The Fraser Years I

CHAPTER 8

Double speak means the power of holding two contradictory beliefs at the same time, and accepting both of them

George Orwell in Nineteen Eighty Four

A foolish consistency is the hobgoblin of little minds

Emerson employed by Reg Withers to tease me

A Long View from a Low Height

Ross McLean's description of a dry backbenchers' view of the world

During the terms of the Fraser Governments the dry ideal found champions in the Federal Parliament to continue Bert Kelly's lonely crusade.  They achieved little immediate change in the statutes but, in Paul Kelly's words, they established "a counter establishment loosely united by a new ideology, networks, a mutual support mechanism and a comprehensive economic view of the Australian disease". ⁽¹⁴⁸⁾  We will look first at how these operated, then at some macro economic issues and then in the next chapter at the more important individual campaigns.

1975 AND ALL THAT

Despite winning a huge 55-seat majority on 11 November 1975, Malcolm Fraser's mandate was flawed.  Having forced the Whitlam Government to the people in 1974 and lost the consequent election, the Coalition in the Senate had again blocked the appropriation bills of the 1975 budget.  By then unemployment, inflation and the Kemlani loans had discredited the Government.  The electorate was heartily sick of Labor, but Whitlam took a course that Fraser had not anticipated.  Instead of advising the Governor General, Sir John Kerr, to call an election, against all precedent, he decided to tough it out in the belief that Coalition Senators would lose their nerve, break ranks, and pass the appropriation bills.  The Senators did not.

Although public service overtime work was still done, payment for it had already been withheld and the Government had lawful funds for only one more fortnightly salary payment.  When the day that the Government would have been unable to pay salaries and pensions approached, Kerr withdrew Whitlam's commission and appointed Malcolm Fraser in his stead on the understanding that the Coalition would pass the budget and that Fraser would advise an election at the earliest practical date.

Fraser was a cautious, even timid, man and a sophisticated student of public opinion;  it was not in his nature to divide the nation deliberately.  However, once the budget had been blocked there was no politically easy way to turn back.  Although the events were widely referred to as a "Constitutional crisis", they were nothing of the sort.  That the Constitutional uncertainty was resolved by an election without even serious fears of bloodshed demonstrated inherent Constitutional strength and social cohesion that any nation might envy.  Nevertheless, a significant minority of Australians believed that Whitlam and Labor voters had been treated unfairly by the Coalition, the Governor General and the Chief Justice, Sir Garfield Barwick, who had advised Kerr at a critical stage.

On the anniversary of the 1975 election John Hyde proposed a sarcastic justification by two or three backbenchers of events leading to it and had cleared their intended motion with the Whip.  Fraser called Hyde to his office and asked him to desist unless Labor started it.  Fraser was not normally averse to using the forms of the House for point scoring but he reasoned with Hyde that to inflame tensions with triumphalism was not in the national interest.  Although Hyde had no difficulty accepting his view, he was taken by surprise.  Fraser was, of course, correct.  However satisfied Fraser may personally have been about the propriety of his own actions, he was concerned about the tension that had resulted.

Three years before, with only a relatively slender majority, Whitlam had claimed a mandate for every element of his platform and, in ordinary circumstances, Fraser's majority would have muted most opposition to his policies.  These, like most framed by Oppositions, were a grab-bag of popular measures including many that were inconsistent with the core promises to restore the budget to responsible balance and the economy to health, and to tackle unemployment.  They could not have been implemented in their entirety, but the measures essential to the central promises could have been.  The circumstances were not, however, ordinary.

Fraser's deep-felt doubt about public acceptance of the legitimacy of his mandate made him reluctant to claim it, especially to curb union power.  This left him open to criticism from another quarter.  It was widely said that never had a leader squandered a greater mandate.

The forced election could be criticised from three standpoints.  Some academic lawyers said that it was not legal but in the face of contrary learned argument and the absence of a High Court challenge that criticism fell away.  It was argued that, after 23 years of Coalition rule to 1972 and the failed attempt to change the Government in 1974, it was only fair that Whitlam see out his term.  Finally, people disappointed with Fraser's inaction argued that justification for blocking supply could be found only in a considerable improvement in the quality of Government.  There was quite a deal of argument about whether Bill Hayden, Whitlam's third Treasurer, could have induced his colleagues to govern more responsibly.

The Coalition won another handsome majority in 1977.  With that win Fraser had no excuse for not tackling the hard issues.  The IPA had for many years been ineffective and the CIS was then only beginning.  Australia was, for that reason and others, not as well served as the UK with the ideas needed to address the economic malaise.  The parliamentary Dries did not begin to coalesce until 1978 but during 1976, 77 and 78 Fraser had much the effect upon them that Heath had had upon Dries in the UK Parliament -- their ultimate determination had roots in their disappointment.

PREPAYMENT OF MEDICARE OBLIGATIONS

At 30 June 1976, the Fraser Government prepaid $200 million in health grants to the States.  This had the effect of making the last Labor (Hayden) budget look worse than it was and its own first budget look better.  John Hyde interpreted this action as moral weakness.  It was perhaps when Hyde first realised that he might not always be prepared to be loyal division-fodder.

17.5% DEVALUATION

In its first year the Fraser Government devalued the Australian dollar by 17.5%.  It leaked that the extent of the devaluation had been against Treasury advice and had been encouraged by the Country Party. ⁽¹⁴⁹⁾  Some MPs who became Dries, remembering the damage done to the economy by the refusal to up-value in 1971-72 and the malign influence of the Country Party then, began to ask if there was not a better way.

