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Margin for error

SIMON CREAN: One hundred and fifty four dollars, and he's done it for 47 nights. One hundred and ....

MAXINE McKEW: After one of the bloodiest weeks in recent political memory, both Kim Beazley and John Howard managed to raise a laugh over the travel rorts affair.

KIM BEAZLEY: I just want to assure you that I walked from Western Australia yesterday.

JOHN HOWARD: Kim, you didn't have to tell us you walked from Western Australia, we had somebody following you.

MAXINE McKEW: But both know just how high the stakes run. Can Beazley land a killer blow, or will John Howard use this as a chance to recast his team for the run-up to the next election. Is there now any margin for error? That's our story tonight.

When John Howard's senior adviser, Grahame Morris, was asked how he felt about his sacking last week, he responded in a remarkably Canberra fashion: the sun will rise tomorrow, he said, and people will look back and realise that only a couple of politicians got hurt. No one else got hurt.

Well, the sun rises but it seems each morning there's a new casualty from the travel rorts affairs. One bureaucrat has resigned this week, with another expected to be stood down. And it was also Kim Beazley who was targeted today. While the Opposition Leader and his front bench pressed ahead with their attempts to embarrass the Prime Minister with more claims of travel rorting, Labor found itself under attack. Mr Beazley was asked to explain why he'd allowed one of his staffers to work in New South Wales during a by-election campaign on full pay, using a car paid for by the taxpayers.

Now, it goes without saying that despite these casualties, the rorts affair has some way to go, with staffers freely admitting there's a sea of paper and travel claims being analysed for any flaw. Ironically though today, while both leaders and their parties fought for political advantage, for some the one note of reality was provided by an Independent MP, Peter Andren. With all eyes on him, Andren asked why MPs and Ministers had been allowed to amend the travel allowance claims at all before they were published; and why the Prime Minister didn't simply draw a line in the sand and admit the system had been systematically rorted and create a new system.

The Prime Minister's response was to deflect the first part of the question and then to attack the questioner, accusing him of being sanctimonious and self-righteous.

Well, is that the way the electorate sees it, and to what extent does Travelgate raise wider questions about the Government's competence, about its relationship with the bureaucracy, and will John Howard seize the chance of a ministerial reshuffle to resuscitate his flagging fortunes?

Well, to answer those questions I'll be joined in just a few minutes by three of Australia's top writers on political and economic issues, but first Peter Andren, the Independent Member for Calare in central New South Wales.

Peter Andren, welcome to Lateline.

PETER ANDREN: Good evening.

MAXINE McKEW: It seemed to me you asked quite a reasonable question today and you got a big bucket tipped all over you. Did that surprise you?

PETER ANDREN: Well, I was staggered when the attack came from the direction of the Prime Minister, because the question I asked was one that I'd been asked many times over the past week by people not only within the electorate of Calare but throughout Australia. They'd been ringing and saying: Why in Heaven's name were these signed off travel allowances allowed to be adjusted before they were subject to scrutiny?

And then I also said: Well, why don't we draw a line in the sand? I did say that there had been systematic rorting. Now, I stood up and said: Well, I withdraw that, and I do. I haven't go evidence of systematic rorting, but I think enough is on the ....

MAXINE McKEW: Presumably, though, you sought to choose your words carefully. I know you withdrew that word, but let me ask you now: to what extent do you think there is widespread abuse of the present system?

PETER ANDREN: I think the system is subject to all sorts of abuse. Up until recent times, following the Colston affair and following the questions that I put to the Minister ....

MAXINE McKEW: Abuse of what kind?

PETER ANDREN: Well, the fact that there is no accountability for the travel claims up until recent times - a system that's so open-ended that I was amazed when I first came into this place. Having worked for nigh on 30 years in the media and had been subject to very close scrutiny of any allowances, and receipts had to be provided, I couldn't believe that the system was so slack.

MAXINE McKEW: But slack or ... for instance, let me just ask you what you define as, say, abuse. For instance, Peter McGauran, what he did in, say, claiming something like over $300 to stay in Melbourne when he was away from home base, even though he was staying in an apartment owned by his wife, that is perfectly legal, isn't it?

PETER ANDREN: Of course it is.

MAXINE McKEW: But would you regard that as abuse?

PETER ANDREN: I would regard it as abuse, because I really think it is outside the spirit of any scheme that is there to provide an allowance to someone to counter their expenditure on behalf of the Commonwealth. But if you're staying in property that your family owns, I really don't believe that that's in the spirit of it, but it's certainly in the guidelines. So there's nothing illegal about it.

