The Fall of the First Rudd Government

The way the story is told depends on whether you’re a partisan for Rudd or Julia Gillard, then deputy PM, who successfully challenged Rudd’s leadership in Labor’s parliamentary caucus and replaced him as leader. For Rudd supporters, it’s a story in which a once loyal deputy, motivated by ambition and urged on by factional power brokers, betrayed the party, its leader, and the nation. For Gillard supporters, Rudd was becoming isolated in the party and increasingly unpopular with the public, largely as a result of his own egotism. This is the version presented in the Australian Broadcasting Corporation’s docuseries The Killing Season. Either way, the Rudd-Gillard years are remembered by most as a sad case of a dysfunctional political party devouring itself.

These accounts leave out two crucial factors. The first is Rudd’s ill-fated attempt to tax superprofits made by mining companies in Australia. The second factor was that leading figures in the ALP and the prime minister’s office were secretly working for the US embassy.

Washington’s Friends in Labor

Mere months after the party room coup that switched Rudd for Gillard, WikiLeaks published hundreds of thousands of secret US diplomatic cables leaked by Chelsea Manning. A number of these implicated senior Labor figures in the leadership spill.

Former New South Wales senator and Labor Right–faction power broker Mark Arbib is one example. He is reportedly the first to have offered Gillard the leadership. After a parliamentary career largely spent opposing gambling regulations, Arbib left politics in 2012 for a higher calling — namely, working directly for casino magnate James Packer.

One leaked US embassy cable from 2009 describes Arbib as a “political rising star” and a “strong supporter of the [US] alliance.” Following the release of the US diplomatic cables, the Sydney Morning Herald reported that Arbib had “been in regular contact with US embassy officers” and that they regarded him as an important inside source and asset during the Rudd coup. The cable describes Arbib as “personable, confident and articulate” and as understanding the “importance of supporting a vibrant relationship with the US.” Lest we think Arbib was alone, the Herald also listed fellow Labor MPs Bob McMullen and Michael Danby as “regular contacts” of the embassy.

The US embassy knew it could rely on sources from outside of Labor’s parliamentary caucus as well. One of these was former Rudd advisor and current Labor member for Wills, Peter Khalil. After invading Iraq in 2003, the United States set up the Coalition Provisional Authority (CPA), a puppet government staffed by handpicked loyalists from around the world. Khalil was one of these. The Americans knew they could trust him, and appointed him as the CPA’s director of national security policy.

Khalil’s name appears twice in the leaked cables as a protected source for the embassy. The first mention dates from 2007, when Khalil worked for Rudd while he was opposition leader. After Rudd’s win, Khalil went on to work for the PM’s office before taking up a job in 2008 as senior adviser to the de facto leader of Labor’s pro-coal faction, Joel Fitzgibbon.

Khalil’s second mention is from 2009, and despite his change of roles, the US embassy still credits him as providing information on internal government deliberations. When journalists asked him to clarify his actual role at the time, Khalil was unable to answer.

“A Left-Winger, Now a Pragmatist”

The leaked cables also reveal the US embassy’s mounting frustration with Rudd’s leadership, and their growing confidence in Gillard as an alternative. In particular, the Americans were bothered by Rudd’s independent streak in foreign policy.

A February 2009 cable complains of Rudd’s tendency to make policy announcements “without advance consultation” and for sidelining the Department of Foreign Affairs. For example, the cable cites one Rudd-government announcement, made jointly with the Chinese foreign minister, that Australia would not take part in quadrilateral talks with the United States, India, and Japan.

In contrast, another cable from June 2009 praises Gillard’s pragmatism and her “support for the alliance with the United States.” While noting that Gillard was a member of Labor’s Socialist Left faction, a 2008 cable quotes Paul Howes, then head of the right-wing Australian Workers’ Union, as stating that Gillard “votes with the Right.”

Of course, none of this is to say that Rudd was an opponent of US imperialism. Rather, the point is that the Americans saw Gillard as a much more cooperative ally. As the 2008 cable observes, since the election, “Gillard has gone out of her way to assist the Embassy.” The June 2009 cable also praises Gillard’s support for Israel.

