Gillard and Rudd warned: Australia will suffer

A tape of Kevin Rudd violently swearing was published just before his ousting in June 2010. Photo / Getty Images

Julia Gillard and Kevin Rudd have been warned Australian businesses and consumers will suffer if they don't settle their leadership stoush once and for all on Monday.

Labor's leadership crisis has caught the attention of global markets and is fuelling uncertainty about the stability of the Australian political scene.

Economists say there is more for investors and consumers to grapple with than simply who will lead Australia from next week.

If Kevin Rudd wins, who will be Treasurer? What will happen to the carbon tax? Will he be able to secure the support of the independents?

If Julia Gillard wins, will Mr Rudd continue to fuel leadership speculation from the back bench, as Paul Keating did in 1991, or quit parliament and force a by-election?

Then there's the possibility of a snap election and major changes to economic policy under a Tony Abbott-led Liberal government.

"The main impact of it is uncertainty about policy and perceptions of policy going forward, because there's lots of paths this could take," AMP chief economist Shane Oliver said.

Kevin Rudd acknowledged the impact of the leadership tussle on Australian businesses when he resigned as foreign minister on Wednesday.

"It is important that business confidence is maintained in Australia; the economy and jobs are core to what any responsible government is about," he said from Washington.

Dr Oliver said the unstable Australian political scene that had been in place since Ms Gillard replaced Mr Rudd as prime minister in 2010 may have weighed on the economy.

"Despite having an economy which is the envy of many other countries, our sharemarket has been underperforming and political instability may be playing a role in that."

JP Morgan Australia chief economist Stephen Walters said the leadership spat between the current and former prime ministers was hurting Australia's reputation.

"It's never a good look when your Prime Minister and one of her senior cabinet ministers are bickering in public," he said.

"Obviously it's not helping and it is certainly getting attention in global markets."

He said that news of the spill had not weighed heavily on investors so far, but it was hurting consumer confidence.

"But it is very destabilising for consumers. They are just looking at this with open-mouthed amazement."

The Business Council of Australia called on Ms Gillard and Mr Rudd to resolve the issue on Monday.

"Resolving the leadership issue is critical for maintaining the confidence of business in the management of the economy and in the reputation in Australia as a stable and predictable place in which to do business and invest, a spokesman said.

He said the leadership crisis was distracting the government from important issues.

"There are a number of important conversations that Australia needs to be having right now about the reforms that are needed to make the economy more competitive and more productive.

"The internal jostling within the government is taking attention away from those conversations."

However, despite more than a dozen company chiefs facing the media on Thursday to report half-year earnings, most were reluctant to weigh in on the matter.

Fairfax CEO Greg Hywood said his company had more to worry about than political instability in Canberra.

"Fundamentally it's an issue for the Labor Party to deal with. The Fairfax business is less impacted by what's gong on in Canberra than the sorts of uncertainty in Europe driving the reduction in consumer sentiment," he told reporters in Sydney.