The words packed all the power of a hunting rifle in the crowded hearing room high above Sydney's streets.

“Look, Mr Macdonald, what I really want to put to you is that in fact you're a crook.''

The accusation, from the lips of counsel assisting the Independent Commission Against Corruption (ICAC), Geoffrey Watson, SC, seemed to suck all the air out of the commission's gallery.

Ian Macdonald, the fellow being accused of skulduggery, was a cabinet minister in the New South Wales Parliament until 2010, when, having gained the sobriquet Sir Lunchalot, he resigned after a spot of bother concerning misuse of public funds.

He is no stranger to ICAC hearings. Last year the corruption commission inquired into his extracurricular habits allegedly paid for by a Sydney property developer and murder suspect, Ron Medich. Though no findings have been reached, he was accused of enjoying the services of an Asian prostitute as recompense for introducing investors to senior bureaucrats.

The man with whom Macdonald was now being accused of conspiring in an inside-knowledge coal mining scam worth tens of millions of dollars, Eddie Obeid, was also a former state Labor cabinet minister and the leader of a faction so powerful its very name - The Terrigals - struck fear into the heart of premiers.

Captivated Sydneysiders had queued for hours, as they have done for weeks now, to snap up scarce tickets for what has become the hottest show in their rollicking town, and the drama playing out before the lucky few has proved no disappointment.

Yet those in the public gallery in the corruption commission's headquarters in Sydney are far from the most interested observers as this extraordinary inquiry dips into a long-hidden world inhabited by powerful figures in the NSW branch of the Labor Party, huge piles of unexplained dollars and deals allegedly brokered behind closed doors.

Three hundred kilometres away in Canberra's Parliament House, federal politicians spend much of their parliamentary time these days studying the Twitter feeds spurting from the mobile phones of reporters and observers at the inquiry.

These short Twitter ejaculations of each new twist and turn, each new allegation, each denial or obfuscation, have become over the past couple of weeks a river of dread for the Gillard government and an entertainment beyond price for the Abbott opposition.

NSW Labor has been drowning for years now in a swamp of perceived corruption, dirty deals, factional bastardry and plain political ineptitude. The state Labor government was finally tossed aside by disgusted voters in 2011 - the worst defeat in a century, though the scale of it was eclipsed within a year when Anna Bligh's Labor in Queensland was all but wiped off the map.

Federal Labor, heading towards its own difficult election on September 14, prays that Queenslanders have rid themselves of their bile, but they know NSW is a different story.

Every day now, the state's voters are being reminded that powerful Labor figures were, if the waspish accusations of the inquiry's counsel prove to be accurate, involved in a level of corruption not seen since the Rum Corps ran Sydney in the early years of European settlement.

NSW - particularly the Sydney basin - is crucial to federal Labor's political survival. If voters decided to punish the whole Labor brand and the party were to lose a significant number of federal seats in NSW - and public and private polling suggests as many as 10 could be swept away - the Gillard government would be gone. Most observers simply can't find enough potential Labor wins in the other states and territories to counter-balance such a loss.

Which is why the bald accusation that a former Labor state minister was ''a crook'' had the power to suck the air not simply from the inquiry's public gallery, but from ALP hopefuls everywhere.

The corruption commission was trying to get to the bottom of whether or not Macdonald opened up a coal mining area for the benefit - to the tune of tens of millions of dollars - of Eddie Obeid and his family.

Only months before Macdonald decided to open a coal mining tenement in the state's Upper Hunter in 2008, Obeid and his family happened to have purchased a nice slice of farming land right within those very boundaries, it has emerged.

Inside knowledge, the inquiry's counsel charges.

Pure chance, Macdonald has declared. And how did he find this new area for coal mining? From an atlas, he says.

It was a happy stab at a page in an atlas for Eddie Obeid and the family - they stood to make as much as $100 million. Indeed, those juicy gains could reach as high as $175 million if a further mining permit is issued. Such a permit, the inquiry's counsel assisting observed, would cover three Obeid properties ''like a blanket''.