In February 2009, the cable cites another important US source, Bernie Delaney, described as “BHP Billiton’s well-plugged-in” vice president for government relations. In addition to attacking Rudd’s independence, Delaney and other sources bemoan Rudd’s tendency to centralize decision-making around himself and close allies of his office.

Interestingly, this is similar to criticisms leveled by Rudd opponents within Labor over his proposed tax on superprofits made by mining companies.

Rudd made pushing a mining superprofits tax his personal mission and took to the task with his usual zeal. Had the tax been implemented, companies like Rio Tinto and the majority US-owned BHP would have had to pay the Australian public a 40 percent share of their superprofits, valued at billions of dollars.

While making some of the largest companies in the world pay taxes hardly seems like radical policy, the proposal was largely viewed as Rudd’s undoing. Mining companies responded to the tax with a well-funded and coordinated media campaign that did not refrain from targeting Rudd specifically. Rupert Murdoch’s Australian played a leading role in this and helped to consolidate opposition to Rudd’s leadership within the Labor caucus. The political atmosphere generated by the mining lobby’s campaign gave Arbib and the other plotters the perfect atmosphere for their coup.

For the mining lobby, it was a great deal. Their media campaign cost a mere $22 million, and with the assistance of the US embassy’s friends in Labor, Julia Gillard replaced Rudd as prime minister. Within a year, Gillard watered down the tax, limiting it to iron ore and coal, and reducing the rate to 30 percent. Gillard’s BHP Billiton– and Rio Tinto–approved Minerals Resources Rent Tax cost Australia $1.5 billion in expected revenue and, in the words of the Australian Financial Review, was “largely ineffective.” When the Coalition returned to power in 2014, they repealed and even this faint echo of Rudd’s dream.

“This Is Democracy Manifest”

So far, a smoking gun directly linking the US embassy in Canberra with the Rudd coup has not been found. What is beyond doubt, however, is that the US embassy was in close and regular contact with a high-ranking factional power broker, Mark Arbib, who played a key role in Rudd’s downfall.

It’s also beyond doubt that the Americans benefited from information provided to them by a number of other senior Labor operatives, and were increasingly frustrated with Rudd’s approach to foreign policy. The embassy cables also cite a senior executive of BHP Billiton, one of the multinational companies that Rudd wanted to tax.

Although the press reported some of these details at the time, the story disappeared almost as quickly as it was revealed. The Labor Party defended its implicated members and Rudd himself referred to the US embassy’s criticisms as “water off a duck’s back.” When Jacobin reached out to Rudd’s office for comment on this story, the former prime minister said he had nothing new or specific to add that he hadn’t already covered in his two autobiographies.

When Mark Arbib was forced to respond to the “alleged spying” issue, his office released a statement claiming that it was normal for MPs to hold discussions “with members of the US mission and console.” Similarly, Peter Khalil stated that these kinds of discussions were just “a normal part of that work.”

It’s almost as though it’s abnormal when Labor MPs and advisers don’t supply foreign powers with information about the internal workings of government. Never mind that in the course of these regular conversations, Arbib repeatedly requested that his identity as an informant be kept secret. For his part, Arbib has now left politics. Khalil, however, has been more fortunate. In 2021, Labor leader Anthony Albanese promoted him to the Parliamentary Joint Committee on Intelligence and Security, perhaps in recognition of his experience.

Important questions remain about US involvement in Kevin Rudd’s overthrow. However, it is now a matter of public record that the United States actively encouraged the constitutional coup that brought down Gough Whitlam. Commenting on these events forty years later, radical journalist John Pilger argued that Whitlam’s dismissal was a turning point that ended Australia’s independence. The leaked US cables from around Kevin Rudd’s fall vindicate this argument — although perhaps it shouldn’t come as a surprise. After serving the United States as a loyal informant, Bob Hawke went on to be prime minister for eight years.