Australia 10% Unemployment for 9.6% Dents Gillard Prosperity

March 25 (Bloomberg) -- Australian Prime Minister Julia Gillard announced a new Cabinet lineup, replacing ministers who backed Kevin Rudd in a failed bid against her leadership as she seeks to build momentum ahead of September elections. Paul Allen reports on Bloomberg Television's "On The Move Asia." (Source: Bloomberg)

Keith Darley, a 34-year-old electrician, hears from the government that Australia is the envy of the developed world. Yet the father of two, who employed 22 people a year ago, now works alone and says he’ll be voting against Prime Minister Julia Gillard in the Sept. 14 election.

The world’s 12th biggest economy boasts the lowest benchmark interest rate in 53 years, unemployment less than half of Europe’s, contained inflation and an economic growth rate double the average of advanced nations. Even with these conditions -- the best since Gough Whitlam took office in 1972 - - Gillard’s ruling Labor Party is 10 percentage points behind the Tony Abbott-led opposition.

“When we see a story that Gillard claims the government has created 900,000 jobs, we know that doesn’t stack up here; that’s not our experience,” said Darley, who lives in Sydney’s western suburbs, where eight of Labor’s 72 national seats are threatened and the unemployment rate is as high as 14 percent. “The voters here are not going to support Tony Abbott because they think he’s better, they’re going to be voting against the current government because they’re sick of hearing everything’s great when they know it’s not.”

Darley reflects a widening gap among Australia’s regions and industries. While national unemployment was 5.4 percent in December, the rate was 10 percent or higher in 9.6 percent of the nation’s 1,402 regions, according to government data that dates back to 2008. In some parts of Brisbane, where five Labor seats are in play, joblessness exceeds 27 percent -- the highest on record for the areas.

Photographer: Brendon Thorne/Bloomberg

A man walks along Martin Place in Sydney. While national unemployment was 5.4 percent in December, the rate was 10 percent or higher in 9.6 percent of the nation’s 1,402 regions, according to government data that dates back to 2008. Close

A man walks along Martin Place in Sydney. While national unemployment was 5.4 percent... Read More

Close
Open
Photographer: Brendon Thorne/Bloomberg

A man walks along Martin Place in Sydney. While national unemployment was 5.4 percent in December, the rate was 10 percent or higher in 9.6 percent of the nation’s 1,402 regions, according to government data that dates back to 2008.

Boom Bypass

As mining has boomed on the back of Chinese demand, the government hasn’t reaped electoral dividends because the opposition positioned itself as pro-resources and opposed new taxes on coal and iron-ore profits. In the manufacturing heartlands of Sydney, Melbourne and Brisbane -- where Labor traces its origins and historically has been strong -- growth and employment have been hampered by the local dollar’s 73 percent surge from a 5 1/2 year low in 2008.

GRAPHIC: Labor Party on the Borderline

“It’s remarkable” that Labor has “this low level of standing,” said Malcolm Fraser, the Liberal prime minister who defeated Whitlam in 1975 and now accuses the party he led of being too right-wing. “You look at unemployment overall, compared to other countries, it’s brilliant. I think a lot of it is not being able to get a message across, not being able to sell any of the points they should be able to sell.”

Photographer: Saeed Khan/AFP/Getty Images

Visitors walk past the statue of Queen Victoria in Sydney. Even in nonmining areas where unemployment is lowest, the Liberals typically hold the electorates. Seats in Sydney’s north, south, and east -- where the jobless rate is as low as 1.6 percent -- all are held by the opposition. Close

Visitors walk past the statue of Queen Victoria in Sydney. Even in nonmining areas... Read More

Close
Open
Photographer: Saeed Khan/AFP/Getty Images

Visitors walk past the statue of Queen Victoria in Sydney. Even in nonmining areas where unemployment is lowest, the Liberals typically hold the electorates. Seats in Sydney’s north, south, and east -- where the jobless rate is as low as 1.6 percent -- all are held by the opposition.

Employment in six of the national statistics office’s 19 job categories has declined since Labor ended 11 1/2 years of Liberal-National Party rule in 2007, even as the population increased by about 1.8 million, government data show.

Underlying Weakness

The number of manufacturing workers, traditionally supporters of the union-financed Labor Party, has slumped 10 percent since Labor won office to 941,400 in February, the lowest since the data series began in 1984. There also are fewer workers in retail; media and telecommunications; arts and recreation services; agriculture, forestry and fishing; and other services, which includes personal-care providers such as hair dressers.