The inquiry has also been trying to establish this week whether Macdonald was due for a little icing himself - $4 million has been mentioned, though the deal that might have provided the cash had fallen through.

Meanwhile, he has received payments from a business partner - one of whose companies is named, deliciously, Bagman Properties - totalling $450,000 over the past few years ''to keep him rolling along'', as he put it.

The corruption commission's investigators have had to burrow through a lot of figures - Macdonald, the inquiry has heard, had 14 separate bank accounts. Plus, of course, he took a nice little excursion to the Obeid ski chalet at Perisher Valley, free of charge, his astonishingly expensive meals (one cost more than $600) paid by the family, just days after he is alleged to have provided the Obeids with a list of mining companies that proved useful in putting deals together.

As to the claim that he is a crook, Macdonald took umbrage.

''That's an absolute lie,'' he told the inquiry. ''It was just said for the benefit of the Fairfax press.''

Whatever Macdonald may or may not be, the real star of the inquiry is Obeid. He was, as everyone in NSW knows, no ordinary politician.

He was for many years the most powerful member of the most feared faction in the state's Labor pantheon, the maker and breaker of premiers and a man of such wealth that he, apparently, can't explain it, even though he is a trained accountant.

Indeed, he told the inquiry 40 times that ''I don't know'' when he was asked about the workings of the family business or their trust's loan accounts and how he had been able to live the life of the fabulously wealthy when he had listed as his only source of income his parliamentary salary for the last 10 years of his political career.

He proved touchy when Watson wanted to know how he'd managed to ''squirrel away'' large amounts of money.

"Don't squirrel me,'' he spat. ''I've spent more money than you have made in a lifetime.''

For a moment, you could see past the small, pleasant and bespectacled Obeid to the arrogant tough man who had created the most effective deal-making faction in Labor politics.

For many years, it was an open secret that if you wanted a half-useful career in NSW Labor, you had to deal with Eddie, known as ''He Who Must be Obeid'', and his faction, The Terrigals.

The Terrigals were the largest grouping of the Right (the smaller and less disciplined Right was known as The Trogs), and through a byzantine method of voting and favours delivered, The Terrigals controlled the parliamentary party.

Terrigal, before a recent rise in population and glitz, was once a sleepy fish'n'chips, ice-cream cone and barefoot village by the sea on the NSW Central Coast. It is Labor territory, split - and sometimes, it seems, cursed - by two federal electorates. Craig Thomson, of Health Services Union fame, holds Dobell in the north. Dobell's southern neighbour, the seat of Robertson, was held until 2010 by Belinda (''Don't you know who I am?'') Neal, wife of another former NSW Labor powerbroker and member of The Terrigals, John Della Bosca.

In 1979, Obeid bought a a small beachfront block above the long sweep of sand at Terrigal.

He got it for $57,000 from the advertising man John Singleton, who had amassed a fortune pioneering ''ocker'' ads, became something of a hero among ALP insiders for engineering Bob Hawke's runaway 1983 election campaign and at one point had the extremely colourful stockbroker Rene Rivkin as a silent partner in one of his agencies.

Obeid, born in Lebanon and a hard scrabbler since childhood in Sydney, when he'd collect bottles to raise pocket money, had made it his life's work to know handy people.

In the late 1970s, as publisher of Australia's biggest Arabic newspaper, El Telegraph, he had become a close friend of the man who would become Australia's most legendary Labor fixer, Graham ''Richo'' Richardson.

Obeid and his newspaper proved helpful for Richo and Labor - the ALP enjoyed heavily discounted advertising rates in El Telegraph and the Lebanese community of western Sydney became a valuable resource in the Labor art of branch stacking.

Richo, in turn, would prove helpful to Eddie Obeid. He did the arm-twisting to secure Obeid his parliamentary career.

At Terrigal, Obeid built a mansion. In 1992, he decided to put the place to useful purpose and invited a group of like-minded NSW state Labor political mates for the weekend. And so was born The Terrigals faction.

