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Gillard Faces Tax Fight With New South Wales as Labor Ousted

Barry O'Farrell New South Wales Opposition Leader
New South Wales opposition leader Barry O'Farrell. Photographer: Torsten BLackwood/AFP/Getty Images

The Australian opposition’s victory in New South Wales state elections for the first time in 16 years may signal a growing backlash over Prime Minister Julia Gillard’s taxes on carbon emissions and mining profits.

The Liberal-National coalition and its leader in Australia’s most populous state, Barry O’Farrell, campaigned against the tax ahead of the March 26 ballot. Labor’s representation in the 93-member lower house of parliament fell to 18 seats from 50, it’s worst defeat in the state’s history.

“This is doom and gloom for Julia Gillard,” said John Warhurst, a political analyst at Australian National University. “If federal-state relations break down, it will be very difficult for Gillard to get runs on the board -- particularly on climate and mining laws.”

O’Farrell’s coalition joined those elected in Western Australia and Victoria states since 2008 that oppose Gillard’s plans to price carbon emissions from next year and place a 30 percent tax on iron ore and coal profits. The three states contribute 67 percent of Australia’s A$1.3 trillion ($1.33 trillion) economy.

“I want to talk to her face-to-face on a range of issues,” O’Farrell said in Sydney today after being sworn in as premier, referring to a potential meeting with Gillard. “We will be briefed this afternoon on the state of New South Wales finances, we want a financial audit.”

The premier yesterday said he would fight the planned climate price because it would increase costs for families through power prices and it would see jobs lost from the state.

Mining Royalties

“It has had some effect,” Bob Hawke, Labor prime minister from 1983-1991, said in Canberra about the carbon pricing plan. “I’m confident, and I have been for some time, that Julia and federal labor can win this debate.”

O’Farrell, a 51-year-old father of two, said he also opposed a plan to limit the increase of state mining royalties through a tax on profits of companies like BHP Billiton Ltd. and Rio Tinto Group. The federal government, due to hold its Cabinet meeting on March 30 in the Western Australia state capital, Perth, is forecast to raise A$7.4 billion in the levy’s first two years starting in 2012.

“Mining royalties are clearly important to all states including New South Wales,” O’Farrell told Sky News yesterday. “We can’t afford to have an attempt to reduce our revenues from such critical areas if we’re to fix our services and fix our infrastructure.”

Traffic Problems

O’Farrell’s Liberal Party and its National Party partner won 16.7 percent more of the vote than it attracted at the previous election in 2007. The coalition promised to solve traffic problems in the capital, Sydney, home to more than half the state’s population of 7.2 million people, and fund more police, nurses and teachers.

“The removal of the unpopular government is likely to initially boost consumer and business confidence within the state,” Annette Beacher, head of Asia-Pacific research at TD Securities in Singapore, wrote in a research note yesterday. “As it is the largest state, this could be a mild positive” for the Australian dollar and the stock market, she wrote.

O’Farrell’s four-week election campaign also highlighted opposition to Gillard’s climate change plan. While a carbon tax law has to be approved by the national Parliament, New South Wales voters signaled their rejection of the proposal.

Climate Trouble

“The climate plan hurt us,” former Labor state premier Nathan Rees told reporters in Toongabbie, western Sydney, on March 26.

Fifty-one percent of 1,016 people polled on March 23-27 opposed Gillard’s plan and 34 percent support it, according to an Essential Media survey. The poll had a margin of error of plus or minus three percentage points.

Gillard’s Labor Party lost its majority at the August 2010 national election, the closest in 70 years, and relies on the support of four non-party lawmakers to pass legislation. Gillard, 49, congratulated O’Farrell and said she would work with the coalition.

“It’s my task as prime minister to work with Mr. O’Farrell in the interests of his state on areas like education, health and transport,” Gillard told reporters in Canberra today. “I always believe reasonable people can sit down and work together.”

‘Catastrophic Defeat’

New South Wales has been the slowest-growing of Australia’s eight states and territories in the decade to July 2010, government figures show.

Premier Kristina Keneally’s Labor government endured public scandals and was blamed for Sydney’s poor transportation and shortcomings in education and health services in the state. A U.S.-born mother of two, Keneally, 42, became the state’s first female premier in December 2009. She said after the defeat she wouldn’t contest the leadership of the party again.

“This is an expected but nonetheless historical and catastrophic defeat for the Labor Party in New South Wales,” Chris Bowen, immigration minister and Sydney-based federal Labor lawmaker, said yesterday on Channel 10’s “Meet The Press” program. “We have seen four years of melodrama, of scandals, of changing premiers.”

O’Farrell won his parliamentary division in 1995 after being state director of the Liberal party, according to the state parliament’s website. His coalition is poised to win 67 seats, with two independents and six seats too close to call, the NSW Electoral Commission said.

“It’s a massacre, a slaughter the likes of which none of us have seen,” New South Wales Labor campaign spokesman and upper house lawmaker Luke Foley told Australian Broadcasting Corp. television two days ago. “We have lost our heartland.”

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