It was not found with the crawling peg or "dirty float" managed by a subcommittee of Cabinet that met periodically to set the value of the currency until it met again.  The Government almost immediately up-valued by 2.5%.  Most countries were floating by then and, at the time, John Hyde saw "the peg" as a small step toward the desirable end of a floating currency which would not be influenced by the prejudices and short-term whims of members of the Cabinet --Goodness knows why!  There was corridor talk of the consequences and requirements of a regime that permitted all currencies to compete, as the US dollar competed with the domestic currencies in some Latin American countries.  As policy this was not on but, as kittens play tag and tumble before they can catch rats, they played with ideas relevant to their calling, increasing their knowledge and mental agility.

Bert Kelly prevailed upon the backbench Treasury Committee to invite an academic economist to explain the relationships between protection and the exchange rate.  It now seems obvious that import barriers raise the value of the currency, spreading the cost of the barriers to producers of all traded goods.  Economists may chuckle, but at the time the obvious seemed less so.

A wage and prices freeze was seriously considered during 1976.  John Hyde took the idea seriously enough to request briefings by Canadian officials upon that country's experience.  Not many Wets are today so wet! Initially it was wisely rejected by the Cabinet but Fraser and Lynch reversed the decision at a Premiers' Conference when the Victorian Premier, Rupert Hamer, who was notorious for his economic simple¬mindedness, declared his support for a freeze from the steps of Parliament House on the way into the meeting.  The job of running it was given to John Howard, then a junior minister of slight experience. ⁽¹⁵⁰⁾  It collapsed when the Arbitration Commission ignored it.

RUBBERY FIGURES AND THE LYNCH SACKING

The 1977 budget promised substantial tax cuts that were abandoned when the election was out of the way.  The budget estimates themselves were unsatisfactory.  In the late stages of their development expenditure estimates from the Department of Prime Minister and Cabinet had been adopted in preference to the more pessimistic estimates of Treasury.  Phil Lynch, the Treasurer, conceded to the Press Club that the figures were "a bit rubbery" and "rubbery figures" entered the language.

During the Federal following election campaign Lynch was accused in the Victorian Parliament of profiting from his position of authority in relation to a speculative land purchase at Stumpy Gully on the Mornington Peninsula in his electorate.  Fraser forced him to stand down from the Ministry, in effect sacking him.  Lynch was bed-ridden at the time and instead of delivering the bad news himself Fraser sent Peter Nixon.  Fraser appointed John Howard to the Treasury -- a huge promotion for the young and ambitious Howard.

That Fraser should, during the heat of the campaign, have taken precipitous action against Lynch was entirely reasonable but he continued to pursue him after the election had been won and that seemed vindictive and motivated by the rubbery figures admission.  After the election John Hyde was involved with Fred Chaney in a partially successful attempt to rescue Lynch during which Hyde had the opportunity to go through his financial affairs.  Hyde could detect no impropriety.  Lynch was rescued as Deputy Leader but lost the Treasury to become Minister for Industry and Commerce.

Howard, putting personal ambition aside, volunteered in strong terms that his legal experience informed him that Lynch's transactions were normal commercial deals.  People closer to Fraser than John Hyde was tell him that Fraser really believed Phil had behaved improperly.  That was not, however, his belief then or for long after.  The affair influenced Hyde in two ways:  first it reduced his respect for Fraser so that he was later more willing than he would otherwise have been to attribute base motives to Fraser and it enhanced his respect for John Howard.  Such are the apparently irrelevant matters that will sometimes influence future events.

WOODSREEF

The second Fraser Government came forward with an outrageous plan to provide a taxpayer subsidy to one narrowly-owned enterprise in an electorate held by the National Country Party -- the Woodsreef asbestos mine.  Then, during August 1980, the Government gave this mine a further million dollars, which Fraser justified in personal conversation as necessary because of NCP Deputy-Leader Ian Sinclair's personal troubles! ⁽¹⁵¹⁾

The Government was applying public moneys to private ends and that seemed to John Hyde to be inexcusable by the same criterion that WA Inc. was later inexcusable.  Hyde thought such behaviour was a form of theft involving breach of trust.  Hyde confessed, however, that his colleagues did not seem either as surprised or cranky as he was.  So long as Governments did not too much deplete the Treasury, they were entitled to give favours to their mates, an attitude that I think sits oddly with the brouhaha that follows Ministers' failures to declare interests accurately or the theft of relatively small sums of over-claimed travel allowance.  Hyde opposed the measures, and even made a sarcastic little speech in the House, but without effect.  The Opposition was amused but not interested.

HOW THE PARLIAMENTARY DRIES OPERATED

Toward the end of 1979, five dry MHRs ⁽¹⁵²⁾ used the adjournment debates to discuss "The economic situation and policy options".  The speeches were distributed and resulted in opportunities to address CEDA in Melbourne ⁽¹⁵³⁾ and Sydney.  The businessmen, particularly those in Melbourne, wanted protection from competition for themselves but, nevertheless, opposed the anti-competitive habits of trade unions.  From then until the change of Government in 1983 several Dries were given other opportunities to do joint acts for CEDA.  Sometimes their arguments were competently opposed.  More often they were amazed how little the businessmen understood or cared to understand. ⁽¹⁵⁴⁾

On one occasion the Chamber of Manufactures briefed a backbench committee with an expensive shopping list of demands.  When John Hyde asked its principal spokesman how he expected the Government to finance it, he told Hyde that that was for the politicians to work out.  A union delegation would not have come to Parliament so ill prepared.  Not all of the beggars were from business:  the State Governments were not much less demanding and much more competent in the pressure they applied.

Fraser and the majority of the Cabinet who supported him were no doubt concerned that a disenchanted backbench faction might fall in with Andrew Peacock's leadership ambitions.  The Governor-General's speech to open the new Parliament after the 1980 election promised that the Government would better explain its philosophies and the reasons behind policies to strengthen the economy.  The Parliamentary Dries seized upon it, praising the Government extravagantly for its courage as they spelt out the "necessary" implications in terms of less regulation and the sale of Government assets of its various vaguely-expressed undertakings.  The Prime Minister did not again on the same scale as that Governor General's speech again try to present himself as "dry".

