Australian State Voters Love Labor's Loss

THE burning question here before Saturday's election for premier was not which party would win, but how big Labor would lose. Public sentiment was so anti-Labor that Premier Joan Kirner all but admitted defeat two days before the election.

Labor did lose - big. The victory by Jeff Kennett of the Liberal-National Party coalition is the largest against the Australian Labor Party in Victoria since the 1950s, and it spells a significant conservative shift of direction for the state.

High unemployment, the recession, and bad fiscal practices are blamed for Labor's loss. During the high-flying 1980s, the state saw the collapse of three lending institutions:

* Pyramid, a private home-building society where pensioners had plowed their retirement savings.

* The state-run Victoria Economic Development Corporation.

* The State Bank, which folded after its merchant-banking arm, Tricontinental, lost millions in ill-advised loans. The closure of the State Bank was the worst shock, residents say.

Victoria, home to the nation's auto industry and a manufacturing hub, used to be the wealthiest state in Australia. Now it is the worst-hit by the recession. Unemployment is 11.6 percent, compared with 10.9 percent nationally.

Analysts blame the economic policies of former Premier John Cain, who took office in 1982. Mr. Cain increased public-sector employment, borrowed heavily for public-works projects, and supported hand-picked industries. When the recession took hold, Victoria was caught between high interest rates and falling revenues. The state is $31 billion in debt.

Ironically, the conservative win comes as the regional economy seems to be reviving: Manufacturing jobs are increasing here while decreasing nationally and retail sales are rising. The conservative victors promise to sell off state assets, trim the public sector, replace collective bargaining and state-set wages with individual bargaining, provide cash incentives to businesses to hire new employees, rein in debt, and provide better fiscal management.

"The crucial thing is that Victoria will take a sharp turn to the right, with their new industrial relations policies," says Melbourne Age columnist Shawn Carney. "Victoria will turn from being a manufacturing hub to a low-wage area."

But not without a fight. Victoria's powerful unions have resisted previous reforms. Featherbedding at all levels is rife, analysts say, and employers are as comfortable with it as employees. Residents point to public trams, which by law have both a driver and a separate conductor. Often, they say, the tram will be empty and the conductor will sit in the back, knitting.

While one top union leader has vowed a battle against the new government, Premier-elect Kennett's victory speech called for an end to the fighting.

"Some of the union rank and file have said they're interested in working with us," says Peter Poggioli, the Liberal Party's manager of research. "They're tired of businesses closing and unemployment."