Donations scandal another headache for Australian PM Turnbull

The Liberal Party is embroiled in a financial scandal, an unwanted additional challenge for the Turnbull.

Malcolm Turnbull was voted in as Australian Prime Minister on 14 September 2015. Picture: AFP

SYDNEY - Prime Minister Malcolm Turnbull's ruling Liberal Party is embroiled in a financial scandal, an unwanted additional challenge for the Australian leader as he takes the major political gamble of calling an early federal election.

Turnbull, who has already sacked three ministers over misdemeanours in the past few months, faced calls on Saturday to dismiss Cabinet Secretary Arthur Sinodinos over donations made to the ruling Liberal Party's New South Wales (NSW) state branch.

The NSW Electoral Commission said this week it will withhold A$4.4 million ($3.3 million) in public funding for the party after it failed to disclose the source of donations made in the lead-up to an election victory in Australia's most populous state in 2011.

The commission ruled that the party's so-called Free Enterprise Foundation was used by senior Liberal officials to disguise prohibited donors including property developers, who are banned from making political donations to NSW campaigns.

"If these people were illegally donating to the Liberal Party when Arthur Sinodinos was in charge of the money then his position really becomes untenable," Jason Clare, the opposition Labour Party's communications spokesman said.

Sinodinos, who was the state division's finance director and treasurer at the time, said in its ruling, the NSW Electoral Commission "used loose language which could convey erroneous impressions".

"I have never been accused of corruption," he said in an emailed statement on Saturday.

"I deny any wrongdoing or illegality."

The affair adds to the pressure on Turnbull just days after he called an election for July 2, well before it falls due in January 2017, as he looks to capitalise on early - but fading - popularity.

Turnbull has consistently led opinion polls since he came to power in a party-room coup last year. His ruling Liberal-National coalition has led Labour in recent polls but there are signs his honeymoon period may be ending.

One Newspoll released on Monday showed Turnbull's popularity falling into negative territory for the first time.

If successful, Turnbull's high-risk election strategy will also clear out parliament's upper house, the Senate, potentially giving the coalition a clearer passageway for favoured bills.

Australia has become notorious in recent years for its revolving door political leadership. If Turnbull was to lose the election, Australia would have its 6th prime minister since 2010.