The house was sold in 1996 for $1 million - the first million-dollar home in Terrigal. Eddie always knew a good deal.

Together, The Terrigals elevated cronyism to a high art and built their power to the point that once Bob Carr resigned as premier in 2005, they would install and remove a series of NSW premiers - Morris Iemma, Nathan Rees and Kristina Keneally (who famously protested she was ''nobody's girl'' after Rees said she would be controlled by Obeid and his Terrigal sidekick, Joe Tripodi).

Ian Macdonald, however, wasn't a Terrigal. He came - at least in name - from the Socialist Left, a lot of whose members loathed him from the start.

He was ambitious. In NSW Labor, the only sure way of turning ambition into reality was to play ball with The Terrigals.

Macdonald, as he admitted to the ICAC inquiry this past week, became an ally of Eddie Obeid. His reward was a series of ministries, including Obeid's own former portfolio, minerals and energy - which, of course, covered mining.

So close did Macdonald come to Obeid that when it came time to undermine Nathan Rees, the premier the Terrigals had created and had now decided to destroy, Macdonald took enthusiastic part. Rees, infuriated, sacked him from his ministry.

Macdonald simply became more enthusiastic in the business of destroying Rees' premiership and installing the newly favoured Terrigal, Kristina Keneally. Once she was premier, Keneally reinstalled Macdonald to cabinet as minister for major events, mineral and forest resources, state and regional development and Central Coast.

The rest, as they say, is history - yet to be unravelled by the corruption commission, which is scheduled to report its findings at the end of July.

A couple of weeks later, while the people of NSW are digesting those findings, Julia Gillard is due to call the official federal election campaign.

The King Of The Spivs

I first met Ian Macdonald, the former senior government minister at the centre of the corruption allegations currently besetting the NSW Labor Party, in mid 1978, soon after he arrived in Sydney from Melbourne. I was then in my last months as a Communist Party member and we quickly became close comrades in left-wing politics, Macdonald organising against the dominant right-wing ALP faction and me as a non-aligned activist. We were close friends for about five years before I started to have serious doubts about Macdonald’s character.

They were the kind of doubts that meant I was not surprised, some 30 years later, to learn Macdonald had acquired the nickname of “Sir Lunchalot” for his long, boozy lunches – many allegedly on his departments’ expense accounts. Nor was I amazed by allegations at hearings of the Independent Commission Against Corruption (ICAC) that Macdonald had consorted with a prostitute provided by a well-known businessman allegedly hoping to profit from his ministerial influence.

It was of another order, however, when counsel assisting ICAC claimed that, as mining minister, Macdonald had collaborated with former mining minister, Eddie Obeid, in “corruption on a scale probably unexceeded since the days of the Rum Corps”. He outlined a case that implicated Macdonald in the corrupt passing of confidential information about coal mining leases prior to decisions to open tenders.

Obeid, his family and associates allegedly stood to make profits of between $75 million and $175 million. In his evidence Macdonald conceded that he had passed some confidential information to Obeid’s son, Moses, but denied being in a criminal conspiracy. Counsel assisting labelled Macdonald a “crook” and “liar”. Macdonald and Obeid certainly talked a lot – 399 times by phone alone in 2008, the year the coal deals kicked off. Obeid, it seems, was the kind of mate Macdonald appreciated.

Friends and foes alike call him “Macca”. He is a stocky, muscular man, with a crooked nose and darting eyes, as fiercely competitive in politics as he is in cricket.

Macdonald’s deprived upbringing is central to his character. He has often recounted how his mother worked hard to provide for five children after his father left when he was five. This fuelled Macdonald’s youthful radicalism after he defied poverty to obtain a university education. It also made him ruthless in pursuit of success.

Macdonald was on the fringes of the ultra-left Maoist group at La Trobe University in the early 1970s, but joined the ALP in 1972. He gained notoriety during an anti-conscription demonstration when he was photographed confronting a cricket bat–wielding Tom Hughes, the federal attorney-general, elevating him in left-wing circles. He later became president of the Australian Union of Students when it was controlled by the far Left.

