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Economic Fears Drove Australia's Surprise Election Result

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05/19/2019 | 05:22am EDT

By Rob Taylor and Rachel Pannett

SYDNEY--Australia's conservative Prime Minister Scott Morrison scored a surprise come-from-behind win at national elections Saturday, in a divisive campaign that exploited fears radical economic and climate policies pledged by center-left opponents would end the world's longest growth streak.

Mr. Morrison, who once carried a lump of coal into Parliament to illustrate the importance of commodity exports to the resource-rich economy, sealed victory in battleground states where many voters worried his Labor rivals would drive up living costs and threaten mining jobs with their environmental plans.

"I have always believed in miracles," Mr. Morrison, an evangelical Christian, said in a speech to jubilant supporters gathered at a Sydney hotel after midnight local time Saturday. He credited his victory to "quiet Australians"--whose voice was largely not reflected in voter polls that for more than two years showed his Liberal-National coalition facing election defeat.

Throughout his campaign, the 51-year-old Mr. Morrison focused on a simple argument: conservatives are better managers of the economy. In contrast, his Labor rival, Bill Shorten, 52, promised a bold interventionist approach to tackle growing wealth divides: ending tax breaks for investors and global corporations, while spending more on public health and education. The former union leader and lawyer stepped down after conceding defeat.

"It seems Australians were not prepared to support the higher taxes, increased government spending and redistribution" of wealth, said Shane Oliver, chief economist at AMP Capital in Sydney.

Climate change re-emerged as an election issue following a summer of wildfires, drought, floods and extreme temperatures Voter support for policies aimed at addressing climate change was at the highest level since 2007. But, as in the U.S., divisions grew more stark as the issue gathered steam.

Labor pledged to reduce emissions by 45% from 2005 levels by 2030, after Australia under the conservatives became the first developed nation to abolish a price on carbon in 2014. The party also promised a push on renewable energy and electric vehicles, offering detailed and transparent policies that opened its agenda to months of concerted attack from Mr. Morrison.

Tom Wright, a senior fellow at the Brookings Institution, said the center-left party's failed approach could give U.S. Democrats pause in developing tactics ahead of elections next year. "Bold policies can hurt you...don't confuse the unpopularity of the government with the electorate moving to your ideology," he said on Twitter Sunday.

Australia's election was the latest in a series of polling misfires globally, including erroneous predictions of the U.S. presidential election outcome in 2016 and Britain's decision to leave the European Union. Few had seen Mr. Morrison's victory coming, including senior conservative officials. Exit polls as voting stations closed had pointed to a comfortable Labor victory.

The conservatives' fortunes were boosted in resource-rich states such as northeastern Queensland, where Mr. Morrison campaigned strongly in support of major coal-mine projects located near the Great Barrier Reef, offsetting losses in more progressive-leaning cities along the east coast. His campaign also benefited from small populist parties whose message helped bolster the conservative vote.

Underscoring the city-versus-rural divide, one of the highest-profile casualties of the election was Tony Abbott, a former conservative prime minister and climate skeptic who in 2014 championed the dumping of carbon taxes. He was defeated in the Sydney beachside district he has held for 25 years by an independent candidate who made his resistance to climate change policies her key appeal.

With counting continuing Sunday, Mr. Morrison's Liberal-National coalition was hopeful of gaining a narrow majority in Parliament's 151-seat House of Representatives. If Mr. Morrison doesn't win enough seats to govern alone, he may yet need to strike a deal with independents to form a minority government, possibly forcing him to tackle climate issues to gain their support.

The election comes at a pivotal time for Australia, as global trade rivalries, falling home values, record debt and stagnant wage growth bite. The economy, which has been expanding for 27 years and counting, nearly stalled in the second half of 2018 as China's growth slowed. Annualized growth dipped to about 1% from 4% in the first half. The country's central bank is expected to begin cutting interest rates as soon as next month.

Mr. Morrison confronts a handful of pressing challenges. Chief among them: How to manage the country's ties with its biggest trade customer and most challenging foreign-policy relationship, China.

Relations have been strained since last year when Australia passed tough counterespionage and foreign-interference laws and the government locked Chinese phone giant Huawei Technologies Co. out of future 5G communication networks over national-security concerns. In February, officials blamed a major state actor--usually code for Beijing--for a cyberattack on Parliament and major political parties. Australia has also angered Beijing by joining the U.S. in pushing back against China's growing influence in the Pacific.

A refreshed ministry to be unveiled by Mr. Morrison will include a new defense minister, Linda Reynolds, who will steer a $150 billion modernization aligning Australia's military more closely with U.S. forces as the Pentagon readies to unveil a new strategy naming the Indo-Pacific as a strategic priority, to be unveiled this month in Singapore.

Write to Rob Taylor at rob.taylor@wsj.com and Rachel Pannett at rachel.pannett@wsj.com

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