All Fraser's speeches were read for signs of dryness.  They joked that their quality varied directly with their distance from Melbourne.  The three most worth quoting were delivered in Manila, Lusaka, and North Carolina.  During a meeting about protection of the Textiles, Clothing and Footwear industry in April 1980 Fraser told several WA members that they should not take any notice of what he said when overseas and that, in any case, Asian leaders were not concerned about Australian tariffs.  Regarding the latter, Peter Sim, a WA Senator who specialised in foreign affairs, told him fairly bluntly that the Asian leaders were indeed concerned.  Later, at the Delhi Regional Commonwealth Heads of Government meeting, Lee Kuan Yew confirmed Sim's contention.

When the Parliamentary Dries clashed with Ian Sinclair, who had been publicly critical of calls to raise interest rates, they had the satisfaction of the Government being forced to raise them shortly thereafter.  The Dries had initiated a party-room debate on the direction of economic policy.  When the first three speakers all pointed to the need to raise interest rates Fraser gagged the debate until after the coming Queensland election (and until he could organise his supporters).  John Hyde objected that going quiet was one thing but Sinclair espousing nonsense was another. ⁽¹⁵⁵⁾  After the election the debate was continued.  By then the Dries too had organised their speakers to cover the range of topics and to demonstrate their widening support.  Howard summed up on behalf the Government with consistently sound economic arguments.  They thought they were having a good day, but that afternoon the Government announced its intention to reject for a further three years the IAC recommendations for reform of motor industry protection. ⁽¹⁵⁶⁾

It was at about this time that Jim Carlton dubbed Fraser, Anthony, Sinclair and Nixon, "the young old men of politics".

In December 1980 Paul Kelly and Deborah Snow wrote:

There is a new force in the Liberal Party, conceived in monetarist economic theory, nurtured by Malcolm Fraser's lapses from his own ideology, and given fresh impetus by the current dilemmas facing the Government.

The force is strictly light artillery in traditional Liberal Party terms:  a new push from the Coalition backbench.  Yet it is likely to have a far-reaching impact on the course of Government policy over the life of the three-year Parliament.

This is because it stands for a set of ideas.

Strictly speaking the dry arguments, except as they applied to inflation, were not conceived in monetarist terms.  Nevertheless, for the moment, the dry cause had gained the attention of the Government and the media and was "on a roll".

The Dries in Parliament, however, did not have the capacity to remain on top of the whole range of issues and were at an inherent disadvantage reacting to them as they arose.  Peter Shack suggested to Jim Carlton, Murray Sainsbury, Brian Buckley -- a member of Phil Lynch's staff who attended several of the Dries' tactics meetings -- and to John Hyde, that they should concentrate on selected issues to demonstrate underlying principles.  He argued that the Two Airlines Agreement that was then due for renewal would provide an ideal vehicle.  The issue was big enough to be worth the effort and could deliver lessons relevant to other sectors.

Meetings like this were most often held in Jim Carlton's office on Wednesday mornings before joint party meetings.  (His office was conveniently situated, was often sunny, was a little larger than most, and Carlton had a stock of good-quality tea.)  One of them would come via the Whip's office, collecting a copy of the party-room agenda.  They were becoming more sophisticated in several little ways.  By not going into the party room unaware of the agenda, they could think about and discuss their reactions to wet proposals.  By not sitting together, they looked less like the minority rump that they were.  By not all rising together when an item was called on, they were able to counter what they believed was the Prime Minister's tactic of calling his critics first and those most likely to rebut the criticism later.  They vowed never to let each other be seen to lack support when attacked by Wets or ministers.  John Hyde remembers well his own appreciation when, as he sat down having debated some long-forgotten issue on his own, Jim Carlton interjecting "He's right you know, Malcolm".  They could sometimes get an indication of how the Cabinet debate had gone by watching Reg Withers who sat just behind the PM.  When Withers rolled his eyes toward the ceiling they took that as an indication that a Minister was being disingenuous.

They discussed issues among themselves, increasing their understanding, tightening their arguments and identifying sources of technical advice.  They also discussed tactics -- when to go to the media;  when to take an issue into the Parliament;  which ministers were amenable to persuasion; when it was fair or not fair to embarrass them;  what arguments would persuade rather than merely annoy;  and so on.  They used the Parliament's internal mail to bring arguments by organisations such as Syntec (an economics newsletter) to other MPs' attention.  They relied heavily on the Parliament's excellent library and research service.  During one 12¬month period only Bill Hayden, the Leader of the Opposition, had made greater call upon it than John Hyde had.

They were appealing over the heads of their colleagues to public opinion.  However, they were very careful to observe the rules of their two parties, not betraying confidences, accepting their many party-room defeats with grace and not resorting to malice.  Their campaign could not further their own careers.  It is beyond reasonable dispute that during the following nearly three years, despite causing difficulties for the Government and reducing their colleagues' chances of holding their seats, they retained their friendship.  This was remarkable and is something of which all of them were justifiably proud.  John Hyde recalls only one sustained lecture on his political behaviour from another backbencher.  Senator Shirley Walters delivered it in the most civil manner.  At this distance the thought is amusing to look back upon, but Hyde is sure that most of his colleagues could not bring themselves to believe that winning the next election had become for the hard-core Dries a matter of secondary importance.  Although Hyde speculated that a change of Government might be in the national interest privately, he did not say that publicly.  How much it was to prove so, Hyde had not guessed.

Parts of two entries from his diary illustrate the difficulty that maintaining confidences posed:

Monday 13 [of April 1981]

Sent Fraser a telegram over several signatures protesting Anthony's Echuca speech.  Issue being Anthony's continuing departures from the doctrine of collective responsibility.