“The economy looks fine, but beneath the surface it’s not so good,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which has about $133 billion under management. “A sense of financial concern on the part of households, combined with the two-speed economy boosting mining and not the whole economy, are coming in to play here, and the government therefore has been struggling in the polls.”

Margins Cut

Darley, who says he has voted for both major parties and voted Liberal in 2007 and 2010, lives in Blacktown’s southwest, an industrial area about 40 kilometers (25 miles) from Sydney’s center where unemployment was 10.9 percent in December -- higher than Michigan’s 8.8 percent rate for February. Blacktown’s southwest lies in the seat of McMahon, now at risk with a 7.8 percent margin, and Chifley, held by Labor by 12.3 percent. Both seats have been held by Labor since 1969.

In the August 2010 election, Labor lost 11 seats after a 2.6 percent swing against it and saw margins cut in New South Wales, Australia’s largest state. Labor now holds 41 of its 72 electoral districts in the 150-seat lower house of parliament by less than 10 percent; eight of those are in western Sydney, Australia’s largest manufacturing region.

“Labor is on the nose across the country, including NSW and particularly Western Sydney, where there could be a bloodbath,” said David Burchell, a professor of humanities at the University of Western Sydney and author of “Western Horizon: Sydney’s Heartland and the Future of Australian Politics.” Some seats “may be lost by such a margin that they won’t be won back for at least three elections,” he said.

Holden Cuts

Adding to Gillard’s woes this week was an announcement from General Motors Co. (GM)’s Holden unit that it will sack about 500 people in Adelaide and Melbourne from a total workforce of 4,320. In the northern Adelaide suburb of Elizabeth, home to one of Holden’s plants, unemployment had already climbed to 23 percent in December, government data showed.

Costs at Holden’s plants were up 60 percent compared to 10 years earlier, making the operation “one of the most expensive, if not the most expensive” in GM, Mike Devereux, Holden managing director, said yesterday. Labor’s Nick Champion holds the electoral district of Wakefield by 12 percent.

Poll Woes

While Australia’s car industry scales back amid the strengthening currency and increased demand for imports, auto makers in the U.S. are hiring and adding factory shifts. Full-time workers in Australian transport manufacturing dropped to 76,000 in November 2012 from 99,200 in November 2007 and 125,100 in November 1989, government data show. In the U.S., auto and parts-maker employment rose to 788,100 in February from a trough of 624,700 in June 2009, based on Labor Department data.

Leadership challenges from Gillard’s predecessor Kevin Rudd and scandals involving former Labor lawmakers also have undermined the government’s standing. Policy backflips on a tax on carbon emissions and measures to prevent the arrival of refugees by boat have also overshadowed the economic success.

Gillard’s satisfaction level was 28 percent, near the weakest since September 2011, while Abbott’s was 35 percent, in a Newspoll published in the Australian newspaper today. Labor’s support was 45 percent on a two-party preferred basis, while the Liberal-National coalition’s was 55 percent.

Should the results of the Newspoll be replicated on Sept. 14, electoral districts such as Banks and Werriwa -- held by Labor for six decades -- would be in jeopardy.

‘Feisty Woman’

Still, prime ministers in similar positions have come back. Paul Keating turned around voter anger during the early 1990s recession to win re-election for Labor in 1993, and John Howard overcame angst related to a new consumption tax to win a third term in 2001 with an increased parliamentary majority.

Gillard in parliament on March 19 described this year’s vote as a competition between a “strong, feisty woman and a policy-weak man” and said she’ll win.

The Australian dollar isn’t helping her cause. The Aussie has surged 73 percent since October 2008, the biggest rise among major currencies, as the nation defied the global slowdown. While central banks in the U.S., Europe and Japan have reduced interest rates to near zero, the Reserve Bank of Australia’s benchmark rate is 3 percent, luring global investors.

Manufacturers’ Challenge

Workers at BlueScope Steel Ltd. (BSL) are among casualties from the currency’s strength. Australia’s largest steelmaker has stopped most exports and shuttered facilities in the past two years, costing more than 1,000 jobs. The closings include its Western Port mill in the Liberal-held Victorian seat of Flinders and a blast furnace in Port Kembla in the NSW seat of Throsby, held by Labor by a margin of 12.1 percent.

BlueScope -- with roots dating back almost 100 years -- has cut its workforce from about 21,000 in 2007 to about 16,500 now, company spokesman Michael Reay said.

“It’s very difficult for a government to deal with the dollar,” Chief Executive Officer Paul O’Malley said in an interview in Canberra. “Australian manufacturers are dealing with the high Aussie dollar, higher and increasing energy costs and all the challenges with lack of confidence in domestic demand.”