MAXINE McKEW: Can I ask you about your own arrangements, say when you're in Canberra? What do you do? You claim, obviously, the Canberra rate. If that rate is higher than, say, the arrangements you have for accommodation do you take advantage of that, because that's the system?

PETER ANDREN: I certainly make sure that I don't come down on a Sunday night. I drive down on Mondays, I go back Thursday. I claim for three nights. I pay rent for a flat in Canberra and the rest of it is used for meals and for sharing any functions that I might have in the Parliament House to pay for bills there. I don't believe $145, if it's expended on that purpose, is an enormous amount of money.

MAXINE McKEW: But if there's anything left over you pocket that, and that's tax free, and that's the system.

PETER ANDREN: Well sure. I use it for other matters within my electorate.

MAXINE McKEW: Now, the Prime Minister says that he's got the Remuneration Tribunal looking at this. Why isn't that good enough for you?

PETER ANDREN: Well, I think that the Remuneration Tribunal has set up this system over the years, and it basically hasn't provided a fully-accountable system. And it's been challenged over the years, I must say by particularly Ted Mack. It seems that Independents are the ones who able to, because I know there are many, many people in that House who are disturbed by it, particularly first-termers, some of whom have said to me they are. But I presume the party system is such that it says: don't rock the boat.

MAXINE McKEW: But Peter, you would also understand the sensitivity of both major parties. As you heard from the Prime Minister today, it's felt that it is very easy for Independents to sound pious on such matters because you don't have to worry about party discipline.

PETER ANDREN: Of course, but I mean, to describe me as smearing people and to be, what was it, self-righteous unction, I really did find quite sickening in a literal sense. I was quite shaken by that experience there today because I was hoping I would give the Prime Minister the opportunity to say yes, it has been abused and there's records of that over the years and say: well look, we do need, and this is the system that I think we should put in place. I don't believe those that have been announced to date are sufficient.

MAXINE McKEW: Just a final point, Peter. We're now well and truly, as you know, into a tit for tat exchange between the Government and the Opposition. What would your voters in Calare think of this?

PETER ANDREN: Well, my voters in Calare have been ringing the office, about four or five calls a day. One only to date, in the past week, has been critical, saying that I have been grandstanding on the issue. The rest have been totally supportive. They've asked that first question I put to the Prime Minister today: How in Heaven's name can we have a system that requires an adjustment before it goes to the judge prior to it being published? And they don't understand that; nor do I.

MAXINE McKEW: Peter, are you going to re-ask your question? Any plans for that - to any other Minister?

PETER ANDREN: Well, I would like to get a full answer, and the Prime Minister's indicated he will give me an answer in the early part of that answer he gave today to the first part of the question, how that was allowed to happen. And I'll be satisfied for the time being.

MAXINE McKEW: All right. Peter Andren, on that note, thank you very much.

PETER ANDREN: Thank you.

MAXINE McKEW: Now to my other guests. Paul Kelly is the international editor for the Australian newspaper. Now based in Sydney, he's spent much of the last 30 years reporting from the national capital. And he's the author of the definitive book on the Hawke years, The end of certainty.

Max Walsh is a business writer for the Sydney Morning Herald. A former editor of the Financial review, he too has spent most of his journalistic life analysing economic policy and politics in Canberra. And they both join me tonight from Sydney.

And Malcolm Farr is the chief political reporter for the Daily telegraph, and he joins me tonight here in Parliament House.

Welcome everyone, thanks for joining us.

Malcolm, what did you think of the response that Peter Andren got today from the PM?

MALCOLM FARR: I thought it was quite extraordinary. We have a very sensitive Prime Minister, obviously, who should be worried about the perception out there. What punters will see is an Independent standing up and asking a reasonable question. They'll see the Prime Minister rise and rouse at him, and suddenly they'll see the Independent booted out.

Now, of course, the Speaker was the one who ejected Mr Andren, but there's not a terribly deep knowledge of standing orders out there among voters. It will look very much like Mr Howard kicked out somebody for asking a question which seemed quite reasonable, about something that a lot of people are talking about and thinking about.

MAXINE McKEW: Malcolm, why do you think the PM is so sensitive? One could argue that he has acted decisively and he's had two reasonable days in Parliament.

MALCOLM FARR: Two reasonable days and essentially a week of shockers. All this goes to Mr Howard's personal credibility and it also goes to the competence of his Ministers. Mr Howard might survive personally but quite clearly, in the minds of many, he'll be seen as being in charge of a government which takes full advantage of lurks and perks.