Tuesday 14

Schneider [Bureau chief for The Australian] rang.  He had intimate knowledge of yesterday's telegram and of our letter to Fraser accompanying the table of progress with the airline issue.  He said 30 signatures to which I responded 21, which was careless of me.  Such is the way they put a story together.

Peter Shack rang me about 6PM very worried that the press had the telegram.  He said that he had been assured by ... that the leak did not come from him.  Peter believes Fraser leaked it to discredit us.  (It could also strengthen his hand against Anthony if he really does want to stop him breaking ranks.)  I don't know, Schneider could have dug it out piecemeal.

They often believed that the Government had leaked deliberately but it was impossible to prove.  Once when John Hyde complained to Fred Chaney that "Government by leak was wrong" he accused him of "backgrounding" press.  Hyde explained that he used the press only on the record. ⁽¹⁵⁷⁾  Chaney may have believed Hyde but leaking was so habitual to some of his ministerial colleagues that they would not have done so.

After the 1980 election when the Dries had become an identifiable group with identifiable goals it became possible to assemble meetings of "economic literates" from among the backbench.  These were not the sort of meetings that Governments welcome but were an activity that so obviously fell within MPs' responsibilities that no Minister dared be heard protesting.

John Hyde prepared a background paper that he headed "The Immediate Future" for consideration at one such meeting.  Twenty-odd turned up.  Although Senator John Watson disagreed with what he had written on protection and Michael Baume disagreed on taxation, there was remarkable unanimity.  Both were howled down.  Baume also attacked the political unwisdom of committing their disagreements to paper.  Hyde could not quarrel, but Baume seemed not to believe that Hyde could regard getting the policy right more important than any votes lost.  Nevertheless, despite there being 30 to 40 copies, it did not leak.  Since Peacock was unwilling to throw his lot in with the Dries, it was in nobody's interest to leak it.

In due course John Hyde made the opportunity to discuss the background paper with the Prime Minister, who was upset by his assertion that the Government had "lost its way".  Hyde told him that he intended to use the techniques of the Tasmanians, who were notorious for blackmailing the Government and to whom he believed the Government was far too accommodating, to achieve the opposite ends unless dissuaded by argument.  He told Hyde that he was likely to put the ALP in office.  A strained meeting! ⁽¹⁵⁸⁾

Once the Dries in Parliament "came out", good one-to-one advice on any issue was plentiful.  Both solicited and unsolicited, it came from officials of the Treasury, Department of Finance, the Social Welfare Policy Secretariat, the Reserve Bank, the Industry Commission, some business economists and several academics.  The officials did not tell them State secrets but, if a matter was on the public record, they were sometimes alerted to it.  More importantly, the officials would patiently explain principle and fact to them until they understood.  Dr Peter Forsyth, who with his colleague Dr R.D. Hocking had published extensively on Australian airlines, provided invaluable technical advice throughout the struggle to deregulate domestic air services.  Professor Wolfgang Kasper was always available and always helpful.  No advice was more helpful, blunt or memorably expressed than that of Austin Holmes, head of the research department at the Reserve Bank.

THE CROSSROADS MEETING

During August 1980, the key Parliamentary Dries began exploring the opportunities for support.  John Hyde asked the library to provide him with information on the groups in the UK parliament.  They agreed to try to organise a meeting of like minds from around Australia and Hyde rang Greg Lindsay at the CIS to discuss participants.

Jim Carlton proposed a meeting at the Union Club in Sydney ostensibly to discuss Australia at the Crossroads.  The group became the "Crossroads Group".  It was the most significant with which dry MPs were to be associated.  It was important that, should its existence become public knowledge, they should be able to demonstrate that it was not a cabal to unseat Fraser.  Carlton's strategy was brilliant.  In the event only Michelle Grattan of The Age became aware of it, asking Hyde about a meeting in Sydney.  Hyde, no doubt disingenuously, fobbed her off with a story about studying the Crossroads book and she, not appreciating its significance or knowing who was to attend, did not follow up her lead. ⁽¹⁵⁹⁾  Had she done so, they would have faced a covey of press every time they left the building and some of their advisers would have taken fright.

The group met over the weekend of 14/15 February 1981.  They would not have liked to waste the time of those people.  The mining industry people seemed terrified that the Government would get to hear of their cooperation with the group but they had, despite their fears, come.

The future organisation of the campaign was left largely to the politicians present which seems a lame result yet, had the meeting not occurred, it is doubtful that the dry campaign would have proceeded as it did.  It achieved these things:

• It spelt out the national economic problem for several people who were focussed on only part of it.
• It placed this problem in a political context and identified the means that the think tanks had long before come to accept by which lasting policy gains can be achieved.
• It established a network that included people of standing which extended into State and Federal Parliaments, business, the finance sector including the Reserve Bank, agriculture, the think tanks, academia and the churches.
• It gave the parliamentary Dries -- and I suspect some others -- confidence that they were not, as they were so often told, simply wrong.
• It engendered that spirit of camaraderie that is invaluable when under sustained attack.  Nobody in the network now need feel alone.
• It painted for all of them what Keating was to call "the big picture".  Henceforth, battles and skirmishes were part of a campaign.

Several more Crossroads meetings were held and details of tactics were refined at these but the first achieved most that was necessary.

THE SOCIETY OF MODEST MEMBERS

The decision to set up a club of market-favouring Liberal and National Country Party MPs was a Crossroads outcome.  Jim Carlton suggested the Society of Modest Members with Bert Kelly as its patron.  (The Modest Member had been Kelly's by-line.)  Its purpose was to facilitate communication, especially between Dries within the Parliaments of the States, Territories and the Commonwealth and above all to give each other encouragement when the path might seem too steep and too lonely.  It began with over 100 members -- a few of them quite wet -- in August 1981 at a meeting in the Victorian Parliament House. ⁽¹⁶⁰⁾  It has had some memorable meetings and continues to this day.  Like many such organisations its success has been due largely to one individual, in this case, Len Bosman, the one-time Member for St. George in the Federal Parliament.

