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The Gerard affair

December 6th, 2005

I’m not a huge fan of political scandals, but I’ve seen enough of them unfold to have a pretty good feel for the process. The vast majority can be put into one of three categories: beatups, stonewallers and one-hit wonders.

Beatups are bogus scandals where claims that look damaging turn out to have an innocent explanation, or at least a plausible rationalisation. Mostly these do the government concerned no harm.

Stonewallers are cases where the government’s response is to brazen the whole thing out, on the principle “never apologise, never explain, never resign”. Some governments are more given to stonewalling than others, and (after a brief and costly period of upholding high standards) this has been the Howard government’s response in nearly all cases.

Finally, there are one-hit wonders. In these cases, the pressure is severe enough to force the resignation of the person most directly concerned, usually an expendable junior minister or public servant. Once the resignation has taken place, attempts to push the issue further, and look at the involvement of more senior figures go nowhere.

When the Fin reported that companies owned by businessman and Liberal Party donor Robert Gerard had been involved in a major brawl with the Tax Office over sham transactions at the time of his appointment to the Reserve Bank Board, I immediately diagnosed a one-hit wonder, as did Peter Hartcher. The details of the transactions described in the Fin were damaging, and the sensitivity of the RBA is such as to make it obvious Gerard could not last more than a few days. Still, it seemed like pretty small beer compared to say, children overboard or the lies that led up to the Iraq war.

When Gerard resigned on schedule, choosing a Friday, I thought that would be the end of the matter. This was even more so because, as Philip Gomes noted in a piece called ‘Howard’s luck’ the whole thing took place in a week dominated by the execution of Van Nguyen, which took place on the day of Gerard’s resignation.

Yet here we are four or five days later and the scandal is still headline news. The obvious explanation is that Howard’s luck is working, but his objective is not to kill the scandal but to keep it alive. Howard’s remarks on Insiders, putting the blame entirely on Costello, are the only public manifestation of this, but it seems clear that the whole thing is being given oxygen by forces within the Liberal party. (Who, for example, decided it would be a good idea to reveal that Gerard had turned down the job of Party Treasurer?) It is noticeable that, with the inevitable exception of Glenn Milne, none of the government’s usually reliable chorus of supporters in the press has defended Costello.

This of course raises the question of how the Fin got the story in the first place, nearly three years after Gerard’s appointment. An obvious possibility is that someone within the Liberal party pointed the Fin in the right direction.

I don’t share the widespread admiration of Costello as either a politician or Treasurer. I think he has the strengths and weaknesses of a school debater. He’s quick on his feet and can get on top of a brief, but rarely takes the trouble to understand the issues on which he is making debating points. But I can’t get excited about the Gerard affair. It’s time to move on, I think.

Update Tim Dunlop has more

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  1. RoD
    December 6th, 2005 at 08:39 | #1

    This of course raises the question of how the Fin got the story in the first place, nearly three years after Gerard’s appointment. An obvious possibility is that someone within the Liberal party pointed the Fin in the right direction.

    Yes, same chat in our household over the weekend.

    Seems extremely similar to what was done to John Brogdan. None of the journos present at his drunken actions and comments reported the story, but three weeks later it gets into the papers. Fed to the papers by the Christian far-right in Canberra who want their man to replace Brogdan.

    It would be great to hear more about who contacted the Fin about the Gerard story. If its an Abbot supporter it makes sense on a level. But to take out an RBA member & major Lib fund-raiser just to weaken Costello is astoundingly heavy-handed. The sort of thing to start intra-party wars.

  2. December 6th, 2005 at 09:19 | #2

    We agree with the JQ: “But I can’t get excited about the Gerard affair. It’s time to move on, I think.”

    We said the same thing on our blog a few days ago (Scroll down our blog to see the comment)

    Though the issue that must be put is how did the AFR get the tax details? Clearly, the ATO leaked, and clearly it was an ALP or at least a non-government sympathetic ATO staffer who leaked?

    Now this raises all sorts of privacy concerns and legitimate confidentiality issues concerning everyone’s personal taxation and financial affairs.

    But of course, Treasury should have done a more thorough background check before appointment to the RBA.

  3. Katz
    December 6th, 2005 at 09:33 | #3

    Gerard was a smallish stone in the Liberal road.

    Under more controlled circumstances, he would have been removed with little fuss.

    But here’s the fascination. When the stone was rolled, under it scurried all manner of nasty, poisonous Liberal creatures, all wriggling for cover, and all prepared to bite, sting, paralyse and consume every other repulsive creature.

