That's not an easy question to answer. Compared to the rest of the world we're doing amazingly well. It's a couple of years old now, but here's some good examples of how well we're doing:
http://blogs.crikey.com.au/pollytics/2011/12/08/australian-exceptionalism/
The 2007 election was won by Labor as lead by Kevin Rudd. Rudd was popular with people, but unpopular internally within the party. Every party has factional conflict, but Rudd wasn't really aligned with any of the factions. There were a lot of leaks about Rudd poorly managing things internally, like the micromanaging mentioned in the OP. So as soon as Rudd started to falter in the polls a little, Labor voted him out as leader and installed Julia Gillard as Labor leader and thus as Prime Minister. We don't have a presidential system in Australia, the party decides on their leader, you just vote for your local member. Still, a lot of people see the leader as the person they vote for, and those people were unhappy with their choice being made for them.
Perhaps partially as a result of that, the 2010 election resulted in a hung parliament, meaning neither major party had enough elected members to form government. The parties needed to negotiate with independents and minor parties to form government. To some peoples surprise, two relatively conservative independents agreed to form government with Labor party, rather than the Liberal/National coalition. The coalition felt that they should have won, so they set on a course of constant destabilisation (as predicted:
http://blogs.crikey.com.au/pollytics/2010/09/08/let-the-great-unhinging-begin/).
Gillard was PM again, but with a minority government, meaning she had to answer to the independents in the lower house, and to the Greens in the upper house. Having pledged to do something about climate change, she tried again to implement an emissions trading scheme, as the Rudd government had attempted to do in the previous term. Needing the Greens approval to do it, they had to agree to their terms to fix the price of carbon for the first few years of the scheme. The opposition branded this a "carbon tax", which Gillard had promised not to implement. She completely lost the messaging on this, and from this point on, nothing she said or did mattered. People lost interest and the polls sunk to historic lows for Labor.
After a few attempts, Labor finally installed Rudd again as leader and the polls rebounded, and they're in with a fighting chance for the coming election. They're still underdogs though. We can bet on politics here and it's generally a pretty good indicator. Labor are at $4 and the Coalition at $1.25.
I left out a lot in that, but I think the "instability" basically comes down to internal politics and a hung parliament. Rudd has pledged to change internal Labor rules so the leader isn't so easy to change, but I think the damage has been done.
Oh boy, Guess who runs this paper:
Also these:
Good blog post about it:
http://thefailedestate.blogspot.com.au/2013/08/did-you-vote-for-this-man.html