JOHN HYDE'S BLUE BOOK

Late in 1981 Fraser, remonstrating with John Hyde about a speech he had made that was critical of the Government's lack of direction, asked him to set down a list of goals to be achieved by 2000.  In February 1982 Hyde released his Blue Book (described in Chapter 4) gaining a lot of press attention.  It was by implication highly critical of Government policy but Hyde could deflect criticism from himself with the fact that Fraser had asked him to write it.  Fraser possibly had not anticipated that Hyde would.  It gained public attention at a time when his influence in the Coalition was waning.  Nearly all its goals were to be achieved well before 2000.

Like all campaigns, their Good Fight was made up of battles won or lost that gained or lost strategic advantage and used up opponents' or their own resources.  I will consider only the more important.

BUDGETS, MONEY SUPPLY AND INFLATION

From when McMahon came to office in 1971 until Fraser lost office in 1983 Government consumption increased 1.75 times faster than the gross domestic product.  Although all Governments try to time policy announcements and actions to the electoral cycle, macro-economic policy in the run-down to the 1977 election was exceptionally bad.  Fraser announced income-tax cuts in the 1977 budget to take effect from 1 February 1978.  The effect upon the 1977 budget was therefore only 5/12 of the full year effect, preserving only the impression of fiscal responsibility.  Although the effects of policy changes upon the "out years" were not in those days published, the "full year" effect of what had been announced did not escape the notice of at least some of his backbench.

Budget discipline permits interest rates at modestly lower levels than would otherwise be responsible but Prime Ministers cannot simply reduce them without increasing inflation and putting the exchange rate under downward pressure.  Fraser's promise during the 1977 election campaign that they would fall by 2% during 1978 was among his more irresponsible undertakings.  Howard described it merely as "unnecessary". ⁽¹⁶¹⁾  Throughout the Fraser era the Government was to rely on macro-economic policy -- monetary restraint and slow reduction of the budget deficit by increasing taxation.  Alone macro-economic fiddling, even if it had been done with consistency, offered a cheerless prospect and unemployment rose.  Nothing significant was done to make the supply side of the economy more elastic.

During 1978 the A$ was under continual pressure.  To maintain reserves the Government was forced to borrow heavily overseas.  Inflation was around 9% per annum, a dreadful figure by today's standards but down from the 13.5% that the Coalition had inherited in 1975. ⁽¹⁶²⁾  Fraser and Anthony brought to politics their farmers' attitudes to banks.  The Government leant on the trading banks which did reduce rates by 0.5%, and John Hyde was to overhear Fraser ticking off the Governor of the Reserve Bank.  To his surprise, Fraser had taken a telephone call while Hyde was in the room.

The public-sector borrowing requirement had to be reduced and to that end the tax cuts delivered prior to the election were reversed.  David Barnett quotes Howard's recollection:

We had a huge fiscal problem that couldn't be fixed without spending cuts which no Government could find easy to undertake, and revenue measures that flew completely in the face of what we had taken to the people in 1977.  It was one thing to hold tax at a level where it had been, but it was entirely another thing to go down, and then immediately to go back to where it was.  That was essentially what we did.

The tax cuts and the interest rate promise had been bizarre at an election at which the Government was not under serious threat.

Poor productivity was the economy's underlying problem that, until addressed, would negate other fixes.  By 1978 a substantial bloc of MPs understood this but not, it seemed, the Cabinet.  Cabinet seemed reluctant to accept that stagnation and inflation could be addressed only by addressing the underlying structural weaknesses inherent in protecting industry from both international and domestic competition and in the industrial relations system.  It was to be a further nine years before the Hawke Governments were to address the first and a further twenty years until the Howard Governments began to address the second.

John Hyde's diary notes tell something of the attitudes and approach of the Dries:

6 March 1979:

Discussion with P.M. civil but strained.  Fraser asserted that:  He would not abandon his economic policy.  That he had evidence in writing that he was advised by Reserve Bank and Treasury to pitch interest rates as he did over late '78 to mid January.  That he would achieve the effective abandonment of Anthony's export guidelines.  That the Fed. Budget deficit was significant in a way that total public sector deficit was not.  He did not say how.  That I was too cynical.  Phil Lynch later said that he agreed with the PM.

9 March:

Rang Austin Holmes who is still very concerned about the money supply and inflation.  He asserted that Fraser's claim that he was advised to hold interest rates at the low levels over Christmas was "a bare¬faced lie".

19 March:

Further 'phone conversation with Holmes who said he had no doubt that a piece of paper existed somewhere that would enable Fraser to claim he was advised to force rates down.  As RB and Treasury lost the fight they retreated to various middle grounds.

11 April:

Alan Wood of Syntec slated govt. money market policy.  I rang Howard who admitted to being "very worried" -- The govt's (Fraser's) incompetence in this matter will undo much of the gains that have been made in the last three years.

12 April:

Rang Lynch with a piece of my mind on money supply management --he assured me the problem was being tackled. ⁽¹⁶³⁾

John Hyde's superiors were becoming sick of him but they should have appreciated his abusing them to their faces rather than backgrounding the media.  Hyde was also trading on the fact that he had assisted Lynch at the time of the Stumpy Gully affair, using him as a sounding board, a source of information and as a means of getting his views to the Government.  His behaviour with Lynch might, in the circumstances, be seen as poor form.  Hyde justified it to himself on three grounds:  opportunities to be influential were very limited, whatever he was doing he was certainly not improving his own prospects, and he believed he was serving the national interest.

