Prediction Markets: Rudd would double Labor's election chances

Key points: 

- The Labor Party’s failure to reinstate Kevin Rudd as Prime Minister on March 21 has cost the party dearly. Labor’s election chances have roughly halved over the past three months. 

- Labor would still to gain strongly from a Rudd return, at least doubling its chance of victory in September. 

- However, prediction markets are split on whether this basic political arithmetic will be enough to sway caucus, giving Rudd and Gillard an equal chance of leading Labor on election day. 

As the Labor Party enters what will likely be its last Parliamentary session in power, basic political arithmetic is forcing caucus members to once again consider reinstating Kevin Rudd as Prime Minister.  According to prediction markets, reinstating Rudd would see the probability of an ALP election victory jump to almost 20 per cent, at least double the chance enjoyed by a Gillard-led Government.[1] 

The failure to restore Kevin Rudd’s Prime Ministership on March 21 has cost Labor dearly. The long hoped-for turnaround in the polls has failed to appear for Gillard, and Labor’s chance of winning the election has halved from almost 25 per cent (recorded in the hour following the March 21 announcement of a leadership ballot), to its current level of close to 12 per cent.  

At the time of March’s aborted leadership challenge, prediction markets believed that a Rudd return would boost Labor’s election chance to 30 per cent.  However, Labor’s perceived chances under Rudd have now fallen to just under 20 per cent, suggesting that Labor’s underlying position has deteriorated to the point that Rudd cannot be relied upon to deliver the same ‘bounce’ as might have been the case had he been reinstated in March. This could reflect a number of factors, including the possibility that the aborted leadership challenge damaged Labor’s brand, or because there is now less time for Labor to rebuild community support before the election.

Nevertheless, markets still believe that Labor would gain significantly from the reinstatement of Rudd, with our estimates suggesting that a Gillard-led Government would have less than a 1 in 10 chance of victory in September, under half that offered by Rudd.  So while a Rudd return may not be enough to ensure victory, at the very least Rudd would boost Labor’s primary vote and minimise the scale of Labor’s loss.

The political logic for a leadership change also remains compelling – the associated prospect of mere survival may be enough for marginal seat members to support Rudd’s return, and members in safer seats will know that minimising their time in opposition will require saving as many seats as possible.

However, markets remain split on whether this basic political arithmetic will ultimately sway the caucus, giving Rudd and Gillard a roughly equal chance of leading the party on election day.

Unfortunately for Labor, the next two weeks seems likely to be the final chance it gets to roll the Rudd dice.