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Australia heading towards first hung parliament

Sydney, August 21, 2010

Australia faces it first hung parliament in decades with neither the ruling Labor party or the opposition likely to be able to form a majority government after Saturday's election, a worst case outcome for financial markets.

Predictions based on the results so far show that both parties fell short of a majority in the lower house of parliament which would force them to try to win over a handful of independents to take power.

'Obviously this is too close to call. There are many seats where the results are undecided,' Prime Minister Julia Gillard told Labor party faithful gathered in Melbourne.

Australia's first woman prime minister said it could take a number of days to work out the final result, but she appeared already to be wooing independents who could decide the next leader.

Analysts projected around 70 seats for the two major parties, with four independents and one Green MP.

That would be six short of the number Gillard would need to keep control of the 150-seat lower house and mean a hung parliament for the first time since World War Two.

'What we know from tonight's result is there will be a number of independent in the House of Representatives playing a role as the next government of Australia is formed,' she said.

Labor supporters tried to put on a brave face, with some shouting 'Aussie Aussie,' but many were in tears.

'The uncertainty is going to be a real killer to the financial markets and it's the Aussie dollar that's going to react most strongly,' said Craig James, chief economist at Commsec.

'The currency could fall at least a cent or maybe even more as investors reduce their positions in the Australian economy,' added James.

Official data after three quarters of votes had been counted gave Labor 60 seats against 59 for the conservative Liberal-National coalition led by Tony Abbott. To form a government, 76 seats are needed.

Abbott told supporters that though there was no clear result, Labor had lost its majority and that he would also talk to independents on forming a government.

At stake was not only the political future of Gillard and the opposition's Abbott, both new and untested leaders, but also Labor's plans for a 30 per cent resource tax and a $38 billion broadband network.

Professor Suri Ratnapala, a professor of law at the University of Queensland, said ruling Labor would be given a chance to form a government.

'If the leader of the party trying to form a government comes to an agreement with enough independent members to form a government, there would generally not be a need for a vote of confidence in government,' he said.

Financial markets were unsettled on Friday by the prospect that no major party would win enough votes to form government - a scenario which would see the Australian dollar sold off and possibly result in policy gridlock and investment paralysis.

Investors are also worried about the likelihood the Greens party will win the balance of power in the upper house Senate and stifle policy and force the next government to increase spending.

Greens leader Bob Brown said his party looked like holding nine of the 76 senate seats in the new parliament.

'It is clear the Greens will have the balance of power in the Senate and we will use that responsibly to make whoever is government more accountable,' said Brown, adding that his party would also use its power in the lower house responsibly.

Former barrister Adam Bandt, the Greens first lower house MP, said he would side with Labor if there was a hung parliament.

The poll may be determined in marginal seats in mortgage-belt areas of Sydney and Melbourne, where there are worries over immigration, as well as in resource states of Queensland and Western Australia, where there is bitterness over the mining tax.-Reuters




Tags: Australia | first hung parliament | Labor |

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