  4. Bring Back EP at LP
    December 6th, 2005 at 09:49 | #4

    Given Gerrard supported Dean Brown I would be willing to bet it was Minchin.

    costello is in the poo because he is lazy. He never does his homework.

  5. December 6th, 2005 at 10:10 | #5

    The thing that aggravates me about this scandal is that, as this post implies, it is being given laRge amounts of media oxygen not because of any inherent concern for the principles involved, or because of a long overdue recognition amongst the press gallery that we need to reform the method of appointments to such positions, but simply because it is A new angle on the Howard vs Costello soap opera.

    It could just as easily be a fight over the colour of the pens in the Cabinet Room for all the interest there is in the substance of the issues involved.

    I don’t think it’s time to move on, because I think the ‘soft corruption’ that underpins this scandal needs to be exposed as a catalyst for wider change, but I also know that that won’t happen because the corporate media aren’t interested in soft corruption (partly because they’re players in it themselves).

    This scandal is doing Howard a favour not just because it is damaging Costello, but it is also diverting attention from his actions in the guillotining through the Senate the welfare package which will cut the incomes of many thousands of pensioners, and the guillotining of the terror laws as well.

  6. still working it out
    December 6th, 2005 at 10:13 | #6

    Opening salvoes in the fight between Howard and Costello for the leadership at the next election. By all accounts it seems that Howard has won this battle convincingly. I am not judging the battle by the effect this incident has had on public perceptions of the two candidates, but rather, by which side showed they have the Liberal Party and the media on side. It seems that Howard had the backroom of the Liberal Party on side as demonstrated by the success of the leaks and the mere refusal of pro-Liberal media commentators to defend Costello shows that they are with Howard for the moment as well.

    Costello was reduced to overtly defending himself in the parliament while Howard in his usual careful manner needed no more a short statement in an interview.

    A clear demonstration of who has the big guns on their side. Costello is going to have improve is backroom political fighting skills beyond what he has demonstrated in this incident if he hopes to take the Liberal Party leadership position.

  7. December 6th, 2005 at 11:04 | #7

    A very insightful analysis. Probably this post is the only response any of us needed to read to the Gerard scandal. Like RoD, we are all very curious to know who the Fin tip-off was, but probably Fin doesn’t really know either!

  8. wilful
    December 6th, 2005 at 12:03 | #8

    Agreeing with Andrew Bartlett, why has so little been said about the jobs for the boys soft corruption aspect? There are so many recent examples of this, but nobody cares at all these days.

  9. December 6th, 2005 at 18:51 | #9

    Katz, your comments would be much nearer the mark if they didn’t emphasise “Liberal” so much as “career politician”. Outside inner circles, both ALP and Liberals can be ethical – but inside them, both parties conceal much that is unworthy. Other parties may make less splash but are non the better for all that.

  10. SJ
    December 6th, 2005 at 19:07 | #10

    The difference isn’t in kind, PML, it’s in degree. Duh.

  11. Jim
    December 6th, 2005 at 19:27 | #11

    John ,
    What were “the lies that led up to the Iraq war” and who told them?

  12. marklatham
    December 6th, 2005 at 19:51 | #12

    Watched the lying rodent drop costello right in it on insiders on sunday morning.
    You have to hand it to howard,he is the slipperiest rodent I have EVER seen!

  13. Andrew
    December 6th, 2005 at 20:25 | #13

    Jim

    I think it was the lie that Uday Hussein personally abducted, seduced and deflowered Jenna Bush from the safety of an alien spacecraft supplied by OBL.

    Equally possibly you could try googling for “Iraq +lies” instead of trawling for another pointless battle where nothing will be able to persuade you to shut up or post on a relevant thread.

  14. Robert
    December 6th, 2005 at 21:28 | #14

    I have to agree with RoD that the cost to the Liberal Party, as a whole, will outweigh any benefit (ie damage Costello) the source had intended. If Nick Minchin was the source, the Liberal Party in his home state of SA will be livid as they are struggling for donations in the lead-up to next year’s state election and the previously generous Rob Gerrard may want to distance himself from politics.

    If I was a betting man, John Howard will never hand over the leadership to Peter Costello.

  15. Peter Evans
    December 6th, 2005 at 21:49 | #15

    Makes one wonder what else Howard has planned for Costello, in the event he judges him worthy of a little leash tightening. Maybe it was just a warning shot (pardon the mixed metaphor).

