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Tim Owen really wrestled with his conscience about what to do with the envelope full of $100 bills handed to him by Newcastle mayor and property developer Jeff McCloy.

The Liberal MP for Newcastle in NSW was very definite about that, if about little else, in his evidence to the Independent Commission Against Corruption on Monday afternoon.

“I thought about it and thought about it and thought about it, and then essentially I thought, ‘Hmm, I don’t know what I’m going to do with this,’ ” he said.

It took “a day or so” before he reached his decision, he said. He would give the money back.

So he went around to McCloy’s house and “basically dropped an envelope back in his letterbox” with a little note on it “that said, ‘Um, no thanks.’ ”

Or maybe it wasn’t McCloy’s house.

When asked by counsel assisting ICAC, Geoffrey Watson, SC, how he knew where McCloy lived, Owen was vague:

“Oh, ’cause I basically looked him up on the ah … on, I think it was one of the, one of the – I can’t remember where McCloy Group was or something like that but I went back to – in fact I … I can’t remember where; I might have asked somebody where McCloy lived.”

Owen was vague on much else, too.

He could not recall, for example, exactly when it was he had his rendezvous with McCloy, or who set it up.

“Um, I don’t really know. I can’t remember to be honest with you.”

A couple of names were suggested: his campaign manager, lawyer and prominent Liberal Party operative Hugh Thomson, or Mike Gallacher, the senior Liberal MLC who was close to McCloy and who has been alleged to be a key figure in the solicitation of illegal donations.

“Um, I don’t really know. I can’t remember to be honest with you,” he told Watson. But sometime in the lead-up to the 2011 election, Owen said, “someone” in the Liberal Party organisation told him to get himself down to Hunter Street, Newcastle’s main drag, to meet the property developer.

So he drove himself down there and met Mayor McCloy. Then he either got into McCloy’s car, or McCloy got into his, and the envelope of money changed hands. Owen didn’t count it, he said, and he couldn’t remember how long they talked or about what.

Owen told the commission he didn’t see much of the property developer after that, and he gave conflicting answers on whether they had ever spoken again about the $10,000 donation and its return. And he denied knowledge of other illegal payments, allegedly made to his campaign.

Well, that was on Monday.

On Tuesday, Owen was questioned by counsel for McCloy, Ian Faulkner, SC, about his little story of having dropped the envelope full of cash back in the letterbox.

“That’s false, Mr Owen, isn’t it?” asked Faulkner.

“Ah, yes it is,” said the MP.

And the story about putting a note on it: “That answer was false, wasn’t it?”

“Correct,” said Owen.

Yet even as he fessed up, Owen continued to obfuscate. He conceded that since the election, he had met with McCloy many times, but asked when their most recent meeting was, he said: “Um, maybe a week or two ago or maybe a couple of days. I can’t remember to be honest with you.”

Faulkner reminded him: the two men had met just two days previously, at McCloy’s office.

The barrister proceeded to outline what had been discussed, at which point Owen suddenly evinced a quite detailed recollection of what had transpired. Most significantly, Owen conceded that McCloy had advised him to tell the truth to ICAC about the donation.

He hadn’t done that, and now he’d been caught out.

The questioning went on for some time, but Owen’s political career was already effectively over. Shortly thereafter, down at state parliament, Premier Mike Baird made that clear.

Baird was already under pressure as a result of the admission by another of his MPs, Andrew Cornwell, in ICAC the previous week, that he’d taken illegal donations from property developers, too, including another $10,000 from Mayor McCloy. Why, Cornwell had even used some of the money to pay his taxes. Labor and the Greens were threatening action to have him expelled from parliament.

And now this bombshell, that Owen had not only taken illegal donations, but also lied about it. Baird gathered the media and said he was advising the two disgraced Hunter region members to “consider their futures”.

They did. Their resignations were announced that afternoon at the start of question time.

On top of those two resignations from parliament, on Thursday another MP, Garry Edwards from the seat of Swansea, announced he was moving to the crossbench, after McCloy told the inquiry he had donated $1800 to his campaign.

McCloy said the Libs tapped him so often for thousands in donations that he felt “like a walking ATM sometimes”.

1 . Byelections pending

So now the government faces the frightening prospect of two byelections: in Cornwell’s seat, Charlestown, and Owens’ adjoining seat, Newcastle.

Newcastle is particularly problematic. It was traditionally a strong Labor seat. Even in the landslide Coalition win of 2011, Owen only squeaked a victory for the Libs. The margin is just 2.5 per cent. Charlestown is held on a more robust 9.2 per cent.

Still, you have to wonder what chance the Libs have after this of persuading voters to trust them again. What chance of even getting half-decent candidates to stand?

The party must be feeling pretty desperate, but don’t waste your sympathy. Whatever ICAC ultimately finds in relation to individuals, it is already quite clear that the party systematically set about subverting the 2009 law prohibiting property developers from making political donations.

And when we say the party, we don’t just mean a bunch of members of parliament, clustered in seats around the Hunter and Central Coast. We mean the broader party, the officials and machine men, the lawyers, the lobbyists, et cetera. Not just in NSW either. According to previous evidence, the federal division was used to launder illegal donations.

