Perth/Sydney:Tony Abbott’s Liberal-National coalition won Australia’s election and was heading for the biggest parliamentary majority since at least 2004, ushering in a government pledging to abolish a carbon price and mining tax.

“I declare the government is under new management," Abbott said in a speech in Sydney late Saturday, consigning Kevin Rudd’s Labor party to the shortest stint in power in almost 40 years. “Australia is once more open for business."

Abbott, who spearheaded an attack on Labor’s infighting and stewardship of the $1.5 trillion economy, faces the challenge of governing as a China-led mining investment boom wanes, crimping tax revenue and driving up unemployment. To make good on his promises, will have to negotiate with independents and minor parties set to hold the balance of power in the upper house Senate.

Rudd, 55, quit Saturday as Labor leader as the party’s six years in power came to an end. Already scarred by turmoil that saw Rudd ousted by Julia Gillard in 2010, only to reclaim the leadership in June, the party must now unite behind a new chief to take on Abbott.

“Labor is in disarray," said Andrew Hughes, who conducts political-marketing research at the Australian National University in Canberra. “The people left are going to have to sit down and put the team back together," he said. “For Abbott, saying in his victory speech that Australia is open for business is flagging a lot of regulatory changes and cuts to red tape."

Difficult Senate

The coalition leads in 86 of the 150 seats in the lower House, where government is formed, compared with Labor’s 57, the Australian Electoral Commission said on its website. That would give it the biggest majority since its win under John Howard in 2004. Forty of the 76 Senate seats were also up for grabs, and results will take days to be released.

Abbott, a former Rhodes scholar and amateur boxer, has promised to repeal Labor’s 30% tax on mining sector profits and dismantle its carbon pricing mechanism. To do so, he’ll need to navigate legislation through the upper House, which has the final say on bills. The current Senate, where the Greens—supporters of carbon pricing—hold the balance of power, remains in place until the middle of 2014.

“There’s no way the coalition is going to get an outright majority in the Senate and it’s looking like a Labor-Greens alliance would also fall short of the numbers required to block legislation," said Nick Economou, a political analyst at Monash University in Melbourne. “A number of minor conservative parties will hold the balance and Abbott will probably have to negotiate with them to get things through."

‘Devastating result’

Labor faces the task of rebuilding after nine former ministers didn’t stand for re-election, and with questions over Rudd’s future. Its support faltered after Gillard broke a pre-election pledge in 2010 not to introduce a carbon tax, in order to secure the support of the Greens. The party’s stint in power followed almost 12 years of government by Howard and marks the shortest rule since the Gough Whitlam era from 1972 to 1975.

“Labor should face up to the fact that this is a devastating result," former Labor prime minister Bob Hawke, 83, said on Sky News on Saturday. “The fact that it may have been even worse is irrelevant basically. We have suffered a very major defeat and we must learn the lessons from it."

Fresh start

“It’s time for the party to further renew its leadership for the future," Rudd, a Mandarin-speaking former diplomat, told supporters in Brisbane on Saturday. Under changes instigated by him in July, the new party leader will be chosen in a vote by lawmakers and ordinary members, with both groups carrying equal weighting.

Rudd didn’t say if he’d now quit his Queensland district of Griffith, where he was re-elected, or remain in parliament. He didn’t rule out recontesting the leadership in the future.

Deputy leader Anthony Albanese, 50, outgoing education minister Bill Shorten, 46, and outgoing treasurer Chris Bowen, 40, have been touted as future leaders of the party. Both Albanese and Shorten declined in television interviews on Sunday to rule themselves out as potential candidates.

“We have a number of talented people in the Labor party caucus," Albanese told Channel Ten, naming Shorten plus outgoing ministers Tony Burke, Bowen and Tanya Plibersek. “What’s important is that the Labor party serve as a team, that it’s united, that we defend our legacy."

Labor losses

The main damage to Labor came in New South Wales state where it was on course to lose seven seats, including assistant treasurer David Bradbury’s district of Lindsay in Western Sydney, a traditional Labor heartland, and Banks, held by Labor since 1949.

In Victoria, Labor was set to cede three seats to the coalition, including the nation’s most competitive district of Corangamite, according to AEC results. Labor saw off a challenge in Queensland, Rudd’s home state, where counting so far indicated it will lose one seat. It lost at least three seats in Tasmania, one in South Australia, and held its ground in Western Australia, the Northern Territory and the Australian Capital territory

Mining magnate Clive Palmer claimed victory in the Queensland seat of Fairfax, even as the AEC said the district hadn’t been determined.

Abbott discipline

While the coalition led in opinion polls for most of the past 2 1/2 years, Abbott’s personal approval was weighed down by voter perceptions of negativity and government attacks on his character. He closed the gap with Rudd during the campaign, eschewing major policy announcements to keep voter attention on the government’s failings, and overtook him as preferred prime minister in the final week.

Never underestimate the steely discipline and professionalism and effectiveness of Tony Abbott, Howard, 74, told reporters at the Four Seasons Hotel in Sydney where Abbott gave his victory speech.

Abbott has promised to lower the business tax rate, while funding a A$5.5 billion ($5 billion) per year parental leave programme. The coalition plans to reduce the civil service by at least 12,000 positions, lower subsidies for car makers, cancel handouts to parents of school children and return the budget to a surplus equal to 1% of gross domestic product within a decade.

Budget deficits

Abbott takes the reins of the world’s 12th largest economy after the Treasury last month forecast deeper budget deficits in the next three years and cut its growth estimate for 2013-14 to 2.5% from 2.75% seen in May. Unemployment will rise to an 11-year high of 6.25% by mid-2014, according to government estimates.

“The public will be happy to see the end of a hung parliament because of the political rancor it generated," said Martin Whetton, an interest-rate strategist at Nomura Holdings Inc. in Sydney. “The equity market will welcome the return of a pro-business government with a parliamentary majority." BLOOMBERG

Benjamin Purvis and Chris Bourke in Sydney and Rosalind Mathieson in Singapore contributed to this story.

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