When Macdonald first settled in Sydney his mentor was Senator Arthur Gietzelt, who had run the NSW ALP Left for almost 25 years. Gietzelt’s standing gave Macca entree in his new hometown, including a job with the late Frank Walker, attorney-general in Neville Wran’s government. He soon knew the darker reaches of Sydney politics as well as if he were a local.

In 1980, however, Macdonald suffered a setback, when he lost an internal Left contest for the position of NSW party assistant secretary. Gietzelt’s support was expected to deliver him the post but John Faulkner, whose integrity now marks him as a Labor paragon, emerged victorious. A few years later, the NSW Labor Left split into Soft Left and Hard Left sub-factions following a bruising contest over the succession to the NSW deputy premiership, with Faulkner joining the former and Macdonald the latter.

I remained friendly with members of both sub-factions, but by 1988, when Macdonald entered the NSW upper house as a Left candidate, I believed his first priority was promoting his own interests. By then Macdonald’s political work consisted mainly of deal-making, focused on the power struggle within the Left.

His personal conduct also troubled me. For example, in the mid 1980s he regularly convened long Friday lunches in expensive restaurants. Macdonald’s practice, as I witnessed it, was to pocket his friends’ cash – thrown onto the table to pay the bill – and put the entire lunch on a credit card. Later it emerged that he had often used his Department of Housing card, an agency within Walker’s ministerial responsibilities. His misuse of this card became public after Nick Greiner won office in 1988; the media reported that it had involved around $18,000.

*

In January 1996 I joined the staff of Bob Debus, then a junior minister in Bob Carr’s government, but later attorney-general and minister for the environment. I worked with Debus for a decade and then for 20 months with Premier Morris Iemma. In mid 1997 I joined the ALP and its Hard Left sub-faction. Over the following decade I had a first-hand view of Macdonald’s factional manoeuvring and, after he was promoted to cabinet in 2003, of his manipulation of his ministerial responsibilities.

Soon after I started with Debus, Macdonald invited me to lunch. At that time he was still a troublesome left-wing backbencher, throwing bombs at Carr’s right-wing government. He was also the undisputed numbers man of the Hard Left, which gave him clout when it came to distributing cabinet and other parliamentary positions. The lunch confirmed for me that his political modus operandi had not changed. One of the two other guests was George Campbell, then in his last days as national secretary of the most powerful left-wing union affiliated to the ALP, the Australian Manufacturing Workers’ Union (AMWU). When it comes to Left preselections for parliamentary seats, the AMWU secretary’s candidates invariably win. Campbell had already used this power to win a safe spot on the ALP’s senate ticket in the looming federal election. He served as a senator for ten years, only to have his career abruptly ended when his protégé, Doug Cameron, in turn used his power as AMWU secretary to replace him.

Campbell’s (and later Cameron’s) support was critical to Macdonald for 20 years. Unions exercise inordinate power inside the ALP, frequently sweeping aside ordinary rank-and-file members to install their preferred candidates. For example, when Macdonald first won preselection in 1987, unions had a 60% vote in all decision-making forums, including the Left faction (since reduced to 50%). As the largest Left union, the AMWU’s support for Macdonald ensured his preselection.

Greg Jones, Macdonald’s closest friend from their time on Walker’s staff, was the other luncheon guest. Jones had also been implicated in the lunch rorts in the 1980s, and was a secret investor in a company that, as alleged before ICAC, won the coal tenders orchestrated by Macdonald. The Obeid family had also acquired a secret holding in this company, allegedly demanding a 25% stake in return for guaranteeing it would win the tender, based on knowledge gleaned from Macdonald. Obeid’s close associates allegedly stood to make tens of millions of dollars.