A year on, however, the Government still did not have the money supply under control.  During 1980 an inter¬departmental committee drawn from Treasury, Prime Minister and Cabinet, Finance and the Reserve Bank, concerned with among other things managing macro-economic policy in a sluggish economy, had alerted the Government to the urgency of decisive action to reduce protection. ⁽¹⁶⁴⁾  In July John Hyde noted:

M3 announced to be 13% up.  If we can't manage the unions, won't manage our budgets and borrowings, are too timid to reduce trade barriers, then money is about the only thing left for us to do well. ⁽¹⁶⁵⁾

By 1982, Australian inflation was again above that of the OECD as a whole.  In the course of a conversation with Fraser in December of 1980 he blamed the Reserve Bank for mismanagement of the money supply. ⁽¹⁶⁶⁾

David Barnett writes that Fraser argued that nobody until 1980 was condemning his Government for not reducing the deficit more rapidly.  That was not the case:  Treasury at least was critical, so were some of his backbench and some business and academic economists.  However, it is true that in the Party Room Dries found themselves often defending his budgets against demands for greater expenditure -- and not only from demands made by the backbench.  When the Tasmanian Member, Bruce Goodluck, threatened to introduce a Bill to return to pension indexation John Hyde took him on in the Party Room.  With more than some relish, Hyde also seized the opportunity to give Doug Anthony a serve, likening his behaviour in advocating that farmers be exempted from the cost of fuel import parity pricing to Goodluck's behaviour.  When Ministers had such scant respect for the integrity of the budget, Hyde argued, what should they expect of the backbench? Howard congratulated him after the meeting but pension indexation was soon to be re-introduced, although not in that budget.  (In inflationary times, budgetary aggregates aside, indexation is in itself good policy.)  As late as 1979 Hyde was to record in his diary that he had just been accused by a Wet of being Fraser's lackey because of his support for the integrity of the budget.

After the House had risen for the Christmas break in 1981 a special party meeting was called to defend the budget against backbench pressure to change some sales tax provisions.  The Dries said nothing.  An aggrieved Peter Nixon asked John Hyde "Where were the Dries".  Hyde told him that after Cabinet's betrayal over CYSS ⁽¹⁶⁷⁾ funding when the Government had given in to backbench pressure despite their support "they could sweat on this one".  They had been let down by the Government too often and their wrath was affecting their judgement.  They were being churlish!

The 1977 budget had included several items that were quickly reversed.  It became known as the Loose Leaf Budget.  One of these items was a tax affecting among other things wheel chairs.  The surgeon who had amputated John Hyde's arm led a demonstration by people in wheel-chairs to the front of parliament house.  Hyde decided that in the circumstances it was his job to defend the budget.  The people in the wheel-chairs gave as good as they got and obviously enjoyed the fray but arguing with people in wheel chairs is difficult public relations.  Hyde at least could point out to the media that he was familiar with the cost of artificial limbs.  While Hyde was addressing the paraplegics, the Government reversed its decision.  Hyde bought his surgeon, who was naturally pleased with himself and highly amused, a coffee and told him he had done more damage to responsible fiscal management than he would ever understand.  Hyde's respect for the Government acquired yet another dent.  The discarded loose leaves were not big items but, once a Government is seen to back down to vested interests, even to those in wheel chairs, its capacity to take any tough decisions is compromised.  Later, when the Government was in decline, some backbenchers pretended to adopt "the fortnight rule", namely, that if the Government could stay of one mind for two weeks only then could one afford to support it.

Hawke's Finance Minister Peter Walsh much later was to write in Confessions of a Failed Finance Minister:

Governments should never rescind or modify a decision unless it is unambiguously wrong and then they should do so as quickly as possible.  Changing a decision in response to prolonged pressure group lobbying, special pleading, rent-seeking, or political threats sends the worst possible message -- no decision should ever be regarded as permanent, no issue should ever be allowed to die.  Rent-seekers of the world intensify your efforts.  If a decision is only marginally wrong, it should be quietly modified at a much later time after the rent-seekers and other parasites have faded away. ⁽¹⁶⁸⁾

Walsh is unambiguously correct.

Dry MPs sometimes faced difficulties in their own electorates.  It is not uncommon for constituents to demand public expenditures and other policies that Governments ought not to countenance.  The usual practice is for the Member to take these requests to the Government recommending generous action.  In due course the relevant Minister replies in writing professing the Government's regret that nothing can be done in spite of the efforts of the local member and the member passes the correspondence to his constituents.  To preserve their credibility, Dries had to be less pusillanimous.  If they had not been prepared to stand up to their own constituencies, their influence with the Government and others would have been prejudiced.  The textile lobby, for instance, would probably have used any inconsistency against them -- besides they were not without honour.  Four issues were to trouble John Hyde in his electorate.  These were the superphosphate bounty, which has since been repealed; the Agaton water reticulation scheme and a TV transmitter at Bencubbin, which never did proceed;  and that hardy perennial, interest rates, which have been further deregulated.  When some of his constituents complained that they were poorly represented he remembers quoting Edmund Burke's famous address to the electors of Bristol:  "Parliament is not a congress of ambassadors from different and hostile interests ... parliament is a deliberative assembly of one nation, with one interest, that of the whole, where not local purposes, not local prejudices ought to guide, but the general good ... etc.".  It did Hyde about as much good as it had done Burke.  On the other hand, Hyde does not think his attitude cost him net votes.

The Government set up an expenditure review committee, dubbed the "The Razor Gang", to identify wasteful expenditure but it ran away from politically difficult cuts and padded its reports with minor changes and changes that were to happen anyway.  The 1979 budget was, nevertheless, by most accounts an honest document and the best that the Fraser Governments brought down.  John Stone was to remind John Hyde of the favourable effect it had had on investment markets both here and overseas. ⁽¹⁶⁹⁾  Monetary management during the latter half of 1979 had also seemed better.

