re:little johnny liar liarpants on fire
Mr Costello said Mr Howard made the offer spontaneously during a meeting on December 5, 1994, when the Liberals were in opposition.
"He told me that he intended to do one-and-a-half terms as prime minister and then would hand over," Mr Costello told reporters in Melbourne.
"I did not seek that undertaking, he volunteered it and I took him at his word.
"Obviously that did not happen."
Mr Costello said during the meeting, witnessed by Mr McLachlan, Mr Howard had asked him not to stand for the Liberal Party leadership "because he did not want a vote in the party room".
Mr Costello said he had not encouraged Mr McLachlan to make any revelations about the 1994 meeting.
"But his account is entirely accurate," he said.
"That was precisely what happened, they are the full facts of what happened.
"I have a very clear recollection of the events.
"You can interpret them as you like but that is the full truth of what happened.
"The public is entitled to know the full truth and that is what happened."
Earlier today, Mr Howard denied ever striking a leadership deal.
"There was no deal made," Mr Howard told reporters.
Mr McLachlan, who took notes of the meeting, said yesterday that Mr Howard told Mr Costello he only wanted to be prime minister for two terms before standing aside for his treasurer.
Mr Howard is reported to have told Mr Costello: "I can't guarantee this to you, Peter, but my intention is not to hang around forever.
"If I win, I'll serve two terms and hand over to you."
Mr McLachlan says the deal was struck amid manoeuvering to replace then-Liberal leader Alexander Downer two years before the 1996 election, at which Mr Howard won government.
Liberal backbencher Alex Somlyay today backed Mr McLachlan, saying the former minister showed him his notes of the meeting in 2001.
Meanwhile Labor says either Peter Costello or John Howard must quit cabinet in the wake of today's leadership battle revelations.
Opposition treasury spokesman Wayne Swan said one of the men must go.
"Costello deliberately put himself at odds with the PM but he didn't have the courage to call him a liar," Mr Swan said.
"It appears he doesn't have the strength to challenge and doesn't have the principle to leave the cabinet.
"There's no question that in the national interest we can't continue to have the prime minister and the treasurer at each other's throats and only one, in those circumstances, can sit in the cabinet room."
All issues before cabinet, which is meeting in Sydney on Tuesday, would now be seen through the prism of the hostility between the two, he said.
"The incessant plotting's got to stop," Mr Swan said.
"You can't have two senior people consumed by their own ambition because what you do then is you put the national interest at risk."