Before the tenders were awarded, Jones allegedly encouraged business associates to also invest in the company, telling them he was on to a “sure thing” with a coal deal. He must have been very sure indeed. According to evidence before ICAC, Jones’s company loaned Macdonald almost $200,000 at the time the decision was being finalised, most of which he never personally repaid. Counsel assisting produced a document in Jones’s handwriting that he claimed indicated Jones’s intention to pay Macdonald $4 million as his share of the deal. Jones terminated their friendship in disgust over Macdonald’s resignation from parliament in 2010, allegedly because it came at a delicate moment for the coal deal.

When ICAC’s investigations exposed the extent of the graft in late 2012, the Labor Right faction feigned surprise. This is hard to credit. The corrupt culture exposed by ICAC had been obvious to insiders for at least six years and, after running exposés in the Fairfax press, to anyone who wanted to know, contributing to Labor’s crushing defeat in the 2011 state election.

In his decade as premier, Bob Carr had run a clean administration, achieving notable anti-corruption reforms, including of the graft-riddled police force. But in Carr’s last months in 2005, Eddie Obeid, who controlled the dominant Right faction, assumed the role of kingmaker, providing the numbers to elect three successive premiers – Morris Iemma, Nathan Rees and Kristina Keneally – and promoting his close allies to cabinet. Carr’s successors could not resist Obeid, even when they tried, and the culture that now so taints NSW Labor spread its poison throughout the government.

The party’s undemocratic structures had always maximised opportunities for corruption, funnelling policy-making and preselection powers into the hands of faction and union leaders. These treated party members with contempt, promoting their friends and family into parliament, including some with unsavoury proclivities, simply because they could.

The present ICAC hearings bear this out. Macdonald was the minister for mining almost continuously from August 2005 until June 2010, when he was forced out for travel-expense rorting. In addition to Macdonald’s alleged role in providing Obeid with inside knowledge of the coal leases, a separate ICAC investigation will focus on Macdonald’s granting of a coal licence to a company part-owned by former mining union leader John Maitland, allegedly later sold on at a huge profit. ICAC has also examined the Obeid family’s secret share in a water engineering company that holds a monopoly government contract to build infrastructure in Sydney’s north-west. Then treasurer Michael Costa has stated that Obeid lobbied him in favour of the company. This reportedly occurred without Obeid disclosing his conflict of interest. Costa also has said that Obeid later helped him to become the company chairman, which came with a 5% stake.

*

Last December the Left faction publicly apologised for pre-selecting Macdonald to his parliamentary sinecure. Representing Labor in parliament is a privilege few achieve. The Left’s error gave Macdonald 22 years on a comfortable salary – seven as a cabinet minister – and a generous superannuation package when he resigned in disgrace in 2010.

It remains perplexing that this warrior of the Left ended up in an allegedly corrupt partnership with Eddie Obeid, seemingly his sworn enemy on the Right. The reality was that Macdonald had secretly defected to the Right following his promotion to parliamentary secretary after Labor’s 1999 election victory.

NSW party secretary John Della Bosca had steered Carr to two election wins. He entered the upper house in 1999 and Carr promoted him to special minister of state and assistant treasurer. “Della”, as he is known, is a short, somewhat rumpled man with a wide smile, an acute sense of political strategy and a deep Catholic commitment to social justice. Ever perceptive, he quickly befriended his left-wing rival Macdonald and involved him in doing what he was best at: brokering a deal, on this occasion with the Victorian and federal governments to restore environmental flows to the long-neglected Snowy River.

By 2003, when Carr won his third election, Macdonald was for all practical purposes in Della Bosca’s camp. Macdonald’s comrades, however, were completely in the dark. With Della Bosca vouching for him to the Right, and Macdonald exploiting his standing in the Hard Left, he leapfrogged into cabinet. It was seven years before the Hard Left’s leaders comprehended that Della Bosca had effectively prised a ministry away from them.

No one knows when Macdonald became, in effect, a triple agent, by switching his loyalties to Obeid, who was in an intense rivalry with Della Bosca who scorned Obeid’s tribe in the NSW Right. A rather squat, impeccably dressed man, who lived a lavish lifestyle well beyond his officially declared pecuniary interests, Obeid has long been controversial. His business dealings were closely scrutinised for years; as long ago as 2003, just as Macdonald entered cabinet, adverse publicity resulted in Carr removing Obeid as minister for mining.

