Thread: Australia Faces Political Limbo As Election Result Unclear

AUGUST 22, 2010, 1:27 A.M. ET.

Australia Faces Political Limbo As Election Result Unclear

By RACHEL PANNETT and ENDA CURRAN

SYDNEY -- Australia, normally one of the most stable democracies in the region, faces its most uncertain period in recent political history after a national poll Saturday failed to deliver a clear result.

The country's two major parties, the center-left Labor administration of Prime Minister Julia Gillard and the Liberal-National conservative bloc of Tony Abbott, said Sunday a new government likely won't be formed for a number of days, as negotiations begin with non-party lawmakers who hold the keys to power in the first hung parliament in 70 years.

Australia's two major parties started wooing independent lawmakers on Saturday after an inconclusive election left the nation facing its first hung parliament since 1940. Jon Decker reports for Reuters.

The stunning outcome -- the first time since the 1930s a first-term government has failed to clearly win re-election -- will likely fuel a bout of uncertainty as markets weigh the demands of independent lawmakers who range from rural-based conservatives to environmentalists.

With the vote count nearly 80% complete, a number of key swing seats remain in the balance. The two major parties are in a dead heat with 71 seats apiece in the 150 seat lower House of Representatives, where governments are formed. Non-party lawmakers have three seats, the small Greens party one seat and the fate of four seats in doubt.

Either main party would need 76 seats to form a majority government--a target that seems unattainable. That means they must rely on minor parties or independent lawmakers to support them in passing legislation, a scenario that could lead to a protracted period of horse trading to shore up support across thorny policy areas like climate change, plans for a national high-speed Internet network and Labor's planned levy on the profits of the country's biggest mining companies.

In the meantime Labor will continue to govern in a caretaker role, which allows for the normal operation of government departments but key decisions and appointments are set aside until a new administration is formed.

Abbott immediately sought to obtain the upper hand in negotiations with non-party lawmakers, saying Saturday's result means Labor has "lost its legitimacy".

There are no formal conventions that dictate who should govern in a situation where neither main party gains a clear majority. John Wanna, a political expert at Australian National University, expects the party that wins the most seats, Labor or Liberal, to kick off negotiations. Either way, there'll be questions raised: "Can they hold it together?", he says. For Labor, it will be forced to negotiate with conservative-leaning candidates. If it is Abbott leading the negotiations, the process may be no less fraught: "A lot of these people are independents because they can't stand the coalition", he says. Bob Katter, the Queensland independent, "can't be in the same room with (junior coalition partner) the National Party".

The number of incomplete, blank, or joke votes in Saturday's poll hit 5.6%, up notably from the 2007 election and a sign of voter dissatisfaction with both major parties following three of the most tumultuous months of Australian politics in recent history.

Looming over the close race was the dumping of Kevin Rudd as prime minister by his own party in June. Gillard quickly called an election July 17 to capitalize on a lift in sentiment toward her party after she took over, but that lead evaporated.

The election rapidly became a referendum over Rudd and the party's handling of a controversial tax on mining company profits that played a role in his ouster. The tax plan sparked a bitter war with Australia's biggest miners who argued it would hobble the resource-rich economy. Abbott has vowed to scrap the plan if he wins power.

Australia Votes
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.At least one non-party lawmaker, Tony Windsor, from New South Wales state, said Sunday that stability of government must be central to any decision on forming the new administration. But investors are likely to be wary: Rarely are minority governments a recipe for strong government; they tend to create instability and can lead to the postponement of difficult but necessary decisions.

In a worst-case scenario, Australia could be forced to go to the polls again soon if a fragile power-sharing deal leads to legislative impasse. Further complicating matters, Saturday's poll has given the small environmentalist Greens party the balance of power in the upper house Senate. If Abbott forms a conservative bloc he would need to negotiate with either Labor or the Greens in the Senate to pass any new laws once the makeup of the Senate changes to reflect the election result.

Still, Australia's gold-plated AAA credit rating is secure, Standard & Poor's sovereign analyst for Australia, Kyran Curry said Sunday. It's likely non-party lawmakers will agree to guarantee support for key government fiscal bills, he said.

Australia has one of the strongest fiscal positions in the world, after almost two decades of uninterrupted economic growth, with net debt projected to peak at just 6.0% of national output even after the recent financial crisis.

Key Players
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Read more about key players in Australia's upcoming elections.

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Unlike the U.K., however, Australia has no significant third force in politics in the lower house. Any coalition or power-sharing deal here will involve a number of non-party lawmakers with divergent political views.

Newly-elected Greens lawmaker Adam Bandt -- who won his party's first-ever lower house seat -- has committed to supporting the Labor Party, according to local media reports Sunday.

Three of the non-party lawmakers stem from rural communities and have conservative leanings. But they do support some Labor policies, notably a plan to spend as much as A$43 billion on a fiber Internet network to make Australia's data and mobile connections among the world's fastest.

One lawmaker, Bob Katter, said Saturday he will meet with other independents in coming days to thrash out a position for negotiation with the major parties.

"The gong will go to whoever will restore regional Australia," Katter, from an isolated region in Queensland state, said.

Another independent, Robert Oakeshott, from the north coast of New South Wales, said he already has held informal discussions with the major parties.

Further complicating the outlook, Tony Crook, who stood for the coalition's junior partner, the country-based Nationals in Western Australia state, has said he may not necessarily support the Liberal-National bloc if he is elected.

Another potential wild card is Andrew Wilkie, an independent with some ties to the Green movement, who could win in Tasmania state.

Write to Rachel Pannett at rachel.pannett@dowjones.com and Enda Curran at enda.curran@dowjones.com

http://online.wsj.com/article/SB1000142 ... 66618.html

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