AFTER the dismissal, Labor faced an unexpected third election in as many years, with a campaign to run and no money to run it. It was Whitlam's factional foe, the Victorian Left luminary Bill Hartley, who suggested that he could source half a million dollars, no strings attached.
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Gough Whitlam biographer Jenny Hocking sheds new light on Rupert Murdoch's methods in uncovering the Iraqi breakfast scandal.
Hartley raised the familiar refrain of ''Arab nations awash with OPEC funds'' and once again a pursuit began that would lead to nothing but public humiliation, devastating media coverage - and no money. If it sounded worryingly like a rerun of the debacle of the Loans Affair, it was.
This new ''affair'' - salaciously dubbed ''the Iraqi breakfast affair'' - would also be characterised by bad judgment, desperation and weeks of waiting for promises that never eventuated.
And, like the original Loans Affair, ''the Iraqi breakfast affair'' would also link the travails of the Whitlam-led Labor Party directly to the Murdoch press, as secret negotiations by the key protagonist with Rupert Murdoch himself would irreparably damage Whitlam's authority within the party and effectively end his parliamentary career.
It became public on February 25, 1976, when The Australian ran a front-page story with the headline ''Irak promises $US500,000 to pay Labor's debts, Whitlam in Secret Arab Election Deal'' under the byline of ''a special correspondent''.
The story detailed the Labor Party's futile attempts to garner funds from the Iraqi Baath Party, focusing on a ''long breakfast meeting'' between Labor's national secretary, David Combe, Gough Whitlam and two ''gun-toting Arabs'' - emissaries from the Iraqi government - hosted by Henry (aka Henri) Fischer in his Sydney apartment.
Fischer, a business figure and well-known right-wing extremist, had been nominated by Hartley as intermediary for the venture after presenting himself as a friend of Labor and strident critic of the dismissal and the Murdoch press.
The story also made a series of claims that, at this breakfast meeting, Whitlam told the group that he had suffered only a ''temporary coup d'etat'' and would soon be re-elected; that his government's policy on the Middle East had been influenced by ''Zionist pressures''; that he was also seeking funds from the PLO; and that Bob Hawke would never lead the Labor Party.
For the next 10 days the ''Iraqi breakfast'' did not leave The Australian's front page: ''Moves for sacking under way'', ''Pressure mounting for Whitlam to go'', ''Whitlam fights for his life'', ''It's the end for Whitlam''.
By the second day the reported funds had increased in size to a million dollars, half of which had purportedly already been received, and Prime Minister Malcolm Fraser soon assigned the Commonwealth Police and ASIS (Australian Secret Intelligence Service, the overseas spying agency) to investigate.
The calls for Whitlam to vacate the leadership for either Bill Hayden or Hawke escalated with speculation that he would resign not just from the party leadership but also from the Parliament.
As Commonwealth police impounded the diaries of Whitlam's former police bodyguards, he filed a $500,000 writ against News Ltd claiming defamation and injurious falsehood over the first of the major stories, in particular over the comments he was alleged to have made during the breakfast meeting.
Fischer, described in a secret ASIO report as ''capable of causing mischief'', also disputed the story, giving a different version of events through his Sydney solicitors.
The Labor Party that had held together through the horrendously taxing events of the previous three years now began seriously to fracture. Party president Hawke, astonished and infuriated when he was belatedly told of the search for funds, took control of the situation at once, instructing Labor members and officers to make no further comment on it and calling a caucus meeting to deal with the burgeoning scandal.
The caucus meeting delivered a serious blow to Whitlam: his former minister for education, Kim Beazley snr, resigned from the shadow ministry after unsuccessfully calling for Whitlam's immediate resignation, and senator John Wheeldon would later do the same.
Caucus rejected a motion defending Whitlam and refuting the allegations and accepted instead a more conciliatory one proposed by Mick Young, confirming that no political party should accept overseas funds and that campaign donations should be limited and made public.
Caucus then delivered a final rebuff to Whitlam by referring the entire matter to the federal executive for further investigation.
