P 120724Z MAR 09
FM AMEMBASSY CANBERRA
TO SECSTATE WASHDC PRIORITY 1188
INFO AMEMBASSY WELLINGTON PRIORITY 
AMCONSUL MELBOURNE PRIORITY 
AMCONSUL PERTH PRIORITY 
AMCONSUL SYDNEY PRIORITY 
NSC WASHINGTON DC PRIORITY

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