His banishment did not diminish Obeid’s power. He was the brains behind the creation of the Terrigals sub-faction of the Right, so named because it first met at Obeid’s beach house at Terrigal on the central coast. They initially supported Carr’s leadership. After his sacking, and with time on his hands, Obeid organised against the premier. The elevation of Joe Tripodi to cabinet in February 2005 despite Carr’s opposition demonstrated Obeid’s power. Tripodi was Obeid’s factional enforcer, whose odious antics, such as being caught in parliament house making advances to a female staffer with his trousers around his ankles, had already affected the government’s standing. But after ten years as premier, Carr’s authority was eroding and Obeid was determined to put his friends into senior positions.

Appearing before ICAC, ex-premier Morris Iemma explained how Obeid and Tripodi leveraged their power to promote their candidates into cabinet. Iemma’s own elevation to premier had depended on his courting of them. Obeid, ostensibly a humble backbencher, had even attended the premier’s inner-leadership meetings and, according to Iemma’s ICAC testimony, had visited him at home several times a week to proffer advice. In September 2008, Iemma attempted to impose a cabinet reshuffle in defiance of Obeid and Tripodi’s wishes, precipitating his removal.

Similarly, Iemma’s successor, the Left’s Nathan Rees, was initially supported by Obeid and Tripodi. But in late 2009, following the ALP state conference’s decision to allow him to pick his own cabinet, Rees immediately sacked Macdonald and Tripodi, causing his downfall. When Kristina Keneally succeeded Rees she brought back Macdonald and would have done the same for Tripodi, had he not declined. Within the year, and having publicly praised Macdonald as one of her best performers, Keneally forced him to resign for rorting his travel expenses. NSW Labor was by then terminally dysfunctional.

*

Insiders were surprised that coal emerged as the focus of Labor’s corruption scandal. Property development was at the centre of the pernicious culture that first infected ALP head office and then slowly spread into the government. Developers were large donors to Labor, often raising the question of whether they received quid pro quo treatment from the minister for planning.

In the government’s last chaotic years, Obeid and Macdonald were active in lobbying for particular developments and developers. From 2006 Obeid campaigned to get Macdonald elevated as minister for planning. At this time, decisions were being made about major land releases and development proposals around the north-west and south-west fringes of Sydney, in the Hunter Valley, the Illawarra and the mid- and far-north coasts. In 2006, I attended numerous cabinet planning sub-committee meetings at which I witnessed the serial bullying of the planning minister, Frank Sartor, by Tripodi and other senior ministers. Sartor was trying to make decisions based on the facts and was resisting developers whose main argument was the blunt instrument of their generosity to the ALP.

In December 2005, when I was advising premier Iemma, I received a phone call from NSW ALP secretary Mark Arbib. Arbib told me that Bob Ell, of Leda Holdings, was a significant donor to Labor’s coffers and had a problem with his development proposal on the far-north coast. Arbib asked me to look into it. I reluctantly agreed to do so, but was startled when the very next day Ell rang me directly, having obtained my number from Arbib. Ell’s opening gambit was to declare that it was actually Arbib who wanted me to be informed about his issue. He clearly believed he had influence because of his generosity to Labor. I made no promises other than to review the case to ensure it was being handled properly.

Such behaviour was part of a pattern. For example, in his book The Fog on the Hill, Sartor recounts how Ell doggedly pursued a political campaign over five years to overturn a sound planning decision in the Illawarra region to his own advantage as a landowner. This was the culture inside which Obeid and Macdonald allegedly thrived, to the point that only voters could end the corruption at the core of NSW Labor, reducing the party to a parliamentary rump in 2011.

*

Paul Keating once said, “Where goes NSW, so goes federal Labor.” Indeed, NSW Labor’s collapse precedes the pending federal collapse. The victory of a Muslim Liberal in last year’s mayoral election in Labor’s western Sydney stronghold of Liverpool tolled the bell. Polls are suggesting an electoral wipeout in western Sydney in September, with even Gough Whitlam’s old seat of Werriwa said to be at risk.