Now, the voters knew, or they thought they knew that Members of Parliament did that. The difference in this case is it's been detailed how they did it, with people staying at their wives' flats and still claiming a hell of a lot of money for it, for example.

MAXINE McKEW: Labor also didn't have a very good day today. One could say that Kim Beazley came out of Question Time looking a bit bruised.

MALCOLM FARR: Mr Beazley didn't have a good day. They tried to target an advance man for the Government, the ministerial office, and on this occasion the Government had dotted the i's and crossed the t's and he was perfectly legit in what he was doing, working for the Liberal Party in South Australia. And worse than that, the Government was able to come back with even more information on an adviser to Mr Beazley who apparently frequents by-elections while still being paid from his staff.

Now that sort of stuff doesn't rate with the Transport Minister, and it seems that soon we're going to be getting down to who paid for the tea and bikkies. But it still isn't very good for Mr Beazley who wanted to get on the front foot; he couldn't.

MAXINE McKEW: So is Labor running out of steam on this, do you think?

MALCOLM FARR: It sounded very much like that today. Perhaps they should have left well enough alone over the weekend. They're having a look at Bruce Scott, the Veterans' Affairs Minister, who declined to fully explain his position in Parliament but issued I think at least two statements after Question Time explaining why he travelled so widely outside his electorate and stayed in places not his home so often. That is more an embarrassment for the Government than a deadly situation, but that probably could be all the Labor will get.

MAXINE McKEW: Paul Kelly, we did see the Prime Minister attempt to take the high moral ground today, insisting that he dealt decisively with errant Ministers and contrasting that with, say, how Kim Beazley and Gareth Evans behaved in relation to Mal Colston. Now, is this a credible line for the Prime Minister, do you think?

PAUL KELLY: I think it's the only line for the Prime Minister, Maxine. There's no doubt that he did act decisively last week. He removed three Ministers, he removed his own chief of staff, and this was extraordinary. We've never seen a prime minister forced to take such drastic action before. So, as far as John Howard is concerned, it's quite sensible and logical for him to argue that he's taken decisive action.

I think he faces a few problems though. I mean, what was the cause of all this? It seems to me that one of the real problems here is the lack of administrative and political competence on the part of the Howard government. I don't think one can see the travel allowance affair in isolation; I think it's more symptomatic of underlying administrative and political difficulties. And what John Howard has got to do is he's got to get a better performance from his Ministers and from the government overall.

I think the other problem he faces is, having been so tough on his Ministers, the next time he stumbles people will apply to him the same standards which he's applied to others.

MAXINE McKEW: Are you satisfied, Paul, at this stage that, on the basis of what Mr Howard has said that he did not know, certainly of, say, what Mr Jull was up to?

PAUL KELLY: I think that's right. John Howard had said quite clearly that he didn't know; I think that's correct. If he did know he wouldn't have sacked David Jull in the first place. In that sense, any parallel with Watergate is quite inappropriate.

MAXINE McKEW: So are there any questions then left for the Prime Minister to answer, do you think?

PAUL KELLY: Well, I think there are. I think there are plenty of questions, first of all about the TA system. That system has got to be refined and improved, and secondly about the quality of his government.

MAXINE McKEW: Max Walsh, what would you say? Does Travelgate risk offending not just say John Howard's battlers but, if you like, a range of core Liberal supporters who may well be offended on some other issues as well, and this adds to it?

MAX WALSH: Oh, it certainly does. This adds to a general sense of disenchantment in a core constituency of the Liberal Party. I mean, ever since John Howard became Prime Minister he hasn't quite reflected, or in fact he has done anything else but reflect, a lot of the core values of the traditional Liberal Party.

I mean, we saw his response to Pauline Hanson. Instead of knocking her down immediately and taking a high moral ground, he let her run and, in a way, implied support - or that was the way it was seen by others. There is the way in which Wik has been handled; there is the way in which the stolen children has been handled in a rather insensitive manner. I think they ... in what I might call the leafy suburbs of Sydney and Melbourne, they would have expected a different response from a Liberal Party leader.

MAXINE McKEW: Just give me an idea. How many, say, supportive letters would a paper like the Sydney morning herald be getting about John Howard over the last couple of months, up till now.

MAX WALSH: Well, in all honesty, the proportion hasn't been large. It's been quite noticeable that they haven't lined up to support John Howard with the same enthusiasm, for example, as they did Paul Keating, even when Paul Keating was under attack.

