BY-ELECTION RESULT A WARNING FOR RUDD

UNCLAS SECTION 01 OF 02 CANBERRA 000653 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: PGOV AS SUBJECT: BY-ELECTION RESULT A WARNING FOR RUDD REF: A) CANBERRA 640 B) CANBERRA 530 ¶1. (SBU) SUMMARY: As predicted (see ref A),the National Party retained the rural Victorian seat of Gippsland at a by-election on June 28, although the 6.4 percent swing against the Australian Labor Party (ALP) was greater than expected. Most observers are attributing the larger than expected swing to anger over petrol prices and cost of living increases. In a seat with significant coal mining and coal-fired electricity generation, the Nationals and the Liberal Party seemed to have benefited by raising the specter of job losses under the ALP's proposed emissions trading scheme. There were swings against the ALP across the electorate, including in blue collar areas dominated by the coal industry. Meanwhile, reports surfaced over the weekend that former Foreign Minister Alexander Downer will announce his resignation from Parliament, perhaps as early as July 2. With the Liberal-National Coalition on firmer electoral ground, it will be easier for the Liberal Party to hold Downer's seat outside of Adelaide, and former Treasurer Peter Costello's seat in Melbourne, should he decide to leave this year. END SUMMARY. THE RESULT ¶2. (U) The Nationals won the two-party preferred vote 62.4 to 37.6 - a swing towards it of 6.49 percent. The Nationals primary vote fell by 8.4 percent to 40 percent most likely due to the presence of the Liberals standing for the first time in 25 years, who received 20.5 percent of the vote. With Liberal preferences overwhelmingly favoring the Nationals in the two-party preferred vote, the Nationals won an extremely comfortable victory. The ALP's primary vote declined by 8.5 percent from the November 2007 election. The average swing in a by-election in Australia is four percent against the government in power but the ALP had hoped to do better given the popularity of Prime Minister Kevin Rudd. The swing against Labor fueled media commentary on the national implications of the result. In voting booths in the La Trobe Valley, the heart of Australia's brown coal mining and electricity generating industry, the vote for the ALP dropped by 7 to 10 percent. THE POLITICIANS AND MEDIA REACT ¶3. (U) Rudd said the day after the vote that Gippsland voters had made their concerns about living costs "loud and clear." In Melbourne-based newspaper "The Age", respected commentator Michelle Grattan wrote that the government was living with the consequences of the cost of living expectations it raised before the election. "The Australian" newspaper's editorial said the result was a warning that the loyalty of blue collar workers "could be sorely tested if the Government adopts climate change strategies that further escalate living costs substantially." Opposition Leader Brendan Nelson, whose leadership position is now more secure, said that voters had woken up to Rudd being "all backswing and no follow-through." DOWNER FINALLY LEAVING? ¶4. (SBU) Reports surfaced over the weekend that Downer would be announcing his resignation, perhaps as early as July 2. While rumors of his departure from Parliament have been in the media for several months (ref B),there are reports now that an announcement is imminent. In fact, Downer's media advisor just left her job in Parliament to join a new consulting company in Adelaide, Bespoke Approach, that the former foreign minister is rumored to be joining. This result in Gippsland augurs well for the Liberal Party's prospects in Downer's seat in Adelaide and Costello's seat in Qprospects in Downer's seat in Adelaide and Costello's seat in Melbourne, should he decide to leave. COMMENT: DISAPPOINTING RESULT FOR ALP ¶5. (SBU) The result is disappointing for the ALP, but it would be premature to mark this as the beginning of a Coalition resurgence. Opinion polls still show Rudd and the ALP comfortably ahead. By-elections generally swing against the government, and the Victorian ALP head office imposed a weak candidate on an electorate in a conservative stronghold. Gippsland's demographics vary significantly from that of the battleground outer-suburban seats where Australian national elections are won. Nevertheless, the larger than expected swing suggests that "working families," while supporting symbolic gestures such as signing the Kyoto Protocol, may resist measures which threaten their jobs and put up prices. It is a vindication of Brendan Nelson's populist stances on cost of living issues, and takes pressure off his leadership. It is also good news for the Nationals which are facing CANBERRA 00000653 002 OF 002 doubts over their long-term viability. MCCALLUM