Gillard’s challenge is underscored in the working-class Brisbane suburbs of Durack, Inala and Richlands, where unemployment exceeds 27 percent. Labor’s Bernie Ripoll has held the seat of Oxley, which contains the suburbs, since 1998 and now has a 5.8 percent margin.

‘Bigger Fool’

“The headline job numbers don’t tell the full story,” said Mel Watson, 56, while sipping a beer at the Inala Hotel’s bar. “Here in Inala, the problems are made worse by a lack of transport and training, which make it harder for people to get a foot in the door.”

His drinking companion, retired public servant Jim Phillips, said state government cutbacks and an influx of migrant workers are making life tough for locals. “Tony Abbott is a fool but Julia Gillard is a bigger fool,” the 67-year-old said.

Gillard’s dilemma is that mining areas where the economy is strongest typically don’t support Labor, even though the mining boom has fueled a 91 percent surge in industry workers since Labor took office in 2007. In Western Australia, where growth eclipses China’s and unemployment is 4.5 percent, Labor holds just three of 15 federal seats, and state elections on March 9 saw Liberals re-elected with an increased majority.

‘Dismal Result’

Even in nonmining areas where unemployment is lowest, the Liberals typically hold the electorates. Seats in Sydney’s north, south, and east -- where the jobless rate is as low as 1.6 percent -- all are held by the opposition.

“You’d have to predict a very dismal result for Labor,” said Malcolm MacKerras, a political analyst at the Australian Catholic University in Canberra who has studied the country’s elections for four decades. “The only state where the economy is really doing well is Western Australia, and the local Liberal government gets all the credit for that. The areas of traditional Labor support are doing a lot worse economically than those that usually vote Liberal.”

Labor fares better in Victoria, where it holds 22 of 37 federal seats, including Gillard’s own. In South Australia, where she grew up, it has six of 11.

MacKerras forecasts the Liberal-National Coalition will win in September by a margin of 48 seats. In June 2007, he correctly predicted Labor would win that year’s election and incumbent Prime Minister John Howard would lose his seat. In 2010, he predicted Gillard’s Labor would form a government.

Consumer Caution

Sluggish household-spending growth also contributes to Gillard’s problems. After a contraction in 2008, it has stalled below 3.5 percent for the past four years, the weakest streak since 1990-1993, a period in which Australia had its last recession, according to government data.

“The global financial crisis gave everybody a shock, and it made them all instantly more conservative and careful,” said Gerry Harvey, CEO of Harvey Norman Holdings Ltd. (HVN), Australia’s largest electrical-goods retailer. “Spending hasn’t gone down the drain, it’s just not growing.”

In northwestern Tasmania, an island off Australia’s south coast, retail stores lie vacant in the main street of Devonport, home to about 25,000 people. The town’s unemployment rate climbed to 10.7 percent in December from 7.9 percent a year earlier, government data show.

Timber Industry

“It’s depressing to see so many empty shops,” said Devonport Chamber of Commerce President Steve Bramich, who owns a building-surveyor business. “We’re in difficult times. Some of the traditional industries, and especially timber, are struggling. There’s a lot of uncertainty.”

Tasmania’s timber industry lost a third of its workers between 2008 and 2010, when it employed 4,650 people, according to Australian National University’s Jacki Schirmer, who has written more than 20 reports on Australia’s forestry sector. Those job losses have been exacerbated by last year’s collapse of 137-year-old Gunns Ltd. (GNS), once the nation’s largest woodchip exporter and employer of more than 1,000 people.

The region’s electorate of Braddon, a seat that swings between Labor and the Liberals and is now held by Gillard’s party by a 7.5 percent margin, is in danger of falling. Sid Sidebottom, who has represented the region since 2007, says Labor infighting has undermined the party.

“People are telling me they’re happy with the job I’m doing and how Labor has increased spending here, but if the national wash is too great and flows over me, nothing can stop it,” he said.

Budget Shortfall

Gillard has struggled to exert authority since forming a minority government in 2010 with the backing of independents and Greens Party lawmakers. Her and Treasurer Wayne Swan’s failure to sell their economic record has left Abbott free to focus voter attention on the budget deficit and may handicap efforts to use public spending to address the pockets of high unemployment.

The shortfall was A$26.8 billion ($27.8 billion) for the first seven months of the financial year, according to Treasury figures released March 15.

“When they have done something well, they’ve been totally unable to have it properly explained and understood,” said Fraser, 82, who first entered parliament in 1956 and was prime minister from 1975 to 1983. “To try to turn around perception on the economy, you need a prime minister who’s totally on top of it, who can carry the argument. Gillard doesn’t get the central message over.”

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.