In 1980, however, as though a budget's pressure on the domestic money markets was its principal concern, the Government boasted about a tiny domestic surplus while budgeting a $1.5 billion deficit over all.  Dries asked if foreign debt might not prove inconvenient in the event of war or depression and John Hyde's diary for 27 August 1980, reads:

Stuart Simson [a journalist with the Australian Financial Review] is writing a story to the effect that the budget has abandoned Fraserism and the backbench is upset about the change of course.  He is wrong but only in that we were never on course.  I think it is good news for Aust. that a significant number perhaps even a majority of the backbench in an election year have identified the sham of this budget.

During April of 1981 there was a period of rapid capital inflow and doubt that the Cabinet, always beholden to National Country Party pressure, would act appropriately by up-valuing the currency -- shades of 1971.  John Hyde attempted what he described as a little "blackmail" -- attend to the problem or he would organise yet another backbench ruckus.  There is no evidence Hyde had any influence.

Before the 1981 budget John Hyde began a practice that for several years somebody would continue with growing sophistication, namely, the specification of an appropriate bottom line and the cuts and elimination of tax breaks needed to achieve it.  By later standards, Hyde's 1981 recommendations were timid.  Hyde called for means or income tested welfare, treating the unemployment benefit as a loan to people who enjoyed substantial incomes for the year as a whole, a cut of $200 million in housing programs by concentrating them upon the poor, an end to plans for a new Parliament house, tourism grants, multicultural broadcasting, the fuel freight subsidy and the superphosphate bounty. ⁽¹⁷⁰⁾  It was dry practice to include in any list an item that would adversely affect one's own vote, pocket or both.  Hyde benefited financially and electorally from the fuel freight subsidy and the super bounty.  The Fraser budgets to 1981 had improved the budget bottom lines but only by increasing taxation.  The '81 budget was a wasted opportunity and Hyde said so publicly but Max Walsh, a senior and respected journalist, nevertheless, "took him apart" because he, as "chief Dry", was not critical enough. ⁽¹⁷¹⁾

Despite fiscal ineptitude being among the principal reasons advanced for throwing the Whitlam Government out, the Fraser Government's budget management was lax.  If allowance is made for the devious prepayment of the Medicare levy to the States, seven of Fraser's eight budgets increased real spending.  The exception was the 1979-80 budget that reduced real outlays, albeit by only 0.07%.  Fraser's final 1982-83 budget was to drive outlays to an all-time record proportion of GDP. ⁽¹⁷²⁾

By any measure the Fraser Governments' fiscal discipline was inadequate and there was no reasonable excuse for the 1982-83 budget.  John Hyde felt justified in almost immediately condemning it in a speech he made in Sydney.  In view of the almost unprecedented nature of what Hyde had done and the importance of the budget not just to the economy but to the Government's electoral prospects, he received remarkably little press coverage.  I guess Hyde was either not believed, or dismissed as a grandstanding disgruntled backbencher of which there were some at the time.  Hyde was to be vindicated when the new Labor Government announced the size of the impending deficit.

Fraser reduced the Commonwealth deficit primarily by increasing taxes.  Nevertheless, one important qualification to the bottom lines of Fraser's budgets should be made.  For some purposes, tax deductions and rebates may be counted as "tax expenditures" ⁽¹⁷³⁾ and reasonably added to budget outlays.  In 1977-78, Fraser abolished these for dependent children replacing them with the Family Allowance.  This change better directed welfare to the poor and opened the way for a campaign to means test family allowances.  Therefore, most Dries approved of the policy change.  Anxious to get public-sector expenditure back towards pre-Whitlam proportions of GDP, they did not often concede that the policy change had made the budgets look even less responsible than in fact they were.

In the wake of the second (1981) oil price shock and widespread, if misguided, fears that the world was facing an energy crisis, the Government had decided to price domestic oil production at import parity.  (The crisis did not eventuate.  How quickly we forget recent rounds of scare mongering!) In the case of "new oil", the benefit of the hike was to go to oil producers to encourage exploration and development.  In the case of "old oil", the hike was treated as economic rent and therefore a proper target for taxation.  Allowing the market to determine the price of oil was a significant efficiency.  Although scant heed of the political lesson was taken when it came to other potential reforms, the import-parity pricing policy demonstrated that tough but principled measures could be sold politically.  Doug Anthony came round to supporting the policy -- so much so that Jim Carlton quipped that his wooing of the bush on this issue left "Casanova in the shade". ⁽¹⁷⁴⁾

The policy had a big downside, however.  It gave a spendthrift Government access to easy money -- $2.3 billion in 1979-80 and a projected $3.1 billion in 1980-81. ⁽¹⁷⁵⁾  The windfall was used to buy votes by, among other less expensive things, abolishing the means testing of old age pensions and estate duty.  Inheritance taxes, as imposed, were inefficient, uncertain, lumpy and therefore unfair.  They needed to be reformed but not abolished.

The Government excluded motor vehicle LPG from the excise on two grounds.  It was less polluting than petrol and Australia should strive for self-reliance in petroleum products.  As Australia exported LPG and imported crude the policy tended toward self-reliance but how McEwenist autarchy might benefit Australians was never explained.

TAX REFORM

Too much was, and despite the GST still is, expected of the income tax base.  It defies adequate definition and therefore offers more opportunities for unfair and economically-costly tax avoidance than its alternatives.

Howard began exploring the introduction of a more comprehensive indirect tax base to replace the wholesale sales tax during 1978.  Although the 1975 Asprey Committee Report upon taxation policy had recommended this change, it was bitterly opposed by retail traders.  Both Cabinet and the backbench took fright and in January of the following year Howard was forced to call his attempted reform off.  He again tried unsuccessfully in 1981 when Cabinet refused to extend the wholesale sales tax to services.

