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Gillard Retains Labor Leadership as Rudd Declines to Contest

Australian Prime Minister Julia Gillardsurvived as Labor leader today and called on the governing party to unite before elections in six months, after predecessor Kevin Rudd declined to challenge her in a ballot.

“The leadership of our political party, the Labor party, has been settled, and settled in the most conclusive fashion,” Gillard told reporters after emerging from a meeting of colleagues aimed at resolving days of intensifying speculation that she’d lost the support of her lawmakers.

Gillard now has the task of unifying the party as it takes on Tony Abbott’s Liberal-National coalition in national elections scheduled for Sept. 14. The nation’s first female prime minister, whose party has trailed in opinion polls for almost two years, faces the challenge of rejuvenating support for Labor after policy backflips and a worsening fiscal outlook undermined her minority government’s credibility.

“Gillard’s win, while another personal triumph, may not be able to solve the tension and the apparent dysfunction in the government,” said Stephen Stockwell, a political analyst at Brisbane’s Griffith University. “It’s not beyond her to revitalize her position and refresh the party, but it’s hard to see her being able to turn Labor around enough to win the election.”

Party Maneuvering

Days of party maneuvering came to a head when senior Labor lawmaker Simon Crean urged Gillard to call a leadership ballot and said Rudd should stand. Gillard responded by ordering a vote for 4:30 p.m. in Canberra, and then beat off an attempt at a no- confidence motion in her government proposed by Abbott.

As lawmakers declared their positions and journalists tweeted their predictions, early bets that Rudd was set to win the leadership faded as the meeting neared. Rudd told reporters he wouldn’t challenge before entering the party room.

“The only circumstances under which I would consider a return to the leadership would be if there was an overwhelming majority of the parliamentary party requesting such a return,” Rudd said. “Those circumstances do not exist.”

The Australian dollar bought $1.0365 from $1.0379 yesterday. Ten-year government bond yields were 3.58 percent, maintaining their advance from 3.51 percent. The benchmark S&P/ASX 200 Index (AS51) slid 0.2 to close at 4,959.41.

Concerning Events

“The events of today are somewhat concerning for the stability of the government and may still play out further,” said Martin Whetton, an interest-rate strategist at Nomura Holdings Inc. in Sydney. “Markets have been largely unmoved by the events taking place in Canberra. Domestic investors are somewhat used to the nature of politics in Australia, but this may cause some concern for international investors.”

Abbott, whose call to debate a no-confidence motion won the support of two independent lawmakers who have backed Gillard’s government, said the “civil war” in the Labor party was likely to continue.

“I want to reassure people it doesn’t have to be this way, it doesn’t have to be as bad as this,” he told reporters. “We are currently being let down by a bad government getting worse.”

Speculation that lawmakers would turn to Rudd, 33 months after Gillard ousted him in a back-room party coup, intensified after opinion polls indicated Labor would win the election with him at the helm.

A Newspoll survey of 1,143 people published March 12 in the Australian newspaper showed a Rudd-led Labor getting 56 percent support on a two-party preferred basis and the opposition under Abbott getting 44 percent.

Minority Government

The poll, with a margin of error of plus or minus three percentage points, forecast a 52-48 percent split in favor of the opposition with Gillard as Labor leader. The two-party preferred measure is designed to gauge which party is likely to win enough seats to form a government.

Gillard became prime minister in June 2010 after replacing Rudd. After the closest election in 70 years, she formed a minority government in September 2010, and has had to rely on the support of the Greens and independent lawmakers to pass legislation.

In February last year, Rudd failed to regain the leadership when he lost a ballot by 71 votes to 31.

While Rudd, 55, enjoys greater support than Gillard among the general public, he faces antipathy from Labor’s senior ranks over his leadership style. Treasurer Wayne Swan last year described him as a man of “great weakness” who had demeaned his party colleagues during his three-year tenure as prime minister. Rudd has remained on the backbench since resigning as foreign minister to challenge Gillard last year.

Policy U-Turns

Support for Labor has waned after a series of policy back flips -- including on a tax on carbon emissions. A weakening manufacturing sector in some key Labor seats on the fringes of major cities has sapped support for the government.

Gillard’s record in pushing through groundbreaking legislation, including the world’s first compulsory plain packaging for cigarettes, has been overshadowed by scandals involving Labor lawmakers.

In one case, Craig Thomson, a former national secretary of the Health Services Union, faces charges that he misused a union credit card to pay for prostitutes, air travel and cash advances between 2002 and 2007, before he entered parliament. Thomson, who resigned from Labor last year and remains in parliament as an independent lawmaker, denies the allegations.

Labor’s fragile support base is also evident at the state level, where it only holds power in the two least populous of Australia’s six states. Since the 2010 election, Labor has lost 109 seats at a state and territory level, where there are a total of 598 seats.

To contact the reporter on this story: Edward Johnson in Sydney at ejohnson28@bloomberg.net

To contact the editors responsible for this story: Edward Johnson at ejohnson28@bloomberg.net; Peter Hirschberg at phirschberg@bloomberg.net

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