Australia confronts prospect of minority government

Australia could have its first minority government in 70 years, a worst-case scenario for investors, with an election-eve poll showing the ruling Labour party drawing level with the conservative opposition.

The vote looks so close, the result may have nothing to do with policy but simply come down to which leader, Prime Minister Julia Gillard or the opposition’s Tony Abbott, voters like best.

The uncertainty helped pressure the Australian dollar on Friday. The Aussie was quoted at $0,8910 by late afternoon, down 0,85% from late on Thursday, while the benchmark stock index fell 1%. One financial analyst has tipped a 2% to 5% fall in the currency if Australia has a minority government.

Assistant Treasurer Chris Bowen said the election was so tight that a hung Parliament was just a likely as either a re-elected Labour government or a victory for the conservative coalition.

“It’s just so close that any of those are eminently possible,” he told Reuters in a telephone interview after a Newspoll survey showed Labour and the opposition even with 50% of the two-party vote.

Without a clear winner, the next government would have to rely on a handful of independent or Green MPs to form a government, leaving policies such as Labour’s new mining tax in limbo and creating market uncertainty.

“Given the fact that around 40% of Australia’s market is owned by foreign investors, any uncertainty can have a detrimental impact on markets,” CommSec equities economist Savanth Sebastian told Reuters.

“If you start seeing a hung Parliament or a minority victory, then the Aussie dollar could certainly come under some pressure, and likewise sharemarkets.”

Two of the three key independents, who may decide who takes office in the event of a hung Parliament, have said they cannot guarantee passage of a minority government budget, leaving the possibility of a fiscal crisis or a short-lived government.

Even a razor-thin win by Gillard would diminish her mandate to introduce the 30% resource tax, the cornerstone policy of her campaign, and leave her weakened as she seeks to have a hostile Senate pass the tax.


Labour has also pledged to take action on climate change with a possible carbon trading scheme and to construct a $38-billion fibre-optic national broadband network. The Liberal-National opposition opposes these plans.

Snap poll
Gillard deposed former Labor Prime Minister Kevin Rudd on June 24 in a desperate bid by the party to avoid electoral defeat, but she has struggled to woo voters, with many angry at the party coup that dumped Rudd.

A Reuters Poll Trend published on Wednesday showed Labour was poised for a narrow win, and the Galaxy poll on Friday tipped a narrow win for Gillard.

In a unique snap poll with an Australian twist in the city of Darwin, a 4,9m saltwater crocodile, which last month tipped Spain to win the World Cup, tipped a Gillard win by chomping on a chicken carcass dangled below her image.

Betting agencies show the government is still favourite and opinion polls say Gillard remains preferred prime minister.

“This is a tough, tight, close contest and in a tough, tight, close contest, the real risk is that Mr Abbott is prime minister on Sunday,” said Gillard. “Tony Abbott is too great a risk to your family’s future and to your local economy.”

Abbott said: “Why should Australians trust Julia Gillard and Labour when even Kevin Rudd couldn’t?

“A Labour win on Saturday will mean a mining tax that threatens jobs and investment. A carbon tax will drive up prices for Australian families and make our economy less competitive.”

Sydney’s Daily Telegraph urged voters to elect a conservative government, with a front-page headline “Yes He Can”, borrowed from US President Barack Obama’s campaign.

The Sydney Morning Herald said Labour “deserves a second chance” since it had successfully steered Australia through the global financial crisis and avoided recession. – Reuters

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Mark Bendeich
Mark Bendeich works from Milan, MI.
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