Australia Election Deadlock Gives Independents Sway

Australian Opposition Leader Tony Abbott
Australian Opposition Leader Tony Abbott arrives at a Liberal Party Election Function in Sydney. Photographer: Sergio Dionisio/Bloomberg

Australia’s closest election in 70 years left Prime Minister Julia Gillard and opposition leader Tony Abbott maneuvering to woo a handful of lawmakers, with the fate of a proposed mining tax hanging on the outcome.

The ruling Labor Party led Abbott’s Liberal-National coalition by 72 seats to 70, four short of an absolute majority, according to the Australian Electoral Commission website at 5 p.m. local time today. Five seats remain too close to call. Two independent lawmakers have said they oppose Gillard’s levy on mining companies, which she has refused to scrap.

“This is an election that didn’t finish,” former Treasurer Peter Costello told Bloomberg Television from Melbourne. “The two sides of politics have fought themselves to a stalemate.”

Abbott, 52, has promised to scrap the mining tax and repay government debt more quickly than the Labor Party, targeting a bigger budget surplus for an economy that has grown unabated for the past 18 years. The Australian dollar fell and stocks edged lower on concern the new government will lack a clear mandate and struggle to survive without fresh elections.

‘Don’t Like Uncertainty’

“Markets don’t like uncertainty, and there’s also a risk that the offshore markets haven’t focused too much on this election, so it could be the case of a late awareness to potential problems,” said Phil Burke, chief dealer for global foreign exchange and rates at JPMorgan Chase & Co. in Sydney.

Australia’s currency, the world’s best performing against the dollar in the past eight years, fell 0.3 percent to 89.15 U.S. cents as of 5:22 p.m. in Sydney. Australia’s benchmark S&P/ASX 200 index dropped 0.1 percent to 4,425.60, extending this year’s decline to 9.1 percent.

“When the government lost its majority it also lost its legitimacy,” Abbott told reporters in Sydney yesterday.

Gillard, 48, said today she’ll negotiate in good faith with independent lawmakers and the Greens Party. To achieve a 76-seat majority either Labor or the coalition will also have to win some of the electoral seats yet to be decided. Adam Bandt, who won a seat for the Greens Party, said he would support Labor.

“The agreement for the minerals resources rent tax will be honored,” Gillard told reporters today, referring to a compromise deal last month with BHP Billiton Ltd., Rio Tinto Group and Xstrata Plc that reduced the rate to 30 percent from former premier Kevin Rudd’s proposed 40 percent and limited the levy to iron ore and coal projects.

Biding Time

Bob Katter, a 65-year-old independent whose Queensland constituency is three-quarters the size of Texas, will travel to Canberra this week, a spokeswoman said, speaking on condition of anonymity because she isn’t authorized to discuss his schedule.

Independent lawmaker Robert Oakeshott will arrive in Canberra this evening, a spokesman who declined to be named said by phone. A third lawmaker, Tony Windsor, couldn’t be reached. All three spoke with Gillard and Abbott yesterday.

“We will meet to go through the process of a hung parliament, who we will support, and what needs to happen constitutionally from here,” Oakeshott said.

Gillard’s failure to win a majority may signal an end to her bid to become the country’s first female elected prime minister. The slump in support for the Labor Party, which won 83 seats in 2007, signaled resentment toward Gillard and her party for the way Rudd was ousted on June 24.

Voters Unmoved

Voters were not swayed by Labor Party assertions it saved Australia’s A$1.2 trillion ($1.1 trillion) economy from the worst of the global economic crisis. A government-sponsored report validating accusations by some school boards that Gillard mismanaged stimulus funds for schools undercut her credibility as an economic manager.

The Greens Party, which has called for a carbon price in 2011 to be followed by emissions trading, will hold the balance of power in the Senate, disrupting the legislative agenda of the new government. The fear of less business-friendly policies advocated by the Greens will also “likely add to jitters in the Australian share market and the Australian dollar in the week ahead,” said Shane Oliver, senior economist at AMP Capital Investors in Sydney.

Australia, the world’s largest shipper of coal and iron ore, hasn’t had a recession in nearly 20 years, according to the Reserve Bank of Australia. The economy, buoyed by demand for those commodities from India and China, grew last year when most others shrank and its unemployment rate was 5.3 percent in July, almost half that of the U.S.

Should Labor lose power, it would be the first time Australians have ejected a single-term government since 1931, and make Gillard the shortest-serving prime minister in 42 years.

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