the magnitude of the task ahead,” Newman, the former Brisbane mayor, said in his victory speech.

Newman may struggle to put spending on hold after infrastructure, including thousands of kilometers of roads and rail tracks, was damaged in cyclones and floods that hit the state last year.

Queensland (AULFQLD%), known as the “Sunshine State” and almost the size of Mexico, was Australia’s agricultural heartland and dominated by conservative politics until the end of the 1980s. In that decade, a wave of international tourism, led by Japan’s booming middle class, led to a surge of development in the southeast capital of Brisbane and nearby Gold Coast, now the nation’s third- and sixth-largest cities.

The state, the nation’s third most-populous, has endured the same two-pronged forces that have created what Gillard calls Australia’s “patchwork” economy.

‘Patchwork’ Economy

A Chinese-demand-led mining boom has propelled a 50 percent surge in the nation’s exchange rate against the U.S. dollar in the past three years, hollowing out businesses sensitive to currency strength. Queensland’s unemployment rate jumped more than 2 percentage points during Bligh’s five years in power, as the local dollar’s climb hurt industries including tourism.

Gillard’s minority government, which needs the backing of independent and Green party lawmakers to pass legislation, is set to introduce laws on July 1 that will tax carbon emissions and the profits of iron-ore and coal producers including BHP Billiton Ltd. (BHP) and Rio Tinto Group. Queensland produces 80 percent of Australia’s coking coal exports.

The government has “real challenges in Queensland” after the bigger-than-expected defeat, Trade Minister Craig Emerson told ABC radio today. “We will be addressing those challenges by explaining the benefits of our policies to the working people of Queensland.”

‘Close the Book’

Labor, which traces its origins to a strike by sheep shearers in rural Queensland in 1891, ruled the state for all but two of the past 22 years.

“The size of the loss, the loudness and clarity of the message sent by the people of Queensland is unmistakable,” Bligh, a former social worker who grew up in a single-parent home during adolescence, told reporters in Brisbane yesterday, announcing she was resigning as party leader and from her electoral seat. “Queensland voted for a new government. It also voted to close the book on my era in Queensland politics.”

The party will need to select a new leader from a drained talent pool after at least 10 Labor ministers lost their seats in the election rout, including former Deputy Premier and Treasurer Andrew Fraser.

“Losing the AAA credit rating and relatively high unemployment, on top of voter apathy toward a government in power for so long, has all added up to a perfect storm,” Griffith University’s Williams said. “Labor has suffered a complete and utter annihilation. All its talent is gone and it could be out of power for 20 years or more.”

‘Feeling Lonely’

The defeat will make it harder for Gillard to shape health and education policies in the states, said Andrew Hughes, who hails from Queensland and conducts political-marketing research at the Australian National University in Canberra.

“Since Labor won the 2007 federal election, it’s lost power in the four most important states, significantly reducing its influence,” said Hughes. “Gillard may be starting to feel a bit lonely in Canberra as she doesn’t have many friends left in the states.”

The magnitude of the loss in Queensland may mean voters have already vented their anger at Labor and won’t be so harsh in next year’s federal election, said Norman Abjorensen, a political analyst at the ANU.

“The election may have bled some of the anger out of the voters there,” Abjorensen said. “While Labor’s brand has been damaged there, Gillard can take some heart in that the Queensland poll was fought almost exclusively on state issues, not federal ones.”

To contact the reporters on this story: Jason Scott in Canberra at jscott14@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net


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