"We do not receive government funding ... It was a recommendation from our chair that these people get rewarded."
A government source said Mr Morrison was angry about the"taxpayers'money"line from Ms Holgate,which was being referred to as an"11-word suicide note"in government ranks on Thursday night.
She said the watches were given to senior employees Gary Starr,Deanne Keetelaar,Anna Bennett and Greg Sutherland for their"inordinate"work on the Bank@Post arrangement.
"There were a small number of senior people who put in an inordinate amount of work and they did receive a reward from the chair,myself,and on behalf of the board,"Ms Holgate told the committee.
Mr Starr,executive general manager for business,government and international,who was also called to give evidence to the hearing,told the committee he was not presently wearing the watch.
Chief financial officer Rodney Boys said he did not know which corporate credit card was used to purchase the watches.
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"I cannot[tell you],because I haven't had that question today. Australia Post has $7.4 billion worth of expenses. We look after those expenses and take great care of those expenses,"Mr Boys said at the hearing.
In a joint statement on Thursday afternoon,Finance Minister Mathias Cormann and Communications Minister Paul Fletcher said their departments would lead the investigation with the support of an external law firm.
"The government expects all government entities,including government business enterprises,to act ethically and adhere to high standards regarding the expenditure of money,as the public also rightly expects,"the statement said.
Australia Post chairman Lucio Di Bartolomeo said management would"fully co-operate"with the investigation. He confirmed Ms Holgate would stand aside during the investigation,with Mr Boys to act in the role.
"We remain committed to delivering for our important stakeholders – our people,our Post Office partners,our customers and the community,"Mr Di Bartolomeo said in a statement on Thursday night.
The scandal is the latest in a string of controversies to plague Ms Holgate's tenure as chief executive. These include revelations she spent about $300,000 on corporate credit cards and chauffeur-driven cars over a 12-month period,and paid a reputation management firm $119,000 for just 38 days of work for the organisation between June and July.
Ms Holgate,who won the job in late 2017 after her predecessor Ahmed Fahour resigned just weeks after his $5.6 million salary was revealed by a Senate committee,has made some powerful enemies in her three years in the role.
Several senior executives have left under her reign,some in acrimonious circumstances,and have expressed concern with her management style and extravagant spending on entertainment to lobby stakeholders,industry colleagues and politicians on both sides of the aisle.
Sources,speaking on the condition of anonymity,said the organisation had paid for her accommodation at Melbourne’s Park Hyatt while she flew in from Sydney for much of her first year in the role.
On Wednesday night Ms Holgate was seen at Canberra’s Hyatt drinking champagne with colleagues ahead of the estimates hearing.
Liberal senator James Paterson,who three years ago forced Mr Fahour to publicly reveal his pay packet,said Ms Holgate"should read the room and go now".
He said after her predecessor’s departure it was"remarkable"there was anyone at Australia Post who did not realise every dollar they spent as a government business enterprise"belongs to taxpayers".
A government source said some board members had privately expressed concern over her behaviour in the role to senior ministers in the past few months.
Labor communications spokeswoman Michelle Rowland said the gifts were"unacceptable"and said the Australia Post board was"incapable of executive oversight and must be cleaned up".
Ms Holgate was also grilled in estimates about her decision to takeOne Nation leader Pauline Hanson on a VIP tour of a Brisbane parcel facility in July,11 days after a debacle around the delivery of Senator Hanson’s stubby holders to a locked-down Melbourne public housing tower.
She said there was no connection"whatsoever"between the two events,saying"it was a coincidence".
The tour occurred at the same time as the organisation was trying to win One Nation's critical vote to stop a temporary relaxation in daily postal services being overturned by the Senate. Earlier that month Senator Hansonhad attempted to send 114 parcels to the public housing tower that she said contained"drug addicts"and"alcoholics".
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The parcels were intercepted by Melbourne City Council,prompting Australia Post's general counsel and corporate secretary Nick Macdonald to write to the council threatening to contact"the Police or other relevant authorities"unless the 114 parcels were delivered"without further delay".
Ms Holgate told the hearing she did not personally contact Senator Hanson or her office about the delivery,and that the organisation resolved the issue with the council later that day.
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