Cossie, Reserve Bank board, Questioning Howard, a tale of two Murdochs
July 28, 2008
Here are Stephen Mayne's five stories from the Crikey edition on Wednesday, 30 November, 2005.
1. Cossie's breathtaking dance behind the corporate veil
By Stephen Mayne
Surely they wouldn't be that brazen. Not the Treasurer. Not the Tax Commissioner. Surely no-one could be so stupid as to ignore a 14-year-long corporate tax battle and then say Rob Gerard is the model tax citizen at a personal level?
As amazing as this sounds, it's the truth. Rob Gerard and Michael Carmody were embroiled in arguably the biggest corporate tax fight Australia has seen and both wrote to Peter Costello, saying that nothing is wrong at a "personal" level.
Who are these clowns taking for fools? Let's extend this logic a little further.
Why not appoint former HIH chairman Geoffrey Cohen as the next boss of insurance regulator APRA? After all, Geoffrey wasn't "personally" responsible for the collapse – it was only the corporate vehicle.
Former James Hardie CEO Peter McDonald would be a great chairman of the Dust Diseases Board. Of course, he had nothing "personally" to do with dodging asbestos liabilities, that was all the company's work.
Share scavenger David Tweed should be appointed to the ASX board because all those dodgy low-ball offers were done by National Exchange Pty Ltd, not Tweed "personally."
Costello yesterday speculated that numerous companies with common directors with the Reserve Bank would have had tax disputes:
"I would be very surprised if there were not numbers of directors from numbers of companies who have served on the Reserve Bank board whose companies have not had disputes with the Australian Taxation Office."
That is strikingly disingenuous because Gerard was the 50% shareholder in Gerard Industries and the executive chairman. That is so different from someone like Dick Warburton being punished because Southcorp, of which he was a director, had some dispute with the tax office.
His personal financial affairs were inextricably tied up with Gerard Industries, whereas Southcorp was just one of six boards that Warburton sat on.
Then you have the scale of the dispute and the nature of the allegations. A battle in four different courts over 14 years is in a league of its own compared with a situation like Southcorp claiming too much depreciation on its grape crushing machines. Gerard was up to his eyeballs in exotic tax havens, film finance deals and round robin constructions and when caught out, he appears to have lied about it.
It wouldn't be an exaggeration to say that Rob Gerard probably has the dodgiest tax record of any Australian Rich Lister. Even the argument about making no admissions and the court not recording any adverse findings is limp because Peter Costello's own bureaucrats in the Tax Office concluded that he was an agressive tax dodger of the worst order.
These aren't wild allegations in some commercial dispute. These were the conclusions of highly trained, expert investigators after many years of probing. The fact that Gerard eventually collapsed and handed over up to $150 million speaks volumes about how the ATO had him cold.
Peter Costello's defence is looking incredibly thin. He should cut his losses and request Gerard's resignation forthwith.
4. The media pack unloads on Costello
By Stephen Mayne
Peter Costello has suddenly found himself embroiled in the biggest probity scandal of his career. That's the only conclusion you can draw from the sheer scale of the media commentary flowing from yesterday's five-page special investigation king hit by The AFR on tax dodger Rob Gerard.
The reaction started relatively slowly when AM ran the story sixth yesterday and later The World Today dropped off it completely. But Crikey led strongly with the story at 1.33pm yesterday and then the Opposition strategically devoted its entire Question Time attack to the issue from 2pm. John Howard received three of Labor's 10 questions and tried laughing at Labor's strategy, but got the issue dead wrong when he declared:
You are having a bad day. You gave yesterday away. Now what are we – at three o'clock and not a question on IR! I don't understand it. The relevant point about the dispute between Mr Gerard and the Australian Taxation Office is that, by hand of the letter from the commissioner, all the outstanding matters were resolved. So what is the fuss all about?
Firstly, a glimpse at the huge coverage in today's papers shows that this is a major problem for the government. Secondly, the PM has actually misled the house because "all the outstanding matters" were not resolved. There were never any outstanding matters about Mr Gerard's "personal affairs," which is what the Commissioner's letter to Costello referred to.
Despite the PM's prediction that Labor was "having a bad day," the story made most of the television news bulletins last night and was elevated to lead story on PM, The 7.30 Report and Lateline last night, which also interviewed Wayne Swan.
Nor is this simply an anti-Government ABC conspiracy, because the Murdoch press has grabbed the story with great gusto. The Australian was particularly savage with no less than nine stories, three of them on page one, including this broad attack on Costello's failure record by George Megalogenis.
While Alan Wood's commentary was measured, perhaps reflecting a drip he sometimes gets from the RBA, even he assessed Gerard to be in breach of the central bank's code of conduct that directors have "an unparalleled reputation for integrity and propriety in all respects."