What I am suggesting there is that John Howard doesn't have the same core of strong supporters that are always ready to get out and defend him that Paul Keating had at his worst moments.

MAXINE McKEW: But John Howard might say: well look, the readership is the leafy suburbs of the north shore, who cares, that's the elite, I'm not governing for the elite?

MAX WALSH: That's true, he's not governing for the elite, but unfortunately it's the elite who represent the core constituency of the Liberal Party. And you can't get too far away from your core, any more than Paul Keating could get too far away from the core of the Labor Party, because once you lose that core support you start to fall apart. It gets down to the question of your leadership then, rather than the Liberal Party versus the Labor Party.

MAXINE McKEW: Paul Kelly, can I come back to your point about competence. You referred to this in your article on the front page of the Australian on Saturday. I think it's probably fair to say most voters didn't expect an exciting government but they did expect a competent one. Why is there such a question mark over this at this stage?

PAUL KELLY: I think there are many reasons for this, Maxine. It's quite a difficult issue to come to grips with. We need to bear in mind, of course, that the Coalition spent a long period in Opposition - 13 years - and when it came back into office it had very few people with ministerial experience.

I think one of the paradoxes is that the Coalition didn't have good networks. I think that it was quite inward looking. When it came to its approach to government it was very suspicious of the public service, it didn't trust the public service. It saw a public service working well with the Labor Party and instead of interpreting this as a sign of the competence of the public service, it really concluded that this indicated that this service was too close to Labor. And I don't think that was really a correct conclusion.

MAXINE McKEW: It was in some cases, surely, with many of the secretarial appointments.

PAUL KELLY: It was in some cases, but it's the job of the public service to serve the government of the day, and I think it's incumbent upon the incoming government, the Howard government, by this stage to have established a far more constructive working relationship than it has with the public service.

MAXINE McKEW: So would you say they have taken this distrust with the public service so far that they are not mindful of the good advice they could be getting?

PAUL KELLY: Well, it's a factor. I mean, I just stress that it's a factor; it's one among many. Another, I think, is the overall talent of the ministry. It seems to me, when you look back at previous governments, that the talent in this ministry overall is not high by historical standards. I think that's another quite important point.

The other impression one gets from people dealing with the government is that there is not a high degree of competence when it comes to ministerial staff. I think that's also another important point. When you start putting these together, then you start to see some of the reasons why the government is not performing the way people would have expected a Coalition government to.

MAXINE McKEW: Malcolm Farr, can I get your comment on that, particularly in relation to the public service because, as you say, we've seen a bureaucrat stand down already this week and perhaps another one to be stood down tomorrow?

MALCOLM FARR: Certainly there's suspicion which might even go to the extent of hostility that has been around ever since the Howard government came in. Mr Howard came in with a group of people whom he trusted for their loyalty and their advice, and it was a relatively small group, a pretty small club. They have been involved very much in concentrating the sort of things that the Prime Minister has to be interested in, the issues and the monitoring of various aspects of government, concentrating that sort of process within the Prime Minister's office and PMC, rather than trusting senior bureaucrats and public servants who have more experience and certainly more knowledge to do the job for them.

I think this failure to keep an eye on the filling in of travel allowance claims certainly shows that. It was essentially, I understand, a job for some people rather down the rungs in the Department of Administrative Services, when it should have been the almost full-time occupation of someone at, say SES level who had the authority to make political decisions, or intervene politically.

MAXINE McKEW: In fact, is it worth asking of Max Moore Wilton's responsibility here, given that we have seen staffers way down, taking the responsibility?

MALCOLM FARR: Mr Moore Wilton had the grace to offer to give an endorsement to a woman who resigned at the weekend. I don't know if necessarily the buck stops with him, but certainly you would imagine that he has asked his deputy and other senior public servants to come up with something that's a little bit more foolproof to prevent these politicians causing such a ruckus again.

MAXINE McKEW: Max Walsh, how do you see this? I mean, there's dislike of the public service and if we add to that, we now know the Government doesn't much like statutory authorities. Is it reasonable to ask from where is the Government getting independent advice?

MAX WALSH: Well, I should also say it's probably reciprocated to some extent, too. You have to remember that this is the first recession that Canberra's ever had, and it's been brought about by the policies of the Howard government. We may praise these out in the boondocks, but in Canberra they're not used to having downsizing.

MAXINE McKEW: If you're one of the tens of thousands who've been, you know, you're out of a job, you won't like it.

