Attorney-General Christian Porter referred the matter to the government’s top solicitor on Wednesday evening – just as Mr Dutton’s supporters were circulating a petition and preparing for an imminent leadership challenge.
The Constitution does not allow politicians to profit from agreements with the Commonwealth, but Mr Dutton’s lawyer Guy Reynolds SC argues the money effectively flows to parents rather than the centres.
“The statutory scheme is to institute a form of statutory entitlement for parents,” Mr Reynolds wrote in his advice in 2017.
Mr Dutton said the allegations were part of a “spurious and baseless campaign" conducted against him.
He said the “timing” of the accusations were “curious” given his current tilt to become prime minister.
The story hit the headlines when Channel Ten ran a report on the matter earlier in the week. The network has denied any political interference.
Several constitutional lawyers, including Sydney University’s Anne Twomey, have suggested the arrangement may breach Section 44 of the Constitution.
Labor has released its own legal advice from prominent lawyer Bret Walker SC, who said it was his opinion that Mr Dutton was “not entitled to continue to sit” in the parliament.
“The payment of over $2 million to the trustee of the Family Trust means that Mr Dutton as a so-called beneficiary has a pecuniary interest,” Mr Walker wrote in his 17-page argument.
Only the High Court can decide on Constitutional questions.
Childcare centres around the country have been receiving direct government subsidies since July 1, when the government changed the laws so payments were made to centres instead of parents.
Mr Dutton could advise the High Court through a vote of the House of Representatives, where the Turnbull government still maintains a one-seat majority.
In Question Time on Wednesday, Labor asked the prime minister if he would support a referral.
“The member for Dickson [Mr Dutton] has advised me that he has legal advice that he is not in breach of Section 44, and I, therefore, have no reason to believe that he is,” Malcolm Turnbull said.
Labor moved to refer Mr Dutton to the High Court on Thursday morning but the motion was defeated by one vote.
Mr Dutton is expected to launch another challenge for the Liberal leadership as soon as this afternoon.
His supporters are urging Mr Turnbull to call another party room ballot as soon as possible, believing they now have the numbers.