- Associated Press - Saturday, August 21, 2010

CANBERRA, Australia (AP) — The leaders of Australia’s two major political parties began negotiating power deals with independent lawmakers Sunday after the nation’s closest election in decades failed to deliver a clear mandate to govern.

Prime Minister Julia Gillard, who remains caretaker leader, said it was clear that no party had won a majority of parliamentary seats in Saturday’s poll, which delivered an extraordinary voter backlash against her center-left Labor Party after a single three-year term.

Market analysts predicted the uncertainty would push the Australian dollar and stock market lower when trading resumes Monday.

Labor hemorrhaged votes to the environment-focused Greens party as the government was punished for shelving plans to charge major polluting industries for every ton of carbon gas they emit.

Ms. Gillard and Tony Abbott, leader of the conservative Liberal Party, said they had initiated talks with three independents in the House of Representatives as well as the Greens party in a bid to secure their votes in the House of Representatives. Neither revealed what they were prepared to offer in the confidential negotiations.

Both Labor and the Liberal-led coalition have conceded that neither is likely to hold the 76 seats needed to form a government in the 150-seat lower chamber.

“It’s my intention to negotiate in good faith an effective agreement to form government,” Ms. Gillard told reporters.

She suggested that Labor would be better able to get its legislative agenda through the Senate, where major parties rarely hold majorities. The Greens’ record support in the polls increased the party’s Senate seats from five to nine, giving them the leverage to become kingmaker in deciding which major party controls that chamber.

“So the question before all of us is this: Which party is better able to form a stable and effective government in the national interest?” Ms. Gillard said.

But Mr. Abbott, who doubts the science behind climate change and rules out ever taxing polluters for their greenhouse-gas emissions, said Labor had proved unstable even with a clear majority.

Bitter recriminations within Labor over the election result have begun, with at least one lawmaker who lost her seat blaming her colleagues’ dumping of former Prime Minister Kevin Rudd for Ms. Gillard. Some lawmakers have blamed the result on a series of damaging media leaks against Ms. Gillard during the election campaign that are suspected to be the work of disgruntled Rudd loyalists.

“It’s certain that any Labor government emerging from yesterday will be chronically divided and dysfunctional,” Mr. Abbott said.

The prospect of no party controlling Parliament added to concerns already shaking markets about the economy, AMP Capital Investors chief economist Shane Oliver said.

“Uncertainty over who will govern, fears of a possible drift toward less business-friendly policies reflecting the increased power of the Greens, worries about less decisive policy-making, and a likely absence of longer-term reforms under a minority government will all likely add to jitters in the Australian share market and in the Australian dollar,” he said.

Independent Tony Windsor said he planned to talk with fellow independents Bob Katter and Rob Oakeshott on Sunday to decide whether to negotiate a power deal with the major parties as a group or individually.

They were the only independents in the last Parliament and are former members of the Nationals party, which is a coalition partner of the Liberals. All have said they are open to supporting a Labor minority government.

“Whichever side it is, we need to have some stability and maintenance of stability so that the government can actually work,” MR. Windsor told Australian Broadcasting Corp. television.

“We might end up back at the polls,” he added, referring to the possibility of another election if a support pact cannot be negotiated.

All three independents have made a key issue of boosting the poor telecommunications services in rural Australia. Labor went to the polls promising a 43 billion Australian dollar (U.S. $38 billion) high-speed optical fiber national broadband network. The Liberals promised a smaller, slower 6 billion Australian dollar (U.S. $5.35 billion) network using a range of technologies including optical fiber, wireless and DSL.

Greens party leader Bob Brown said no agreement had been reached after a “cordial” conversation with Ms. Gillard, who was seeking the support of newly elected Greens lawmaker Adam Brandt, who previously stated his preference for a Labor government.

Former Greens member Andrew Wilkie, an independent candidate contacted by Ms. Gillard, said Sunday he would not talk about which party he might support until his own seat was certain.

No Australian government has had to rely on the support of independent lawmakers to rule since 1943. Two independents changed the government in the preceding three-year term by switching their allegiance from the conservatives to Labor.

The election results were expected to be the closest since 1961, when a Liberal government retained power with a single seat, and might not be known for a week.

With more than 78 percent of the vote counted, the Australian Electoral Commission said Labor had won 70 seats and the Liberal coalition 72. Most analysts agree that the coalition is likely to finish with 73, one seat ahead of Labor.

Analyst Norman Abjorensen, an Australian National University political scientist, said the most likely outcome would be an unstable minority government led by Abbott and supported by three independents.