MAX WALSH: That's right. So I should imagine there is a certain degree of friction between the bureaucracy and the Government anyway. And just picking up what Malcolm and Paul were talking about, you remember the first time that John Howard was the leader of the Liberal Party he was criticised for being remote and isolated from his colleagues, and he acknowledged this when he was re-elected and said he'd be more inclusive. But, in fact, his predilection, his instinctive style is to be this way - surround himself with a small core of advisers, and I think that's been a problem for him. And I think this is part of the process here.

MAXINE McKEW: And without Grahame Morris you think that he may become more remote?

MAX WALSH: Oh, there's no doubt about that. I mean, he's very dependent upon those people he trusts. See, John Howard came to power with a very small support base within the party. He was more or less drafted because they thought that Downer was woefully inept. And so Howard didn't need a party room coup, he didn't need a large core of supporters. He was the only man standing there, and he came without these obligations but he also came without the core of support you usually have. And he inherited Alexander Downer's Shadow Cabinet.

MAXINE McKEW: Paul Kelly, do you see John Howard as an isolated figure and perhaps one who may become more so?

PAUL KELLY: I think John Howard is a loner. I think this is a point which people aren't really aware of because he has lots of acquaintances, he gets around the country, he moves about, he meets lots of people, but I think John Howard very much keeps his inner thoughts to himself. I think this is quite important in terms of the way he operates. He's had a very brutal political career. He's learned not to trust people.

MAXINE McKEW: But he's got the prize that he always sought.

PAUL KELLY: Well, he has got the prize, there's no question about that at all. And this, I think, is a very important psychological question: is he acting from a position of strength or not? One of the tests of this, of course, will be the reshuffle which we see as some time over the next few days.

But it's quite interesting, when you look at John Howard he had a tremendous election win last year, but when you look at the way he governs, while he exercises great authority as Prime Minister, the question is: to what purpose? And it seems to me he's too cautious a prime minister. He's not exercising the power that he's actually got as prime minister in policy terms. And if you don't exercise that power, then the power diminishes.

MAXINE McKEW: Now, the test for a different way would be the ministry, wouldn't it? Will he be bold or cautious, do you think? Paul Kelly.

PAUL KELLY: This is a very, very important issue. I think he should be bold. I think he should act from a position of strength. I think it would be a mistake for him to be too cautious although I'm quite certain that he'll receive a lot of advice to be cautious.

I think given what happened last week and the gaping hole that now exists in the ministry, and the doubts about the competence of the government and the ministry which have been raised by this entire affair, what John Howard should try and do is to reposition a little bit, to make some changes, to bring in some new talent and to overall strengthen the look of his Cabinet and ministry. I think it's important that he does that.

MAXINE McKEW: Malcolm, what do you think we'll see - a minimalist reshuffle or something more adventurous?

MALCOLM FARR: It would be a perfect time for a much broader reshuffle. The first term of this Government is clearly in two parts. We're entering the second part; the Prime Minister could say: well, we need different troops.

It will be interesting because already he's under pressure from Western Australia, from the Queenslanders and from the National Party to do rather conformist things with the new ministry. If he succumbs to that pressure he won't be doing himself or his reputation much good.

MAXINE McKEW: What about the Nationals in all this?

MALCOLM FARR: Well, the Nationals are scraping around, very much so at the moment. They've lost John Sharp. That loss was a big loss. Peter McGauran was an influential figure in what is a small parliamentary party. They're now looking around for replacements and it's not an easy task.

MAXINE McKEW: Max, looking ahead, doesn't the Prime Minister's embrace, if you like, of a big issue like tax reform, doesn't that give him a marvellous opportunity to resuscitate his leadership, if you like?

MAX WALSH: Well, in fact, that's why he embraced tax reform. You've got to remember that John Howard's not a volunteer to tax reform, he's a conscript. He was against tax reform all the way through, until he cogitated during his bout of pneumonia about the state of the party and the state of the opinion polls, and came back from his convalescence endorsing what he'd previously denied - that was tax reform.

But now what we've seen - and this happened just before we moved into the Travelgate situation - he started to retreat already on the question of tax reform on the very important issue of trusts and small businesses.

MAXINE McKEW: So you're saying he's squibbed it already?

MAX WALSH: There's no doubt about that, because if you're going to have serious tax reform, as Peter Costello has said and everybody else has said, you need to broaden the base of the income tax. There are only two ways to do this - that's by attacking trusts and by changing the rules about negative gearing.

