Australia's Costello to quit politics

By James Grubel

SYDNEY (Reuters) - Peter Costello, Australia's outgoing treasurer, announced plans to quit politics on Sunday, passing up the opportunity to lead the conservatives after the government's comprehensive election loss.

Costello held his seat in Saturday's election but he said he would serve out the three-year term on the backbenches, helping mentor the defeated Liberal party's new generation of leaders.

Costello, 50, served as treasurer for 11 and a half years and was considered the logical successor to outgoing Prime Minister John Howard, who endorsed Costello to take over on election night.

But Costello said it was now time to step back from politics, to spend some time with his family, and look to a new career.

"The time has come for me to open a new chapter in my life," Costello told reporters. "I will not seek nor will I accept the leadership or deputy leadership of the Liberal Party."

Howard's conservative coalition was comprehensively defeated on Saturday, with centre-left Labor leader Kevin Rudd claiming power on a wave of support for generational change.

Costello said it was also time for the Liberal Party to adopt generational change within its ranks.

His decision is a further blow to the conservatives as they try to rebuild from the election loss, with Howard likely to lose his Sydney seat of and families minister Mal Brough, tipped as a future star, also losing his seat.

Costello is considered the best performer in Australia's parliament. His decision will leave the defeated Liberals searching for a new leader to take up the fight against Rudd.

Earlier, outgoing foreign minister Alexander Downer had urged his party to support Costello, who he said was best placed to help it rebuild. The Liberals are now out of power nationally and in each of Australia's six states and two territories.

"It shouldn't be a contest for the leadership. It should just go straight to Peter Costello."

Costello is Australia's longest-serving treasurer who eliminated A$96 billion ($83 billion) of inherited government debt and restored budget surpluses, keeping inflation largely in check during an economic boom with unemployment at 33-year lows.

He had long hoped to succeed Howard as prime minister, but he shrank from a direct challenge while Howard flatly refused to stand aside for his ambitious deputy.

($1=A$1.15)

(Editing by Roger Crabb)