Ultimate responsibility for Labor’s woes lies with the Right, which created the undemocratic system that has allowed corruption to flourish, including backing Obeid during his 20 years in parliament, but the Left is also culpable. The AMWU and key Left operatives supported Macdonald for 20 years, including after 2003 when, as a minister, he supported the Right on almost every significant environmental issue. Macdonald’s defiance of orderly, whole-of-government processes established the means by which he could conduct coal tenders without even the premier knowing. He and his staff bullied their senior departmental executives mercilessly to achieve their ends and this method was also allegedly used in the coal tenders. I saw them operate similarly in staff and cabinet sub-committee meetings discussing major policy decisions, such as the central-western forestry assessment, water allocations for inland rivers and new land-clearing rules.

I witnessed an especially egregious example of Macdonald’s disruptive operations when I was Iemma’s senior adviser on the environment. The premier supported establishing a marine park around Port Stephens, an outstanding election promise that had long been frustrated by Macdonald. A joint cabinet minute signed by Macdonald and Debus was required for it to proceed, but Macdonald simply refused. In the end, Iemma signed the minute himself, angrily vowing to me that he would sack Macdonald if he won the 2007 election. He won convincingly, but Macdonald remained a senior minister.

In 2006, Luke Foley, the Left’s assistant party secretary, attempted to replace Macdonald with a new candidate for the 2007 election. He approached the two men who could make this happen, Hard Left leader Anthony Albanese and AMWU national secretary Doug Cameron. Macdonald, ever the manipulator, proposed a deal: he would retain the safe position on Labor’s upper house ticket at the election and then retire after two years, claiming he needed the time to finish important ministerial work. To Foley’s disappointment, Albanese and Cameron agreed. When the two years expired, Macdonald denied having made any commitment to stand down.

The internal politics surrounding Macdonald and Obeid require close attention: without the support of errant union secretaries and faction leaders neither could have used his position to allegedly engage in such large-scale corruption. This is not to say those who supported their preselections are corrupt. The system that gave them their power, however, is fundamentally undemocratic and therefore prone to corruption.

For years the ALP has debated the need for internal reform. When John Faulkner made a well-considered speech on the subject in December, Prime Minister Julia Gillard commented that she had already achieved major reforms. Although there have been some small steps, the major issue remains: a handful of ALP members exercise inordinate power because they are union secretaries.

As I have written elsewhere, a modern centre-left party needs to reflect the society it hopes to lead and whose values it hopes to mould. Unions still exercise 50% of the power to set policies at national and state conferences that can bind Labor governments. They dominate Labor executives around the country and full-time officials often owe their loyalty to union secretaries, not the ALP membership.

Yet union membership is now 18% of the workforce – down from 50% a generation ago – and only 13% in the private sector. A party that refuses to adapt its internal structures in the face of such a tectonic shift in its constituent base flirts with irrelevance.

There is little likelihood of unions voluntarily ceding their power. Affiliated unions have resisted many reform proposals, most recently rejecting the recommendation of Carr, Steve Bracks and Faulkner – as part of their review of what went wrong in the 2010 federal election – to extend rank-and-file representation at ALP national conferences. Little wonder that Labor’s parliamentary representation is so skewed towards ex-union officials.

No system can prevent individuals engaging in political graft, but Labor’s present structure maximises the chance of corruption. Devolving power to ordinary party members would help minimise it, simply because bribing thousands of people is difficult. This would require reducing the practical influence of affiliated unions to their actual level of membership in the workforce, which is about 12%. The rest of the power should lie with the party’s membership, including electing national and state conference delegates, full-time officials, executive members and parliamentarians.

Such far-reaching reforms would also demonstrate that Labor is committed to internal democracy, a profoundly attractive alternative to the putrid swamp where the factional operatives have led the party.

Mate of the Union - How To Corrupt A Party