Costello dodges leadership questions

BARRIE CASSIDY: We have had three sitting weeks of the Parliament, how would you describe the mood in the Liberal Party at the moment?

PAUL KELLY: I think the Liberal Party is unsettled, it's edgy, it's nervous, it's concerned about Mark Latham. I think Latham is the reason why the party is so unsettled. The Liberals keep asking when Mark Latham's honeymoon will end and I think that's the wrong question. We are now in a new political environment. We won't be going back to the politics of last year or the year before. They're gone. I think that as far as the Liberals are concerned, one of their main problems is that they are having trouble coming to grips with the Latham leadership. I think there are far too many nervous Nellies inside the party and of course just below the surface we have the leadership issue bubbling along.

BARRIE CASSIDY: Yes, when you say just below the surface, will it rise to the surface?

PAUL KELLY: Well, the leadership issue is there. It's a factor in politics, but the question is the extent to which it comes to the fore. Peter Costello believes that John Howard should have resigned the prime ministership last year in his favour and you've just seen his formula on the leadership - he won't rule out the possibility of a leadership challenge. Now this didn't make all that much difference last year when the Government was well and truly ahead of the Labor Party in the polls. But if we get a change in this situation, if in fact we get a situation in which Labor starts to move ahead of the Government on a fairly consistent basis, then I think this Costello formula will become very destabilising for the Government. So the Government and the Liberal Party are under now, I think, the most important pressure they have been for quite a few years. And if in fact the leadership does become an issue, this will undermine the Government and undermine John Howard because at this stage there is no real suggestion that there will be a change of leadership before the election.

I'm told Tuesday's poll is going to be fairly dramatic. A leader sitting on fading figures is a leader who has to look over his shoulder. And a backbench considering which of them will go at election time is not a backbench about to die in a ditch for that leader.

I'll go out on a limb and say we should see a leadership challenge fairly close to the delivery of the budget in May. Costello no longer has a choice.