Gillard Faces Tax Fight as Labor Loses New South Wales Ballot

Australian Prime Minister Julia Gillard faces a fight over her plans to tax carbon emissions and mining profits after her Labor party was defeated in elections in New South Wales, the country’s most populous state.

Barry O’Farrell’s Liberal-National coalition ended 16 years of Labor rule, running a campaign that opposed a carbon tax. It inflicted the worst defeat in Labor’s history and reduced the party’s representation in the 93-member lower house of parliament to 19 seats from 50 seats.

“This is doom and gloom for Julia Gillard,” said John Warhurst, a political analyst at Australian National University. “If federal-state relations break down, it will be very difficult for Gillard to get runs on the board -- particularly on climate and mining laws.”

O’Farrell’s coalition joined those elected in Western Australia and Victoria states since 2008 that oppose Gillard’s plans to price carbon emissions from next year and place a 30 percent tax on iron ore and coal profits. The three states contribute 67 percent of Australia’s A$1.3 trillion ($1.33 trillion) economy.

“A carbon tax pushes up prices, it threatens jobs,” O’Farrell told Sky News television today. “You can’t support a carbon tax and say you’re trying to reduce costs for families.”

O’Farrell, a 51-year-old father of two, said he also opposed a plan to limit the increase of state mining royalties through a tax on profits of companies like BHP Billiton Ltd. (BHP) and Rio Tinto Group. The federal government’s levy is forecast to raise A$7.4 billion in its first two years from 2012.

Revenue Cut

“Mining royalties are clearly important to all states including New South Wales,” O’Farrell told Sky. “We can’t afford to have an attempt to reduce our revenues from such critical areas if we’re to fix our services and fix our infrastructure.”

O’Farrell’s Liberal Party and its National Party partner won 16.7 percent more of the vote than it attracted at the previous election in 2007. The coalition promised to solve traffic problems in the capital, Sydney, home to more than half the state’s population of 7.2 million people, and fund more police, nurses and teachers.

Its four-week campaign also highlighted opposition to Gillard’s climate change plan. While a carbon tax law has to be approved by the national Parliament, New South Wales voters signaled their rejection of the proposal.

“The climate plan hurt us,” former Labor state premier Nathan Rees told reporters in Toongabbie, western Sydney, yesterday.

Plan Opposed

Fifty-three percent of 1,202 people polled in March 4-6 opposed Gillard’s plan, according to a Newspoll published in the Australian newspaper. It had a margin of error of plus or minus three percentage points.

Gillard’s Labor Party lost its majority at the August 2010 national election, the closest in 70 years, and relies on the support of four non-party lawmakers to pass legislation. Gillard, 49, congratulated O’Farrell and said she would work with the coalition.

“People rightly expect governments of all persuasions to work together in vital areas such as health, education and infrastructure to deliver better services and build stronger communities,” Gillard said in an e-mailed statement yesterday.

New South Wales has been the slowest-growing of Australia’s eight states and territories in the decade to July 2010, government figures show.

Poor Transport

Premier Kristina Keneally’s Labor government endured public scandals and was blamed for Sydney’s poor transportation and shortcomings in education and health services in the state. A U.S.-born mother of two, Keneally, 42, became the state’s first female premier in December 2009. She said after the defeat she wouldn’t contest the leadership of the party again.

“This is an expected but nonetheless historical and catastrophic defeat for the Labor Party in New South Wales,” Chris Bowen, immigration minister and Sydney-based federal Labor lawmaker, said on Channel 10’s “Meet The Press” program. “We have seen four years of melodrama, of scandals, of changing premiers.”

O’Farrell won his parliamentary division in 1995 after being state director of the Liberal party, according to the state parliament’s website. His coalition is poised to win 66 seats, with two independents and six seats too close to call, the NSW Electoral Commission said.

“It’s a massacre, a slaughter the likes of which none of us have seen,” New South Wales Labor campaign spokesman and upper house lawmaker Luke Foley told Australian Broadcasting Corp. television yesterday. “We have lost our heartland.”

To contact the reporter on this story: Gemma Daley in Canberra at gdaley@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net

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