Why Peter Costello’s leadership dream was thwarted

Two events combined convinced the then treasurer to accept the ‘reality’ that John Howard would not hand over the reins in the Coalition’s second term.

Peter Costello knew the leadership transition was not going happen when John Howard ‘became a war leader’. Picture: AAP

The war in Afghanistan and ­implementation of the GST ahead of the November 2001 election meant Peter Costello had to accept John Howard would not hand over the prime ministership in the Coalition’s second term.

“Howard said he would do one or two terms but by this stage I was completely overwhelmed by the GST, which was the biggest thing to happen in Australian politics in the last 25 years, and then you had the terrorist attack and he became a war leader,” Mr Costello told The Weekend ­Australian.

“It was inconceivable that we could do a leadership transition then, so I just accepted the reality and kept on working as I did, and I worked incredibly hard for the government, and we got back at the election and so it all got postponed until the next term.”

On December 5, 1994, Mr Howard and Mr Costello met to discuss the leadership of the Liberal Party, then occupied by Alexander Downer, with Ian McLachlan as a witness. According to Mr Costello and Mr McLachlan, Mr Howard agreed to serve only 1½ terms as prime minister and then defer to Mr ­Costello.

Mr McLachlan, who later served as defence minister, made a note of the conversation and kept it in his wallet until it was revealed in 2006. Mr McLachlan confirmed that a deal had been made and it was struck to prevent Mr Costello, then the deputy leader, contesting a ballot against Mr Howard.

The note read: “Meeting Monday Dec 1994. Undertaking given by JH at a meeting late pm in PC’s room that if AD resigned and Howard became PM then one and a half terms would be enough and he would hand over to PC. IMcL.”

Mr Howard told The Weekend Australian “there was no deal” about the leadership and there was no pressure from Mr Costello or anyone else in the party to stand aside in the government’s second term, even though there was media speculation about a leadership change before or after the 2001 election.

“I don’t remember it had ever been put to me that somebody else should lead the government to the 2001 election,” Mr Howard said. “I can tell you that without fear of contradiction. I don’t think I have actually ever seen the note [but] of course I dispute it.”

A memo by the Liberal Party’s federal president, Shane Stone, describing the government as mean, tricky and out-of-touch, was leaked and strained relations between Mr Howard and Mr ­Costello in May that year.

Mr Costello, the treasurer and deputy Liberal leader, began to suspect that Mr Howard would never depart the prime ministership and facilitate a leadership transition.

“September 11 really changed things,” Mr Costello reflected. “The country went to war in ­Afghanistan closely followed by war in Iraq. It is not business as usual; your prime minister is ­essentially your leader in a war situation. This is what changed everything.”

“Whereas we used to fight ­elections on the economy, and still did in 2001, defence and national security became an issue in 2001 and certainly an issue in 2004.

“That terrorist attack made defence and national security very much a political issue, which I had not experienced in my political life.”

Mr Costello’s rival as a potential successor to Mr Howard was defence minister Peter Reith, who retired at the 2001 election. But the former treasurer never saw Mr Reith as a rival.

“No, I don’t think Reith was ever really a serious leadership contender,” Mr Costello said.

“He got talked up every now and then but I don’t think he ever was.”