FORMER TREASURER COSTELLO CASTS A SHADOW OVER

C O N F I D E N T I A L CANBERRA 000245


NOFORN
SIPDIS

E.O. 12958: DECL: 03/11/2019
TAGS: PGOV AS
SUBJECT: FORMER TREASURER COSTELLO CASTS A SHADOW OVER
LIBERAL LEADERSHIP

REF: CANBERRA 157

Classified By: Political Counselor James F. Cole for reasons 1.4 (b) an
d (d).


1. (C/NF) SUMMARY: With the economy the dominant political
issue, a growing number of Liberal and Australian Labor Party
(ALP) politicians believe that former Treasurer Peter
Costello, who refused the Liberal Party leadership when John
Howard tried to hand it to him after their 2007 electoral
defeat, will now seek that leadership. Costello has raised
his public profile in recent weeks, even appearing on a
prime-time, current affairs television program debating
Finance Minister Lindsay Tanner on the economy. Opposition
Leader Malcolm Turnbull has not gained any traction in
opinion polls, and Costello, not Turnbull is the public's
preferred Liberal Leader. Costello is seen by the public as
a strong and competent economic manager and as the world's
economic turmoil reaches Australia, the voters could look to
him for leadership. END SUMMARY.

TURNBULL FAILS TO LIFT LIBERALS


2. (SBU) The major reason former Liberal Party Leader Brendan
Nelson lost the leadership to Malcolm Turnbull after only 10
months was his failure to excite popular interest, as
reflected in opinion polls. In September 2008, when Nelson
was still Leader, "the Australian" newspaper's Newspoll,
which significantly influences the political agenda, had the
ALP leading the Liberal-National Party Coalition 56-44 and
Rudd leading Nelson 62-16 as preferred Prime Minister.
Despite Turnbull's popularity with the press gallery, this
has not translated into increased poll support for the
Coalition. The March 10, 2008 Newspoll still has the ALP
leading the Coalition 56-44, and Rudd leading Turnbull as
preferred Prime Minister 61-21. At the 2007 election, the
ALP won with 52.7 percent of the vote. Based on current
polls, if an election was held today, the Coalition would
likely lose 10-15 more seats in Parliament.

COSTELLO WON'T GO AWAY


3. (C/NF) The day after the 2007 election, outgoing Treasurer
Peter Costello announced he would leave politics to pursue a
career in the private sector. However, he did not leave
(some say he could not find a job he wanted) and he remains
coy on his future. It appears Turnbull offered Costello the
Treasury portfolio in February after Deputy Opposition Leader
Julie Bishop relinquished the job (reftel),and last week
Costello appeared on a television current affairs program
where he debated the Finance Minister. He also publicly
called on the Government to re-think its industrial relations
and emissions trading proposals. This week's Newspoll showed
voters preferred Costello over Turnbull as Liberal leader
45-38. The day the Newspoll was published, Turnbull and
Costello had a tense exchange during a Liberal Party caucus
meeting over the Government's industrial relations bill.
(NOTE: Liberal Party insiders say there is little love lost
between the two politicians.)

ODDS FIRM FOR COSTELLO TAKEOVER


4. (C/NF) The Liberal Party's nomination of a candidate for
Costello's seat is expected by mid-year. If Costello
re-nominates, the political class in Australia will assume he
wants to be Leader. Liberal Party Shadow Minister Andrew
Robb (protect),political director the year John Howard won
his first election and a leader within the caucus, told us
that if Costello re-nominates for his seat (which Robb
believes to be likely),he would only be doing so to seek the
Qbelieves to be likely),he would only be doing so to seek the
leadership. The Liberal Party's greatest perceived draw for
voters is as an economic manager, Robb said, and the leader
with the most public credibility on the economy is Costello.
Robb believed that Costello could win the leadership, but he
would have to actively seek it and challenge Turnbull.
Liberal MPs would want to see that, in the final analysis,
Costello had the guts to mount a challenge.

LABOR AGREES


5. (C/NF) The ALP also believes that Costello will seek the
Liberal Party leadership. ALP National Political Director
Karl Bitar (protect) told us, without hesitation, that he
believes Labor will be facing Costello at the next election.
In Parliament this week, Prime Minister Kevin Rudd and other
Government ministers have begun singling out Costello for
attack, as if they know who their real enemy is.


LEADERSHIP TURMOIL NOTHING NEW FOR LIBERALS


6. (C/NF) COMMENT: During the Hawke-Keating ALP governments
of the 1980s and 1990s, the Liberals were constantly feuding.
Howard and Andrew Peacock fought over the Liberal Party
leadership for years. Last month, Howard stepped into the
fray, reminding his party of the political maxim that
"disunity is death." However, the reality of Australian
federal politics, according to the ALP's marginal seats
coordinator, is that the individual member of parliament is
worth no more than 3-4 percentage points on election day.
Voters do not even vote for the party, she said, they vote
for the leader. So, nervous Liberal Party MPs will want the
leader who is more popular with the public to take them to
the election and at this point, that person appears to be
Costello. In addition, Turnbull is not particularly popular
within the Liberal caucus (he only won the leadership ballot
45-41). As in the case of Nelson before, it appears Turnbull
is being stalked by the opinion polls and a challenger
waiting to strike. As long as Costello remains in
parliament, the press will continue to focus on the
leadership, fueling further division. In July, Turnbull will
have been leader as long as Nelson and Costello is expected
to have re-nominated for his seat. A "perfect storm" could
be brewing for the Liberals mid-year.


7. (C/NF) COMMENT CONT: Costello would likely have the
numbers in the caucus if he challenged Turnbull. Most of the
Right would back him as the more conservative candidate, and
he would attract support from Moderates (his support base
during the Howard years). However, a growing number of
Liberal Party MPs are angry at Costello, seeing his reticence
at disclosing his future as self-indulgent game-playing. A
Costello leadership of the Opposition is not all up-side for
the Coalition. He was a strong supporter of WorkChoices and
was never popular as a personality with the public.
Interestingly, an ALP MP from a working-class seat in Western
Sydney told us this week that neither Turnbull nor Costello
generated much enthusiasm among her constituents. The
Liberal MP they really liked was current Shadow Treasurer Joe
Hockey.

CLUNE