    But also a waring shot as to what it to come when Howard finally goes. I’m betting the Liberal Party won’t last another 10 years. Should be a laugh.

  16. Jim
    December 6th, 2005 at 22:20 | #16

    Andrew,
    My apologies – I will take your advice and leave you to it!
    Enjoy talking to each other!

  17. December 6th, 2005 at 23:21 | #17

    Curious – I appear to have been censored for noting that the bad behaviour is not among Liberals but among politicians. Partisan, or what?

  18. Terje Petersen
    December 7th, 2005 at 06:30 | #18

    Why do we stockpile Australias richest individuals on the RBA board. We put people like Gerard and Lowy in charge of interest rates. Isn’t this a form of crony capitalism that should have been discredited by now. Some might call it plutocracy.

    In another thread Katz tells me that his prefered “monetary system” is one called “prudent opportunism”. It seem to me that this is exactly what we have got as a monetary system. However I doubt that it serves the interests of the markets in general or the wider community.

    Gerards crime, and Costellos by inference was to bring the RBA board into disrepute. However the whole system should be in disrepute.

    If we must have a central bank then its charter should be to ensure that the value of our money/(currency) is stable. Not to mess about with the price of credit risk.

    Costello should sack the entire RBA and institute a currency board tasked with keeping the aussie dollar stable with respect to a basket of commodities. Not unlike what Keynes proposed with the Bancor.

    http://en.wikipedia.org/wiki/Bancor

  19. Bring Back EP at LP
    December 7th, 2005 at 08:46 | #19

    costello’s chief of staff is very culpable here.
    didn’t he do any homework.

    didn’t he talk to any liberals in SA. both dries and wets?

    Apparently not.

  20. Simon Musgrave
    December 7th, 2005 at 08:59 | #20

    One aspect of Gerard’s case which seems to have attracted little comment, and I hope that this is not just because we all accept it, is that some people can, in effect, choose how much tax they are willing to pay. I understand that the ATO has limited resources and probably saw little option other than agreeing a settlement, but I wish I could have the option of settling for substantially less than the ATO thinks I owe!

  21. Paul Watson
    December 7th, 2005 at 09:13 | #21

    John, I think that the Gerard/Costello situation is more complicated than you make out.

    There is a paradox – which no one seems to be noticing – of Gerard’s tax troubles being half-public (in the “half-pregnant” sense). They were prominent news in Adelaide, at the very least, in March 2003: http://www.abc.net.au/7.30/content/2005/s1525205.htm Now, insert stock Adelaide-as-backwater joke here. Almost funny enough to explain things? If so, then Crikey “not [being] considered a reliable journal of recordâ€? (same URL) may tend to dampen one’s hoots, methinks. Whatever Crikey’s reliability may be, it is plainly at least read in the corridors of power: i.e. nothing could be more “freshwaterâ€? compared to Adelaide.

    Plainly then, the broadsheet/national media – and Labor – had sufficient notice of Robert Gerard’s tax troubles in March 2003. The reason, I suspect, that they didn’t run with it then is that it didn’t have Costello’s name – and scalp – all over it.

    This is hence disgraceful journalism, and callow politicking by Labor. While I couldn’t care less about Costello going or staying, it is dishonest for the media and Labor to not recognise that they are conveniently re-heating a “cold� story – that if it head been served warm in 2003, would have been much less damaging to Costello, because the blame, then fresh, would have been much more diffusible, and the explanation simpler.

    This morning, if in a rush, I fail to help a proverbial little old lady cross the road, and am immediately confronted by the media about it, I may well come across as an arrogant git. However, if the media were to sit on this “story” for three years, should they then choose to air it with saturation coverage, I could be easily depicted as Australia’s Most Wanted, with my inevitably stammering responses to an old and peripheral memory being the media-prosecutor’s dream “smoking gunâ€?.

  22. Katz
    December 7th, 2005 at 09:17 | #22

    Terje, the salient point, so far as members of the Board of the Reserve Bank is concerned, is that these representatives of corporate Australia represent debtors.

    Once upon a time, back in the days of the Commonwealth Bank Board under the leadership of Sir Robert Gibson (1920s and 1930s), currency and credit creation machinery was in the hands of creditors (mostly principals in Australia’s private banks.) Those were the days of national capitalism.

    Now, in theearly 21st century, Australian citizens and Australian corporations are nett debtors.

    Debtors have an interest in inflation, i.e., paying back old debts in inflated money.