And the allegations of impropriety just keep coming. On Wednesday, ICAC moved on to other party figures. The former police minister, Mike Gallacher – who stood aside in May after it was claimed he had facilitated tens of thousands of dollars of illegal donations from mining magnate and property developer Nathan Tinkler – was again in the spotlight.

The aforementioned manager of Owen’s campaign, Hugh Thomson, told the inquiry Gallacher had “orchestrated” the donation of $120,000 from Tinkler’s development company, Buildev.

Thomson, who agreed to give evidence on the basis that it would not be used against him in criminal proceedings, also claimed that Craig Baumann, the Liberal MP for Port Stephens, arranged for Buildev to help cover the wages of one of Owen’s campaign staff.

We have yet to hear the evidence of these two, although counsel for Gallacher vigorously disputed the claims.

But the prospect is one of weeks and months more damage, particularly now insiders have started rolling over and testifying against their own.

The government’s chances in the two byelections look grim. And they don’t look terribly bright, either, for the state election, due in March. The Coalition government does have one thing going for it, though: the Labor Party.

Labor corruption played a major part in the thumping 2011 election victory that swept Owen and Cornwell, among others, into parliament. Over the preceding five or so years, there had been a series of scandals, ministerial sackings, reshuffles and a revolving door of party leaders, made and unmade at the behest of the corrupt forces within the dominant Right faction, led by Eddie Obeid and Joe Tripodi.

It was the shortest-lived of those Labor premiers, the incorruptible Nathan Rees, who brought in the ban on political donations from property developers, as part of an effort to clean up the system. He also famously declared at a press conference on December 3, 2009: “I will not hand over NSW to Eddie Obeid or Joe Tripodi.” Just hours later they engineered his demise.

That was the way these crooks worked: anyone they could not control, they set about destroying. Which brings us to Jodi McKay, the former Labor member for Newcastle, who was beaten by Tim Owen in the 2011 election.

McKay only held Newcastle for four years, but she was a real talent. Within 18 months of election in 2007 she was in cabinet. She was also inconveniently honest. At the time, plans were afoot to expand the port of Newcastle. The relevant studies and administering authorities had determined the new facility should handle containerised goods.

Nathan Tinkler, the bullying bogan who had become a billionaire by riding the coal boom, had other ideas. He wanted a coal terminal, and he wanted Buildev to build it. But, as Geoffrey Watson said in his opening address to the ICAC hearing, the Tinkler plan faced “considerable opposition from the relevant authority, that is the Newcastle Port Corporation, and it was also adamantly opposed by the local MP, Jodi McKay.

“In the end Buildev’s plan was twofold – first acquire the preference of certain politicians, Labor and Liberal; secondly, get rid of Jodi McKay.”

The allegation is that Tinkler and Buildev went about currying Liberal favour by slipping large amounts of illegal money to their campaign. The $120,000-plus referred to by Thomson in his evidence is just part of it. At a previous hearing, back in May, the claim was that Buildev used a sham arrangement to kick in another $66,000, to a Liberal Party slush fund, Eight By Five, associated with former state energy minister and Central Coast Liberal powerbroker Chris Hartcher.

Back in the May hearings, McKay said Tinkler offered her a bribe before the 2011 election in exchange for her support for the coal loader. In his evidence, Tinkler said McKay was lying.

Since then, though, said Watson, “evidence has been obtained which would tend to support the accuracy of Ms McKay’s account”.

Given that McKay would not play ball, Tinkler set about undermining her. Two “third party” campaigns were organised to spread damaging misinformation, both purportedly by grassroots community groups, but both actually largely astroturf operations bankrolled almost entirely by Tinkler.

“Both were hostile towards Labor and Ms McKay …[and] both by relative standards expensive and sophisticated,” said Watson.

Evidence would be adduced to show it was not just the Liberal Party that was involved in these activities, but Labor as well, through a couple of very senior figures. “The inquiry will examine the activities of two former Labor members of parliament, Joseph Tripodi, MP, and Eric Roozendaal, MLC,” Watson said. “The evidence gathered so far suggests their conduct was quite out of step with their parliamentary or their ministerial responsibilities and that each quite improperly took steps directly to benefit Buildev.”

At the time of writing, ICAC could not say just when it would get to Tripodi and Roozendaal. But there seems a strong prospect of plenty more damage to the Labor brand.

Tripodi was kicked out of the party after a previous corruption finding against him, and Roozendaal – formerly head of the party organisation, before moving into parliament and becoming treasurer – has also moved on. But they still have cronies inside the party, and ICAC has a long track record of going in surprising directions and implicating unexpected people.

Don’t waste any sympathy on Labor, either. The people to feel sorry for are the citizens of NSW, and particularly those of the seats of Charlestown and Newcastle. How are they to choose, when both offerings are so rotten?

The general expectation among the political class is that the two byelections will see electors hold their noses and return Labor.

Not surprisingly, Jodi McKay, the politician so honest both sides had to unite against her, is now under heavy pressure to run as an independent.

But when we contacted her on Thursday, she was very firm: she won’t run. Her past experience was just too traumatic, the betrayal just too horrible.

And that’s the real tragedy ICAC is revealing. That the good people are being driven out.