News Ltd stablemate Terry McCrann was typically more direct when he said Gerard should do the decent thing and resign now because he certainly won't be reappointed in two years after his "aggressive" tax planning was revealed to the world. "You end up making a $150 million settlement with the Tax Office, I think your behaviour qualifies as aggressive," wrote McCrann.
The AFR sensibly had some artillery left in reserve for day two of its special investigation and that was Gerard's plea to then Attorney General Daryl Williams in 2002 to call the ATO's attack dogs off. Williams told the paper he was "not sure" if he was aware of the dispute at the time and Costello told AM this morning that whilst he was not aware of it, taxpayers have a right to complain to their elected representatives. Read the Costello transcript here.
The World Today also led with the story this afternoon, as did The Age and The SMH this morning, although Peter Hartcher argued it will not harm Costello's prime ministerial ambitions.
All up, the issue has generated remarkable heat given the Van Nguyen, terror and IR debates which are still running strongly. Clearly, there is something really smelly about rewarding a tax dodging Liberal Party donor with the most prestigious directorship that a government can dish out and then declaring there is no problem whatsoever.
5. Who should sit on the Reserve Bank board?
Stephen Mayne writes:
The list of troubled Reserve Bank directors I produced yesterday had one glaring omission. Bob Hawke's late mate Sir Peter Abeles was one of several utterly inappropriate appointments to the Reserve Bank board made by the previous Labor Government.
Whilst both sides of politics have been guilty of making blatantly party political appointments such as Bill Kelty and Hugh Morgan, they have agreed that any director of a bank should be ruled out by way of conflict of interest. The theory here is that the RBA stands behind the banking system and helps regulate it, so no director of a bank should sit on the board.
However, even the theory isn't strictly followed because the Bracks Government in Victoria appointed RBA director Donald McGauchie chairman of the Rural Finance Corporation in 2003. The RFC is a major government-owned lender in Victoria but because it is not technically an RBA guaranteed bank, the conflict apparently doesn't arise.
The ban on bank directors is good and well, but several RBA directors have had far bigger conflicts than just being a non-executive director of a bank. When you borrow billions of dollars and hedge currencies around the world, surely it is a conflict of interest to sit on the board of the body which sets official interest rates and sometimes intervenes in Australia's foreign currency trading.
Take someone like Sir Peter Abeles, whose transport giant TNT almost went broke in the early 1990s under a mountain of debt which peaked at close to $10 billion. Abeles was appointed by Bob Hawke in 1984 and sat on the Reserve Bank board for 10 years until 1994 – two years after he was deposed from the TNT board as it grappled with a debt crisis.
Abeles was able to use this privileged inside information to manage his interest rate and currency exposures at TNT. We all know that Abeles was extremely close to Rupert Murdoch throughout this period and it is interesting to consider News Corporations's reported foreign currency trading gains in the 1980s:
1981-82: $2.31m profit
1982-83: $3.11m profit
1983-84: $38.84m loss
1984-85: $11.25m loss
1985-86: $84.67m profit
1986-87: $1.54m profit
1987-88: $86.20m profit
1988-89: $32.84m profit
1989-90: $13.17m profit (first half)
Cumulative brilliant performance on forex trading of $173 million during this period is a remarkable performance from a media company so far removed from the capital markets. We all know Rupert is a genius, but how did he so comprehensively out-perform the professionals in the zero sum game of currency trading. Did Rupert have an impeccable source? Someone who jointly owned Ansett and the global AWAS aircraft leasing business with News Corporation.
The same issue arises with current director Frank Lowy, who retires in the next fortnight. Frank owns 11% of shopping centre giant Westfield which manages Australia's single biggest corporate debt.
Westfield's gross assets of $36.42 billion are supported by a whopping $19.3 billion in liabilities. However, the Lowys sure know how to borrow well, as only about $5 billion of this is secured and the average interest bill is a very skinny 4.25%.
It sure must be handy for Frank to be sitting on the Reserve Bank board as he skilfully plays the global debt and currency markets to achieve a remarkably low cost of funds on largely unsecured borrowings. Other stable democracies would never allow the person with the biggest interest in central bank deliberations to sit on the board but, hey, this is Australia.
The same goes for Janet Holmes a Court and Solomon Lew, who were both struggling with their bankers when appointed to the Reserve Bank board by Paul Keating in 1992.
As John Howard and Peter Costello contemplate appointing new directors, they should avoid Labor's mistake of giving highly indebted Rich Listers a special inside view.
