SYDNEY (BLOOMBERG) - Australia's government said it will see out its full term after suffering a voter backlash in a special election in Sydney last Saturday (Oct 20) that looks set to cost the conservatives their one-seat majority in Parliament.
Independent candidate Kerryn Phelps is on course to win the seat vacated by former Prime Minister Malcolm Turnbull after he was ousted in a Liberal Party coup in August.
However, new Premier Scott Morrison saw a glimmer of hope on Sunday after Dr Phelps' lead narrowed to less than 1,000 votes as postal ballots continued to be counted. It could be several days before the final tally is confirmed.
The previous night, Mr Morrison had effectively conceded defeat, saying that the result was not unexpected and the government was paying the price for its internal strife.
Treasurer and Liberal Party deputy leader Josh Frydenberg said the government still intends to run its full term - a general election is due in May 2019 - despite the prospect that the ruling coalition will hold just 75 seats in the 150-seat Lower House of Parliament.
Mr Frydenberg told Sky News the government had already had "constructive discussions" with some of the five independent MPs likely to hold the balance of power in a minority government. That number would rise to six if Dr Phelps wins in Wentworth.
Australia is no stranger to minority governments. The Labor Party held on in power from 2010 to 2013, relying on the support of independents.
Still, the massive swing against the Liberals, who held Wentworth by a 17.7 per cent margin under Mr Turnbull and have never previously lost the seat, is a blow to Mr Morrison just two months into his tenure.
Polls show Mr Morrison is on track to lose power to the Bill Shorten-led Labor opposition and the by-election result shows voters are disillusioned with the infighting in the ruling Liberal-National coalition government that has caused policy paralysis in key areas including energy security and tackling climate change.
The government's support for coal and inaction on climate change were key drivers of the protest vote in Wentworth, according to an exit poll conducted by research body the Australia Institute. Some 78 per cent of respondents said the issue had influenced their vote.
"Morrison doesn't have much room to manoeuvre, regardless of who wins Wentworth, and he's going to have to play quite timidly, politically," said Dr Jill Sheppard, a political analyst at the Australian National University.
She added that the government could still win an election next year.
"There's absolutely time for the Liberal Party to turn it around, especially because the Labor Party is really just as unpopular in most parts of the country."
Dr Sheppard said she wouldn't be surprised to see a hung Parliament, with the balance of power held by an increased number of independent lawmakers.
Senior Labor Party lawmaker Tony Burke ruled out a bid to oust the government on the back of the Wentworth vote.
"To get to a vote of no confidence, you need 76 votes and we want to see a Shorten Labor government elected at a general election," Mr Burke told ABC TV. Labor holds 69 seats in the Lower House.
Minor party lawmakers have indicated that they would not support any no-confidence motion in the government that may force an early election.
Dr Phelps, a doctor and former leader of the nation's peak medical professional body, has also said she won't support a vote of no-confidence in the government.