All the pent-up bitterness over Whitlam's handling of the Supply crisis, over the misdirected election campaign and over this inexcusable and inexplicable search for Arab funds erupted in the most gruelling national executive meeting since the days of the Victorian intervention.
The national executive passed a unanimous resolution placing responsibility firmly at the feet of Whitlam, Combe and Hartley, condemning ''in the strongest terms'' their actions and their ''error of judgment'', but attributing this error ''not only to the extraordinary circumstances of the recent election, but to the excessive pressure and responsibility which have been placed on the Federal parliamentary leader''.
In an unexpected turn, the resolution was even stronger in its criticism of the roles played by the Murdoch press through its ''totally unprincipled campaign against Mr Whitlam'' and by Malcolm Fraser and the Coalition government in feeding ''fake information to the press and … involving the Commonwealth police in a personal political vendetta''.
That the involvement of both Fraser and Murdoch went further than this would only be revealed decades later.
In mid-February, as Combe had been relaxing on a holiday cruise, satisfied that Fischer was in Iraq collecting the promised funds, Fischer had in fact been in New York, trying to contact Rupert Murdoch with an ''incredible'' story.
Fischer had flown to London on February 20 where he held three meetings with Murdoch , providing him with a lengthy statement regarding his discussions with Hartley, Combe and Whitlam and the proposed Iraqi gift of $350,000.
Within days of the first of the Iraqi breakfast stories running in The Australian, rumours abounded that News Ltd was involved in more than just the publication of the stories but also in their creation. But it was not until the day before the national executive meeting began that News Ltd acknowledged this, in an article headed ''The Iraki breakfast affair and News Ltd''.
Citing ''public interest'' and ''a duty to publish the truth about Australia's political leaders and their parties'', The Australian denied claims of a vendetta against Whitlam and, for the first time in its week-long coverage, acknowledged that the information for its original story had come from one of the key participants in it, Henry Fischer.
According to News Ltd, no payment had been given to Fischer for his story, although it had provided a bodyguard for him. Reports drawing on recently released archive material suggest that the $350,000 allegedly ended up with Fischer.
Despite News Ltd's claim to ''have published the facts about the Arab funds affair'', there remained several crucial facts that it had not revealed, and while the article belatedly divulged the role of News Ltd, it did not reveal that of its managing director, Rupert Murdoch or of his British press acquisition News of the World.
Murdoch met with Fischer at the offices of News of the World, and the bodyguard employed for Fischer was provided by News of the World. Fischer, moreover, had secretly taped his conversation with Hartley, wearing a small tape recorder provided to him by News of the World.
News Ltd's claim that no payment had been given to Fischer was only part of the story. In a statutory declaration provided to a police investigation into Fischer's claims, Rupert Murdoch stated that he had agreed ''in principle'' to pay Fischer, in exchange for documents implicating Whitlam. The problem for Fischer was that there were no such material.
Murdoch also met with Fischer's colleague, Tito Howard, a small-time movie producer who likewise promised to provide incriminating film of Whitlam - accepting a briefcase full of cash from the Iraqis. Murdoch agreed to pay Howard $125,000 if he could provide such film of Whitlam taking money.
On hearing that the Melbourne Sun's political journalist Laurie Oakes was also about to break the story, News Ltd brought its scheduled publication forward.
With an overnight deadline looming, Rupert Murdoch reverted to his earliest career incarnation, taking over not only the production but also the story.
The ''special correspondent'' under whose byline the story had broken in The Australian was none other than Rupert Murdoch himself. The personal involvement of Murdoch in the timing and the writing of the story and the modus operandi of the secret use of an informant left many in the Labor Party convinced that Whitlam had been ''set up''.
In November 1977 Whitlam, Murdoch and a clutch of lawyers spent an hour agreeing on a settlement for Whitlam's case of defamation and injurious falsehood against News Ltd.
Whitlam might have won the legal battle but the political victory was all Murdoch's.
■ This is an edited extract from Gough Whitlam: His Time by Jenny Hocking. The Miegunyah Press, RRP $49.99. Published September 28.