RUDD GOVERNMENT CALLS ON OPPOSITION LEADER TO

UNCLAS SECTION 01 OF 02 CANBERRA 000723

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: AS PGOV
SUBJECT: RUDD GOVERNMENT CALLS ON OPPOSITION LEADER TO
RESIGN

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1. (SBU) Summary: An Auditor-General's report has, as
expected, cleared Prime Minister Rudd and Treasurer Swan of
improperly assisting a car dealer friend of Rudd's. The
report criticized the Treasury Minstry for its administration
of a car credit scheme, especially a Treasury official who
provided the Opposition with information. The
Auditor-General's report is separate from an Australian
Federal Police investigation into the related "e-mail affair"
which backfired on Opposition Leader Malcolm Turnbull. In
late June, police revealed the e-mail to be forged and on
August 3 the Treasury official admitted creating it. It has
been revealed Turnbull was in contact with the Treasury
official prior to the latter raising the "e-mail affair" in a
Senate hearing; Turnbull is desperately trying to distance
himself from him. The government is demanding Turnbull's
resignation. End Summary.

RUDD AND SWAN CLEARED


2. (SBU) On August 4, the Auditor-General released his report
- "Representations to the Department of the Treasury in
Relation to Motor Dealer Financing Assistance" - which
investigated Opposition allegations that the Prime Minister's
and Treasurer's offices had provide special treatment to a
friend of the Prime Minister's, John Grant, who was seeking
finance under a government assistance scheme for car dealers.
A key passage in the report is:

--Concerning the issue of whether preferential treatment was
given to Mr. Grant's case, the Treasurer spoke briefly with
Mr. Grant, at the request of the Member for Oxley. Treasury
was aware that the dealer was acquainted with the Prime
Minister, but there is no evidence that the Prime Minister
was aware of the representation, or that the Treasurer or his
Office applied any pressure on Treasury to give this dealer
more or better assistance than others.

Additionally, the report concluded that there were weaknesses
in Treasury's administration of the scheme, and official
Godwin Grech (widely viewed as a Liberal Party sympathizer)
may have broken the Public Service Code of Conduct by
providing confidential information to the Opposition.

THE E-MAIL AFFAIR


3. (SBU) In late June, the Australian Federal Police revealed
that an e-mail - apparently between the Prime Minister's
Office and Grech - was a fake. The e-mail was the basis for
the Opposition's claim that the Prime Minister had mislead
parliament over his contact with John Grant. Subsequently,
Opposition Leader Malcolm Turnbull has taken a severe
drubbing in the polls. The AFP's investigation has not
concluded that Grech, despite his admission on August 3, that
he created the fake e-mail. Grech, who has subsequently
entered a mental health facility, maintains the Prime
Minister's office e-mailed him in relation to John Grant.
Grech claims he provided the fake e-mail to Turnbull "under
great pressure" prior to the Opposition questioning Grech
about it in a June 19 Senate hearing.

THE FALLOUT


4. (SBU) Turnbull released e-mail correspondence allegedly
showing Grech had instigated contact with the Opposition in
relation to the fake e-mail and that Grech voluntarily
provided a list of questions for the Opposition to ask him in
the Senate hearing. Turnbull received Grech's information "in
good faith." The Rudd Government has heaped scorn on
Turnbull. Cabinet Minister Chris Bowen, undoubtedly speaking
with the Prime Minister's blessing, said of Mr. Turnbull that
"his position is untenable. He must resign and if he won't
resign, the power brokers of the Liberal Party should require
Qresign, the power brokers of the Liberal Party should require
his resignation." The government is pushing for a Senate
Privileges Committee inquiry into whether the Opposition had
improperly "coached" a witness. The media is condemning
Turnbull for wahat it calls his lack of contriteness. One
commentator wrote: "Australia needs to know what you've
learnt, Malcolm, that will lead you to make fewer errors, not
more excuses."

LIBERAL MPS TURN TO COSTELLO


5. (SBU) COMMENT: The only consolation for Turnbull is that
the media's main focus was recent widely reported
counter-terrorism operation in Melbourne. Nevertheless, it
was clearly the day's second biggest story - and Turnbull was
hammered. The damage for Turnbull was exacerbated by his
refusal to admitting any fault or offering an apology. Some
Liberal MPs fear this issue has permanently damaged

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Turnbull's credibility, making him unelectable. What is
keeping Turnbull in the leadership is the reluctance of
others to lead the Opposition to an almost certain defeat.
Former Treasurer Peter Costello - who ruled himself out of
leadership contention - remains the Opposition's best hope of
minimizing damage at the next election. Unfortunately for
Turnbull, "Utegate" is not yet out of fuel.