MAXINE McKEW: But Max, as you know, unless various constituencies are satisfied that there is going to be comprehensive tax reform, there's going to be tremendous disillusionment with Mr Howard. So what are the consequences?

MAX WALSH: Well, what I suggest is there's disillusionment with them anyway, and the big end of town is not only upset about tax reform, there's also been the way in which the whole tariff question has been handled. Not that the quantum involved in this tariff changes was terribly large, but the way the perception is that this is a government not prepared to push forward with what's necessary for the best advantages of Australia in a competitive, global environment. And so John Howard to a large extent doesn't have the support of the business community the way he had before.

MAXINE McKEW: And what conclusions do you draw from that? Are you anticipating there will be sufficient momentum for, if you like, a challenge to Mr Howard before the next election?

MAX WALSH: Yes. Well, what I am suggesting is that by looking at the detail of Travelgate, by talking about the differences between the Labor Party and the Liberal Party and who won today in Parliament, everybody's missing the real point. The danger for John Howard is that he is no longer attracting the support of the core constituency of the Liberal Party. And he's not entirely isolated. But he holds his position by virtue of the fact only if he can be assured of winning the next election. And as soon as the opinion polls start moving against him, then the rivals will emerge from the woodwork. And as sure as eggs are little eggs, that will start happening now because that is the consequence of this Travelgate. It will hang around like a bad smell, because remember we do have Ministers up on fraud charges - sorry, former Members up on fraud charges, not Ministers. So the Travelgate will continue to echo, and it will be reflected in the opinion polls. It takes a while. There's always a ripple effect.

MAXINE McKEW: Let me put you on the spot here. Do you think John Howard will be the leader going into the next election?

MAX WALSH: No, I don't in fact. And I think, looking at the strategy involved is that he'll be gone by next May, because next May ....

MAXINE McKEW: Sorry, what strategy? What are you referring to there?

MAX WALSH: Whoever is going to replace him. John Howard has plenty of rivals both inside and outside the party, I might say.

MAXINE McKEW: Malcolm Farr, what do you think of this theory? Do you think John Howard will be going into the next election as Prime Minister?

MALCOLM FARR: I think he will be. But what will happen at that election is the inevitable flow-back of votes will mean that a number of backbenchers won't be backbenchers any more. And even if it's only a reasonable loss, considering the circumstances, there will be enormous pressure after the next election to find a replacement for Mr Howard, and I think that he is perhaps pushing it a bit if he firmly believes he is going to be here for the centenary of Federation.

MAXINE McKEW: Paul Kelly, what would you say?

PAUL KELLY: There's talk about the leadership in the Liberal Party, but I don't believe the leadership is an issue at the moment. John Howard was made leader of the party to win. He won last year. Providing the public opinion polls suggest that he can win again, then he will stay leader and he'll go into that next election.

MAXINE McKEW: What of Max's point, though, that it's going to be very hard for him to build any political capital on some of these very tough issues that are coming up?

PAUL KELLY: Well, I think that's quite an important point. But if I can just finish on the leadership. I think he will lead the Government to the next election, and one of the reasons for that is not just that the polls at this stage indicate that he can win, but the Liberals will have to think very, very seriously about the resort to the sword again, because one of the reasons they were in opposition for so long is precisely because they were fighting about the leadership. So there's a great risk involved for the Liberal Party in going back to a fight about the leadership.

I think one of the great issues, one of the great dilemmas for John Howard are these two constituencies he's got. He won the battlers at the last election. He essentially detached a section of the Labor Party vote and he made it his own. And he cherishes this vote. He's determined to hang on to it.

On the other hand, of course, he's got the business community - and this is very much influenced now by global forces, by international benchmarks, and one can't think of a greater contrast on the one hand between policies designed to hold the battlers and policies designed to hold the business community with its international preoccupations. This is a great dilemma for Howard.

MAXINE McKEW: And Paul, following from that, would you not say that that constituency is haunted by the idea that the Liberals may be re-creating the do nothing years of the Fraser period?

PAUL KELLY: Well, a number of people warn about this all the time. But, you see, the Prime Minister hears these warnings, he takes these warnings on board. But he's made his own political judgment and his own political judgment has essentially been to run a fairly cautious government and to try to hold these voters that he detached from the Labor Party at the last election.

I think John Howard is still very confident that he can win, and win the next election reasonably well. He's gambling an awful lot on it.

MAXINE McKEW: Okay, gentlemen. Thank you very much for that.