The Gippsland by-election was a dreadful result for the government, and there is no point in pretending otherwise.

Not that anyone is — Kevin Rudd and his colleagues have experienced their share of defeats over the years and they never expected their time on the treasury benches to be trouble free. But they would hardly have been prepared for such a massive kick in the groin quite so soon, when all the national polls were indicating that they were still enjoying a prolonged honeymoon with the voters.

It wasn’t just that they didn’t win the seat; Gippsland has always been considered safe National territory, and although it has occasionally appeared on ALP wish-lists, it has never actually shifted very far. Even last year, the swing in Gippsland was only just over one percent, far less than the state and national average. And of course, a swing against the government is normal in by-elections; people use them as a wake-up call and protest vote.

On top of this, the Labor candidate was hardly ideal; he was parachuted in by head office on the basis of some star quality which was clearly invisible to the locals. Finally the issue of petrol prices, very much in the headlines of late, is particularly powerful in rural electorate like Gippsland.

But having said all that, eight percent would be horrendous at any time — a national swing of just over half that would see the government out on its ear. And the swing is especially worrying because, in spite of what Rudd said in the aftermath, the impact of the hard decisions is still to be felt; indeed, most of them haven’t even been taken yet.

If the current price of petrol is a cause for concern, how are people going to feel about a further government-induced jump of ten cents a litre, which is what will have to happen if Rudd is serious about tackling climate change? And of course the flow-on effect will kick up the price of everything else, most notably food, which is already running at record levels. Thus cost-push inflation will get an extra kick along, while demand will be severely reduced — the classic recipe for stagflation, a period of both high inflation and low or even negative growth, leading to rising unemployment.

This is the gloomy prospect ahead and the government will not only have to find ways to ameliorate the pain as far as possible, but also to convince the punters that the bits the government can’t deal with – and there will be plenty of those — are actually necessary and worthwhile. And it had better start pretty soon.

At least some Labor supporters were disturbed that straight after the Gippsland debacle Rudd, instead of prime ministerially returning to the national economy, immediately set off on a crusade about child neglect. Now there is no doubt that this is a serious and emotive problem, and not just in the Aboriginal communities, as people were led to believe when John Howard launched his Northern Territory intervention. But it is not the main game, especially for the federal government.

Family matters and especially child welfare are the responsibility of the states, which are closer to the populace and are more directly involved with the delivery of services. Rudd is right to be concerned at the situation; he would be less than human if he were not. But strictly speaking, it is not his business. He was elected to look after the broad national issues, and as Gippsland has shown, there is a feeling developing that he is not doing so.

At least from now on he will be dealing with a senate that more closely reflects the real national mood; the coalition control has finally come to an end, and this will change the game completely. It can now be seen that Howard’s victory in 2004 which gave the government a senate majority for the first time in a generation was something of a poisoned chalice. It allowed him to implement his Iron Dream, the excessive industrial policies of WorkChoices, which were undoubtedly a key factor in his downfall.

But perhaps even more importantly, it took away one of his most potent weapons, the political wedge. Previously, he had been able to split the Labor Party by introducing populist but unprincipled legislation which left his opponents divided over whether to support it or oppose it; the decision was a real one, because with the aid of the minor parties in the senate the legislation could be amended or even defeated. But with the government in full control, that option no longer existed so there was no point in Labor tying itself in knots over dilemmas which could have no practical outcome.

A key example was the above-mentioned Northern Territory intervention: many people had grave reservations about many aspects of it, and normally the party would have agonised publicly for days, damaging itself considerably in the process. But in 2007, Howard was going to ram it through anyway; there was nothing the opposition could do so the opposition did nothing. Howard, poised to claim that sections of Labor supported child abuse, was left comparatively speechless. There are times when omnipotence not only leads to hubris but actually gives the enemy strength.

The new senate also marks the demise of the Democrats, Australia’s second longest running minority party after the Nationals, formerly the Country party. The Democrats never had a similarly solid socio-economic base, or even a coherent political organization, but did amazingly well without either, More often than not they represented hope, and many will miss them.

One of these will be Kevin Rudd, who must now negotiate with the uncompromising Greens and a couple of fanatics to get his legislation through. Beside them, the Democrats looked positively rational.