    However, these days we live in an era of international capitalism. Mere inflation won’t do the job if one’s debts are denominated in a foreign currency appreciating in relation to the $A. Australia’s banks are also massive borrowers of foreign loans.

    Thus, these corporate debtors both spend money to hedge against unfavourable exchange rate moves, and their representatives on the Reserve Bank Board are careful not to allow the $A to sink intolerably against foreign currencies in which their debts are denominated.

    It appears to me that this is a textbook example of a policy of “prudent opportunism”.

  23. jquiggin
    December 7th, 2005 at 10:11 | #23

    Paul, the story in the Fin was much more damaging than is suggested by the headline of the Advertiser story you link to – the mere fact of a dispute with the Tax Office is not a disqualification for public office, only something that ought to raise questions.

    I don’t see this as evidence that Labor sat on damaging info for years: more plausibly, they were asleep on the job until the Fin ran the story, presumably reflecting a fairly recent tipoff.

  24. Paul Watson
    December 7th, 2005 at 15:04 | #24

    John, I don’t doubt that the late Nov 05 AFR story on Gerard was punchier than the March 03 Advertiser one. Until his Dec 2003 $75m+ settlement with the ATO, Gerard could not be conclusively regarded as on the nose.

    So why the two-year delay for the media and Labor to latch on to this twist/finale? I accept that internal Liberal shenanigans may be the proximate explanation for the strange timing, but that doesn’t at all exculpate the media or Labor for joining in on a one-sided slingfest.

    I repeat that I don’t care at all about Costello’s fate. However, I do care about journalistic ethics (and political ethics also, if there is indeed such a thing). Finally, lost in the stupid belatedness of this Who Knew What When game is the extremely light (= non-custodial) “sentenceâ€? Robert Gerard received for large-scale tax evasion. Personally, I think that some details on the strings surely pulled here would make a much more interesting story than the low-down on what newspapers the hapless – and basically honest, AFAICT – Peter Costello may have read in March 2003.

  25. Jim Birch
    December 7th, 2005 at 16:50 | #25

    Nice work Andrew.

  26. jquiggin
    December 7th, 2005 at 16:55 | #26

    Finally, lost in the stupid belatedness of this Who Knew What When game is the extremely light (= non-custodial) “sentence� Robert Gerard received for large-scale tax evasion. Personally, I think that some details on the strings surely pulled here would make a much more interesting story than the low-down on what newspapers the hapless – and basically honest, AFAICT – Peter Costello may have read in March 2003.

    I agree entirely

  27. stephen bartos
    December 7th, 2005 at 17:18 | #27

    there’s a couple of aspects of this whole thing worth commenting on. First, any government appointments are scrutinised closely by the Prime Minister’s office before they go to Cabinet. I would be astonished, and it would be a first for this government, if the Gerard appointment had not been discussed between the respective offices (ie the personal staff) of Costello and Howard before it went in to the “swinging from the rafters” Cabinet meeting that Costello cites. so for the PM to attempt to distance himself from the appointment decision is just misleading (at best). second is the much bigger principle – should the government make appointments to as important a body as the RBA Board without any external scrutiny? I know, and am the first to acknowledge, that the US confirmation hearing process has its defects – but it would be better than what we have here.

    by the way, in terms of monetary policy it hardly matters – in recent years the RBA Board has wisely gone along with anything the governor proposes, and in that sense there is not a real problem in terms of overall macro policy settings. I suppose the issue is that it might have done something stupid in that time…in which case the government appointments to the Board would really have mattered.

  28. Alan
    December 7th, 2005 at 20:55 | #28

    stephen bartos hits the nail on the head: no-one could be appointed to the RBA board without Howard’s staff checking that the appointment would be to Howard’s advantage.

    At first I was surprised that someone would roll a member of the RBA board or a very generous financier of the Liberal Party for factional advantage. This is playing for keeps with high stakes. Then I remembered that we are talking about the same people who sent hundreds of women and children to their deaths on SIEV X.

  29. wilful
    December 8th, 2005 at 08:46 | #29

    At first I was surprised that someone would roll a member of the RBA board or a very generous financier of the Liberal Party for factional advantage. This is playing for keeps with high stakes. Then I remembered that we are talking about the same people who sent hundreds of women and children to their deaths on SIEV X.

    I quite sincerely believe that in their world, the loss of a major donor is a far bigger issue than the drowning of a bunch of reffos.

  30. January 23rd, 2006 at 14:42 | #30
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