Gillard’s Party Faces Reversal in Australia Battleground State

Australia’s ruling Labor party this week faces its first loss of power in Queensland since 1996, after a surging exchange rate eroded the job market of a state that’s been a battleground in national elections.

Premier Anna Bligh, who earned a bump in public support for her handling of floods last year, finds her party 20 percentage points behind in polls before the March 24 vote. Queensland accounted for more than half the national seats lost by Labor in the most recent federal vote, in 2010.

A reversal would leave the Labor party out of power in all but the two smallest of Australia’s six states, deepening Prime Minister Julia Gillard’s challenges 20 months before national elections are due. Queensland’s unemployment rate soared more than 2 percentage points under Bligh as the local dollar’s climb to its strongest since the early 1980s hurt the tourist industry.

“Queensland voters to a large degree determined the outcome of the past two federal elections,” said John Wanna, a professor of public administration at the Canberra-based Australian National University and author of “The Ayes Have It,” a history of Queensland politics. “Gillard will be hoping this is a chance for Queensland voters to get their anger at the party out of their system before the next federal election.”

Rating Cut

The opposition Liberal National Party, led by Campbell Newman, has set as a priority restoring Queensland’s AAA credit rating, stripped by Moody’s Investors Service in May 2009 two months after Bligh, 51, took office. Moody’s cited Bligh’s A$54 billion ($57 billion) capital-spending plan for roads, hospitals and schools, along with slowing economic growth in its decision.

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. The securities yielded 4.90 percent as of 12:28 p.m. yesterday in Sydney.

Bligh sought to limit strains on the budget in part by raising A$15 billion from selling off state assets such as coal- train operator QR National Ltd. She’s running for re-election with a pledge to invest 50 percent of royalties from the state’s expanding liquefied natural gas industry into schools, increase the number of doctors, nurses and health workers by 3,000 in three years, and protect river systems from industrial damage.

‘Tough Years’

“There’s still a few more tough years to go for Queensland regarding its credit ratings,” said Martin Whetton, a fixed- income strategist at Nomura Holdings Inc. in Sydney. “There’s still going to be a discount on the state’s debt” regardless of the party that wins, he said.

Queensland, the nation’s third most-populous state, has endured the same two-pronged forces that have created what Gillard calls Australia’s “patchwork” economy. A Chinese- demand-led mining boom has propelled a 54 percent surge in the nation’s exchange rate against the U.S. dollar in the past two years, hollowing out business sensitive to currency strength.

Jobs in food services and accommodation, linked to Queensland’s tourist industry, dropped 13.6 percent in the year to February, government data show. Employment in mining, which is less labor intensive than tourism, jumped 14 percent.

Bligh, a former social worker who grew up in a single- parent home during adolescence, won plaudits for her handling of the aftermath of a cyclone that hit Queensland in February 2011. Her heartfelt response to the most costly storms in Australian history saw Labor’s public approval recuperate for a time.

Bligh Bounce

The bounce dissipated as Labor’s long tenure in office left voters looking for a change. After winning power in 1989, the party ruled in the state capital Brisbane for all but two years. In 1996, the main opposition party won a by-election that gave it a majority, which it lost in the next state election in 1998.

“When you’ve been in power for so long you accumulate a range of grievances with the electorate,” said Nick Economou, a political analyst at Melbourne’s Monash University.

An inquiry commissioned by Bligh found last week that mismanagement of the government-run Wivenhoe Dam near Brisbane during last year’s floods exacerbated the crisis. In December, Bligh said she would close Queensland Health after an employee was arrested for allegedly embezzling A$16 million from the government-run public hospital operator. The flap stoked criticism by Newman that Labor is a poor economic manager.

Federal Instability

“While state elections are won or lost on local issues, if Labor loses there will still be people lining up to blame the instability of Julia Gillard’s government,” Economou, who is co-author of “Media, Power and Politics in Australia,” also said.

At the federal level, Labor was riven by a leadership contest last month that saw Queenslander Kevin Rudd, a former prime minister, fail to unseat Gillard, who ousted him in 2010. Bligh had urged the national party to resolve differences that were handicapping it in the Queensland election.

Labor trails the opposition, 40 percent to 60 percent, in the two-party preferred vote, a Galaxy poll conducted March 15- 16 of 800 people showed, without giving a margin of error. The 20 percentage-point gap was unchanged from a month earlier.

Newman, 48, is looking to make history by becoming Australia’s first non-sitting state leader to win a seat at an election and become premier. The former Brisbane mayor, who led the city’s recovery efforts during last year’s floods, faces a fight to win the seat of Ashgrove, currently held by Labor’s Kate Jones with a margin of 7.1 percent.

Newman Concern

Among his challenges is countering allegations that a property developer who made seven donations to his re-election fund as mayor was also conducting business from a property owned by Newman’s family.

Queensland, known as the “Sunshine State” and almost the size of Mexico, was an agricultural heartland for Australia 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 has slowed economically, the government has lacked enthusiasm and Queenslanders can sense that,” said Stephen Stockwell, a political analyst at Brisbane’s Griffith University. “Labor hasn’t made the most of its opportunities to sell its message, which is a lesson for Gillard’s government as well.”

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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