Australia's Labor headed for election "bloodbath"


Australian Prime Minister Julia Gillard's Labor party looks set to suffer a big defeat on Saturday in elections in the nation's most populous state, leaving three out of six states under Labor as she tries to bring in a national carbon price and mining tax.

A Labor "bloodbath" in the New South Wales (NSW) election will politically damage Gillard, who holds a one-seat majority, thanks to independents and Green MPs.

Labor has held power for 16 years in NSW, a key state in national elections, but opinion polls indicate a series of political scandals and failed infrastructure projects has sealed its fate at the ballot box.

With an eye to the next national election, due by March 2013, Gillard will be hoping NSW voters will vent their anger against Labor now and be more forgiving when she faces them.

"When voters take their baseball bats to state Labor on Saturday, there will be a sense of catharsis and they may be more accepting of the federal government," said Phillip Coorey, chief political correspondent for The Sydney Morning Herald.

A poll showed the government's support had fallen to record lows over plans to put a price on carbon pollution, though support has rebounded since Gillard floated the prospect of compensation.

Gillard has also said Australians deserve a greater share in soaring mining profits. She has pledged to introduce a 30 percent tax on iron ore and coal mines with annual profits of $50 million or more by the middle of 2012. The controversial tax, expected to affect 320 mining companies, should raise $7.4 billion in its first two years.

An opinion poll in Sydney's Daily Telegraph newspaper on Friday forecast state Labor would only retain 14 out of 93 lower house seats in NSW to suffer its worst electoral defeat in 110 years.



The more immediate impact of a Labor defeat in NSW, whose A$400 billion economy is comparable in size with Taiwan, is likely to be economic.

A new conservative government in NSW is expected to launch a major infrastructure spending programme, especially in the road, rail, ports and electricity sectors.

State Liberal-National parties also plan to hold an inquiry into the December 2010, A$5.3 billion sale of state electricity assets to Hong Kong's CLP Holdings and Origin Energy , saying the sale undervalues the assets.

Origin acquired retailers Country Energy, Integral Energy and gentrader rights to the Eraring power station. CLP's Australian retailer TRUenergy acquired NSW's largest retailer EnergyAustralia and the DeltaWest gentrader contract.

Depending on the inquiry recommendations, which will be presented to the next parliament, one option is to reverse the sale, said a spokesman for Liberal leader Barry O'Farrell.

But a new state government may be stymied from dumping the deal due to legal obligations signed by the previous Labor government.

The state's Greens party, which could hold the balance of power in the NSW upper house, has said it plans to work towards terminating the electricity privatisation deal.

The Greens fear a conservative government may see a slew of privatisations across water, transport and health sectors.

The conservative parties plan a A$1.2 billion lease of the Sydney Desalination Plant, but say there are no plans for widespread privatisations.

The Liberal-National coalition has promised big infrastructure spending through the creation of Infrastructure NSW and a detailed five-year infrastructure plan.

"The NSW government owns much, although not all, of the state's infrastructure and needs to take the lead in project planning and financing. A change of government would, if anything, be likely to accelerate these plans," ANZ Banking Corp said in a report on the NSW election.

ANZ senior economist Shane Lee said investors should be looking at road, rail, port and electricity sectors.

More certainty in infrastructure funding is expected to benefit companies like Lend Lease , Transfield Services and Leighton Holdings .

Lee said he estimated NSW needed to spend A$56 billion, both public and private, to improve ageing infrastructure over 6-8 years, but doubts a conservative government would pursue a large privatisation programme to fund it.

"I'm sure they would be looking at privatising some assets because the amount of investment they need to plough into infrastructure is quite large," said Lee. "It (privatisation) is politically very difficult in NSW."

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