10. Why questioning John Howard is fair game
By Stephen Mayne
The Australian has editorialised today attacking the ABC's Jane Hutcheon for asking the Prime Minister during this interview on AM on Monday morning if it was appropriate to attend the cricket on Friday when Van Nguyen will be executed. "Playing politics with Van's unjust fate is disgraceful," declared the strap line before the editorial ripped into Hutcheon as follows:
That the base currency of politics is insults and opportunism is obvious to anyone familiar with question time in Canberra. But even that wretched coin has been clipped in the past couple of days by politicians seeking to counterfeit moral capital from the imminent execution in Singapore of convicted Australian drug-smuggler Nguyen Tuong Van. And they were assisted by the cut-price conscience of an ABC reporter who used Van's case to question John Howard's sensitivity to the young man's fate. To assume that such stunts say a great deal about the parasitical politics of the people involved may be unkind. Perhaps the enormity of what will happen to Van eludes them. So, for the benefit of Greens and Democrats senators, their Labor colleague George Campbell, and ABC reporter Jane Hutcheon: to seek to score the cheapest of domestic political points when a man is about to be murdered by the state in Singapore is beneath contempt.
The Australian's current leadership have waged a long campaign against the ABC and appear to have appointed themselves as a newspaper version of Media Watch for Aunty. On this occasion and in the current environment, it is misplaced venom even if the question was inappropriate.
It is clear that the Howard Government has been pressured into lobbying the Singapore Government by the media. That is the role of the media. Many in the media have been wondering about what they should do on Friday morning and it is not "beneath contempt" to ask the PM what he is doing.
Besides, the PM probably could have saved Van Nguyen's life if he was prepared to put the Singapore commercial relationship at risk. He wasn't, even though the PM was more than happy to push Pacific Islands such as Nauru around over refugee policy and also happily has imposed more conditions on foreign aid to the likes of PNG.
The government's tepid performance on David Hicks, especially when contrasted with the more vigorous action by the British Government, does create the impression that John Howard isn't particularly strong when it comes to protecting human rights.
His callous refugee policies and preparedness to go down the path of tougher than necessary sedition laws also demonstrates a pattern of behaviour. The man has form, so it is not unreasonable for the media to pressure him into doing more for Van Nguyen.
At a time when the Howard Government is threatening free speech and civil liberties, attacking a media outlet for asking a question about his commitment to saving Van Nguyen's life did not deserve today's hostile editorial from The Australian.
Then again, South Australian Premier Mike Rann has today come out and said it is "offensive" to suggest Australia observes a minute's silence when Van Nguyen is executed at 9am on Friday.
13. A tale of two Murdoch memories
By Stephen Mayne
The collapse of One.Tel happened on May 27, 2001 and a man named Murdoch was involved. Just 54 days later on July 14, 2001, British backpacker Peter Falconio was allegedly murdered at Barrow Creek, north of Alice Springs. Another man named Murdoch was involved.
However, when it comes to their respective memories of the events that happened on those days, drug runner Bradley Murdoch seemingly has a much clearer memory that media heir Lachlan Murdoch.
Both Murdochs spent plenty of time travelling, but Bradley yesterday demonstrated a remarkably detailed memory of what he did on July 14, 2001. He remembers buying some chicken nuggets for his dog at a Red Rooster store at around the same time Peter Falconio and Joanne Lees were in the store, hence the explanation for his DNA being discovered.
He also remembered leaving Alice Springs at 3.30pm and being near the Aboriginal community of Yuendumu, about 400 kilometres from Barrow Creek, at 8pm, the estimated time of the attack.
Contrast that with Lachlan who said he couldn't recall on 205 occasions in one day when questioned about the collapse of One.Tel last week. How coincidental that the memory being displayed by both Murdochs happens to coincide with what would be the best outcome from both court cases.
Meanwhile, Lachlan can perhaps be forgiven for not preparing thoroughly for his evidence as he celebrated his son's 1st birthday on November 9 and also supported his wife Sarah who, we learnt from today's News Ltd papers, is pregnant with their second child.
The newest arrival will be grandchild number eight for Rupert, who has six children of his own and therefore 14 heirs to his $9 billion fortune. Check out Crikey's full list of the Murdoch heirs here. Assuming an equal carve-up, each heir will inherit about $650 million.
The WA Aboriginal Legal Service has threatened to launch a legal challenge against a controversial no-school, no-welfare scheme for Aboriginals in WA's north if the Federal Government decides to reinstate it, reports The West.
And in Darwin, where Bradley John Murdoch took the stand at his murder trial for the first time yesterday, he denied any involvement in the disappearance of British backpacker Peter Falconio, telling the jury he did not go to Barrow Creek on the evening of July 14, 2001, and had nothing to do with Mr Falconio's disappearance, reports the NT News.
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