Gillard Defeats Rudd in Australia Labor Vote

By Jason Scott and Michael Heath - Feb 27, 2012 1:37 PM GMT+0700

Australian Prime Minister Julia Gillard defeated predecessor Kevin Rudd in a leadership ballot, leaving her to unite the ruling Labor party and revive its lagging poll ratings before elections due in 2013.

Gillard won 71 votes to Rudd’s 31 in today’s ballot of party lawmakers, Labor official Chris Hayes said. Rudd, who resigned as foreign minister last week as he sought to reclaim the nation’s top job, said he accepted the result and would fully support the prime minister.

After weeks of political infighting, Gillard, 50, needs to heal the party as her government aims to implement unprecedented taxes on mining profits and carbon emissions that the Liberal- National opposition says it would scrap. The nation’s first female prime minister must also hold together a minority government that relies on the backing of independent and Green party lawmakers, while trying to narrow the opposition’s 10 point lead in the latest opinion poll.

“Rudd’s leadership ambitions are now all over,” said Andrew Hughes, who conducts research in political marketing at the Australian National University in Canberra. “The doubts are over within the party -- now she has to work on winning over the voters, who still seem to have plenty of doubts.”

The Australian dollar traded at $1.0685 at 4:54 p.m. in Sydney from $1.0681 immediately before the announcement. Ten- year government bonds yields were at 4.03 percent, six basis points below last week’s close. Australia’s S&P/ASX 200 index closed down 0.9 percent.

‘Political Drama’

“This political drama is over,” Gillard told reporters in Canberra after the vote, and said the party would unite to fight the next election. “I will take Labor to that election and I am confident we can win.”

Rudd, 54, congratulated Gillard on her “strong” performance in the ballot and said it was time the party’s “wounds were healed.”

“I accept fully the verdict of the caucus,” said Rudd, adding he intends to remain a Labor lawmaker through to the next election and beyond. “I dedicate myself to working fully for her re-election as prime minister of Australia and I will do so with my absolute ability dedicated to that task.”

Gillard assembled a minority government after the closest election in seven decades in August 2010. Any collapse in that arrangement risks triggering another national vote before 2013 that opinion surveys indicate the conservatives would win.

The Labor party’s primary vote of 35 percent trails opposition leader Tony Abbott’s coalition by 10 percentage points, according to a Newspoll published in the Australian today. The survey of 1,152 people conducted Feb. 23-26 had a margin of error of plus or minus 3 percentage points.

No-Confidence Vote

Abbott, 54, a volunteer lifeguard who once studied for the priesthood, said today the ballot win was a “stay of execution” for Gillard. He hasn’t ruled out calling a no- confidence vote among lawmakers in the lower house of parliament that could trigger an early election if successful.

One of Gillard’s first tasks will be to consider whether her ministerial lineup needs its second overhaul in three months. She said Trade Minister Craig Emerson would act as foreign minister for the time being and said any other Cabinet changes would be announced in coming days.

Gillard declined to say whether she would sideline colleagues who declared they would vote against her in the ballot, such as Resources Minister Martin Ferguson and Kim Carr, minister for manufacturing.

Arbib Resigns

Assistant Treasurer Mark Arbib, a factional power broker in Labor who helped Gillard topple Rudd in 2010, unexpectedly resigned today from his ministerial post and as a senator, saying the move may help the healing process in the party.

Arbib, who is also minister for small business and sport, said he’d promised his wife he would review his political career at the age of 40 and that the demands of the job had impacted on his family. He denied he’d been pressured to step down. Labor is expected to nominate a replacement for Arbib in the Senate and a by-election won’t be required.

Tensions have simmered within the party since Gillard toppled Rudd in a June 2010 party-room coup amid complaints about the autocratic style of his 2007-2010 prime ministership and concern over his slumping poll ratings.

Rudd has promised not to mount a second challenge to Gillard, whose efforts to boost Labor’s poll ratings may be hampered by an economy that recorded its worst annual job growth in 19 years in 2011.

Mining Boom

While the biggest mining boom in a century is helping the economy sustain a two-decade long expansion, a currency that has gained 23 percent since she took office in June 2010 is hurting manufacturing.

BlueScope Steel Ltd. (BSL), the country’s largest steel producer, in August closed its export division. Toyota Motor Corp. (7203) and General Motors Co. have cut jobs in Australia this year, citing the currency’s strength, while Alcoa Inc. (AA) is reviewing the future of an aluminum smelter.

“A big chunk of the Labor voting base is in the slow lane of Australia’s two-speed economy,” said Shane Oliver, Sydney- based head of investment strategy at AMP Capital Investors Ltd., which has $100 billion under management. “Australia has to make the adjustment related to the strength in the mining sector, and trying to resist that is futile, but it’s a difficult balancing act for the government.”

Interest Rates

The job market has shown signs of revival this year as employers added the most workers in 14 months in January and the unemployment rate unexpectedly declined to 5.1 percent, compared with the 7.9 percent average for advanced economies last year.

The Reserve Bank of Australia kept its benchmark interest rate at 4.25 percent on Feb. 7, the highest among major developed nations, after lowering borrowing costs by a quarter percentage point twice late last year.

The central bank is likely to cut rates once more as risks to global growth remain, said Paul Bloxham, chief economist for HSBC Holdings Plc in Sydney and a former RBA official who predicts the economy will then accelerate next year. “The challenge for the government is that the next election is likely to occur in 2013 and it’s quite possible we’ll be in an environment where interest rates are rising.”

As parliament resumes in Canberra today, Gillard will be looking to add to her record of legislative success and implement taxes on carbon emissions and resources profits as the government strives to return the budget to surplus by 2012-13.

Investor Uncertainty

Under a law coming into effect on July 1, the government will charge about 500 polluters A$23 a ton for discharges until the set price gives way to a cap-and-trade system in 2015. A 30 percent tax on iron ore and coal profits is forecast to raise A$7.7 billion in the first two years. The mining tax bill is expected to be approved in the upper house where her government has the support of Greens, who hold the balance of power.

David Lennox, a Sydney-based resources analyst at Fat Prophets, said the Labor leadership battle had created little uncertainty for investors.

“The question will start to be raised, what happens if there’s no longer a Labor government in charge?” Lennox said by telephone. “If Abbott gets into power, what will he do? As we get closer to another federal election, that will create some uncertainty.”

To contact the reporters on this story: Jason Scott in Canberra at jscott14@bloomberg.net; Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net