Gillard Set for Australian Leadership Showdown as Rudd Canvasses Support

Julia Gillard staged a political coup in June 2010 to become Australia’s prime minister and clung to power two months later, assembling a one-seat majority after the closest election since 1940. Her biggest leadership test may come next week.

Kevin Rudd, 54, announced his resignation as foreign minister after 1 a.m. on a visit to Washington yesterday, saying he would consult with colleagues and reveal his decision before parliament resumes Feb. 27. He said the “overriding question” for the Labor party is who is best placed to defeat opposition leader Tony Abbott at the election, due in 2013.

Tensions escalated after remarks by Gillard, 50, in an interview last week set off a public spat between supporters of the two, by reviving debate over her toppling of Rudd. At stake for Labor is survival of an administration that’s unveiled unprecedented taxes on natural resources and fees to address climate change -- an agenda Gillard calls “nation-changing reform” that has proved unpopular with voters.

“The challenge is on,” said Tim Harcourt, a fellow in economics at the Australian School of Business in Sydney who has served under both Labor and Liberal-National coalition governments. “Rudd is saying that I was elected by the people and I deserve to finish my mandate.”

Setting Vote

Gillard, Australia’s first female prime minister, is scheduled to hold a news conference at 9:30 a.m. Sydney time in Adelaide today. Sky News reported she will announce a leadership vote to be held on Feb. 27, without saying where it got the information. “The sooner it comes, she’ll maximize her votes,” former Labor lawmaker Graham Richardson said on Sky.

The prime minister has “the confidence of the vast majority of members of the government,” Bill Shorten, minister of workplace relations, told reporters in Melbourne yesterday. Wayne Swan, the Treasurer who backed Gillard’s takeover in 2010 and became her deputy prime minister, said in a statement Rudd had wasted opportunities in office from 2007-2010 with “dysfunctional decision making” and a “demeaning attitude” toward colleagues.

Australia’s dollar and government bonds were little changed immediately after Rudd’s move. The so-called Aussie declined later as stocks dropped worldwide after reports indicating weakness in European and Chinese output. The currency fetched $1.0637 as of 8:18 a.m. in Sydney, compared with $1.0676 at 6 p.m. yesterday. Ten-year government bond futures climbed to 95.905 from 95.85 yesterday, according to the Sydney Futures Exchange.

Election Risk

Independent lawmaker Tony Windsor, on whose support Labor relies to maintain its majority in parliament, said that “all bets are off” if the leader is changed, raising the risk of an early election. A federal vote isn’t due until 2013.

Attorney General Nicola Roxon, speaking with the Australian Broadcasting Corp., joined Communications Minister Stephen Conroy and Environment Minister Tony Burke in publicly backing Gillard since Rudd’s resignation.

“There is one overriding question for my colleagues and that is who is best placed to defeat Tony Abbott,” Rudd said in Washington. He is yet to leave the city, ABC TV reported today.

Abbott’s Liberal-National coalition led Labor by 46 percent to 32 percent in a Newspoll survey conducted Feb. 10-12 of 1,141 people with a margin of error of plus or minus 3 percentage points.

Amateur Boxer

“The poison will continue regardless who emerges” as Labor’s leader, Abbott said in an interview on ABC TV today. “The Labor party is hopelessly divided.”

Abbott, 54, a former amateur boxer, called for an early election. The opposition chief has said Australians cannot afford the carbon tax enacted by Gillard and highlighted that the nation recorded its worst job growth in 19 years in 2011.

Australia’s economy even so has outperformed peers under Labor. The nation’s 5.1 percent unemployment rate compares with the 7.9 percent average for advanced economies last year. Gross domestic product growth in the two quarters through September was the strongest since 2007. The performance hasn’t healed Labor’s splits.

Rudd, in Washington for meetings with U.S. officials after attending a Group of 20 gathering in Mexico, said he resigned because Gillard had failed to “repudiate” attacks by colleagues including Simon Crean, a former Labor leader who is minister for Australia’s regions.

Infighting Intensified

After Rudd said in a Sky interview broadcast Feb. 19 that he’d changed the autocratic style that helped lead to his downfall, Crean said he had “either got to put up or shut up.” The infighting intensified after Gillard declined in an interview with ABC television to specify whether she knew her staff was preparing, two weeks before Rudd’s overthrow, a victory speech that she subsequently delivered.

“I am totally frustrated by this needless distraction,” Labor lawmaker Sid Sidebottom, who said he supports Gillard, said in a telephone interview from Tasmania before yesterday’s resignation by Rudd. “Everyone has a right to challenge, but they have to do it in the caucus, instead of boring Australian people, frustrating their colleagues, and spoiling a good story of legislation and reform.”

Rudd cut short a trip that was to take him to London and Tunis for meetings on Somalia and Syria.

‘Use the Stage’

“Politics is about theater and Rudd certainly used the most of his opportunity to use the stage,” said Michael McKinley, a professor of global policy at the Australian National University in Canberra. “It’s not normal for a democratic foreign minister to resign his position from Washington.”

Rudd himself said the leadership speculation had become “little better than a soap opera,” and warned that business confidence could be at risk. Peter Anderson, chief executive officer of the Australian Chamber of Commerce and Industry, said this week that “we need to make sure that there are as few distractions introduced as a result of our own domestic politics as possible.”

Gillard, a former labor lawyer born in the U.K. who emigrated to Australia when she was four after contracting bronchial pneumonia, has sought to keep focus on her administration’s policy initiatives, flagging a health-insurance overhaul and review of education policies in recent days.

Unfinished Business

One unfinished measure is a 30-percent tax on coal and iron-ore profits, which still awaits Senate approval. Mining companies including BHP Billiton Ltd. have warned the measures will hurt investment and job growth in the nation, which has seen its exports led by Chinese demand for its natural resources.

Rudd, a Mandarin-speaking former diplomat, in office had sought a bigger mining tax that prompted a slide in his approval ratings, and retreated on climate-change proposals. In the past week, he highlighted as achievements during his tenure that Australia stayed out of recession during the global financial crisis and his government prevented “mass unemployment.”

One option for Rudd is to undertake two challenges to win the leadership, a strategy pursued successfully by Labor predecessor Paul Keating, when he ousted Prime Minister Bob Hawke 20 years ago.

Historical Precedent

While Keating lost the first challenge to Hawke in June 1991, he secured 44 votes to Hawke’s 66, enough to convince Labor party powerbrokers he had widespread support, according to Michael Gordon, author of the Keating biography “A True Believer.” Keating moved to the backbench, leaving his supporters to criticize and undermine Hawke, and six months later struck again, winning the leadership by 56 votes to 51.

Had Keating polled fewer than 40 votes in the first ballot, according to Gordon, Labor powerbrokers were emphatic that he wouldn’t have received another chance and would have had to leave politics.

Australian bookmaker Sportsbet.com.au, which says it’s the nation’s largest online betting agency by revenue, is offering to return A$1.33 on every A$1 bet that Gillard will win a leadership contest, and A$3.15 for Rudd.

“If the race is a sprint, we’re backing Gillard, but if it turns out to be a marathon, Rudd’s chances will increase significantly,” Haydn Lane, a spokesman for sportsbet.com.au, said in a statement.

To contact the reporters on this story: Jason Scott in Canberra at jscott14@bloomberg.net; Michael Heath in Sydney at mheath1@bloomberg.net

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

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