As the Government plugged tax loopholes, lawyers and accountants discovered more of them.  It sometimes ran into bitter opposition from interests that had discovered a means of paying less tax.  A common and effective means was to provide employees with housing at no or only nominal cost.  When the Government tried to tax these benefits as income, the mining unions at the Blackwater coal deposit struck.  The Queensland Government predictably but dishonourably backed the miners.  The concentrated interest prevailed over the dispersed public interest and the Federal Government backed off.  Such was the fury that, on that occasion, the Government had John Hyde's sympathy.

As conspicuous Government waste increased, the public's acceptance of the obligation to pay tax decreased.  Tax avoidance was a profitable, intellectually-challenging pastime and increasingly outlandish schemes were developed.  One group of these called for the illegal disposal of company records -- "sending them to the bottom of the harbour".  Most Australian taxpayers avoided tax but most drew personal lines that precluded their adopting the more elaborate and effective schemes.  The revenues were under serious threat and a tax that some wealthy people avoided was obviously unfair.  In its final months the Fraser Government employed "retrospective legislation" to recover the so-called bottom of the harbour tax liabilities.  This action was to divide the parliamentary Dries.  Some believed that public administration could not live with retrospective law, others that it could not live with a patently unfair tax system.  John Hyde is to this day teased for his support of the Government.  Each accused the other of being "wet".

THE CAMPBELL REPORT

In January 1979 Howard announced a committee under Sir Keith Campbell to recommend  financial reform.  Governments use inquiries to avoid action, but a reform-minded minister can use them to instigate policy change.  The Campbell Committee members did not represent established interests.  They were concerned with economic efficiency and fair play.  They were not charged with reaching consensus but with recommending reform for which there was not yet consensus.  They were not intended to get the Government off a political hook but to create one.  John Hyde doubts the Cabinet would have approved the inquiry, had it appreciated as much.  Campbell brought down a principled and cohesive package in line with the practices of other nations for Howard and the Labor Treasurer who followed him, Paul Keating, to champion.

In October 1981 it recommended:

• Removal of controls on the interest rates charged by banks.
• Abolition of controls on bank lending.
• The entry of foreign banks to the Australian market.
• That banks be permitted to pay interest on cheque accounts.
• That banks be permitted to accept interest-bearing deposits of less than 30 days.
• The floating of the Australian dollar.
• That restrictions on the transfer of funds in and out of Australia be lifted.
• That company tax be integrated with personal taxation.
• Removal of the tax concessions available to superannuation funds.  (The subject of some heavy lobbying by those opposed.)
• Sale of the Australian Industry Development Corporation, the Primary Industry Bank, and the Housing Loans Insurance Corporation.
• The winding up of the Commonwealth Development Bank.
• The abolition of the requirement that banks, superannuation funds and life offices hold portions of their assets in public securities -- the so called 30/20 rule.
• That banking licences become less restrictive.

The Report delighted the Dries, but was surprisingly coolly received by Treasury. ⁽¹⁷⁶⁾  It was on the whole however well received, although serious and productive debate ensued concerning the nature and need for prudential control of deposit-accepting institutions, particularly banks.

It was left to Treasurer Keating to implement its major recommendations.  Nevertheless, before and after the Campbell Committee reported, Howard, encouraged by support from organisations such as particularly the National Farmers' Federation, began taking steps toward financial market deregulation.  He was, with some justification, to claim that these made the more substantial deregulation inevitable.  It is, however, also true that the irresponsible 1982 budget and irresponsible monetary management was to present the incoming Hawke Government with the crisis from which deregulation was the best way out.

Treasury officers can all add and subtract and they all accept fundamental economic propositions.  None is, therefore, truly wet.  Nevertheless, in Treasury there are many mansions and the oft-quoted "Treasury view" is something of a myth.  Some Treasury officers, including the Secretary, John Stone, opposed the Campbell recommendation to float the currency.  One argument was that dark forces were capable of manipulating the currency of a small country.  They sounded suspiciously like Treasury officers protecting their influence, an influence that had on the whole served the nation well.

Having to do something to manage the money supply better and under pressure from John Howard, the Government conceded market forces some modest gains.  Among the most important of these was the means by which the Government sold its own securities.  In 1979, Commonwealth Bonds were offered to investors continually with the rate varied to meet the market, instead of by periodic loan raisings approved by the Loan Council. ⁽¹⁷⁷⁾  The method of selling Treasury Notes was changed to one of periodic tender within an interest-rate band agreed by the Loan Council.  The Premiers were unhappy, fearing loss of some their power to influence interest rates for political rather than economic reasons.  They were right and that caused Dries no disquiet!

The Wheat Board had received the funds it needed to acquire each year's harvests under the so-called rural credits arrangement with the Government.  These credits fed into the money supply.  In 1980 the Government compelled the Board to raise from the market $300 million of the something over one billion dollars it needed.  The Board, fearing that this might be a first step on the way to deregulation, was most unhappy.  It too was right, but again Dries applauded!

During 1978, Howard managed to induce Cabinet to relax the foreign investment guidelines.  Among the principal benefits of take-overs is the injection of better management.  Significantly, Brian Loton of BHP and Gordon Jackson of CSR thought it might be too easy for foreign companies to take over Australian Companies. ⁽¹⁷⁸⁾

In January 1979, Howard agreed that the Sydney Futures Exchange could trade in currency futures, allowing traders to hedge their foreign currency exposure.  By putting paid to the most commonly advanced objection to a floating exchange rate, namely that business could not manage the inherent risks, he had taken a step on the way to a floating dollar.

Late one night in December 1980, he came straight from Cabinet into the Parliament.  Speaking from hand¬written notes he announced the removal of the ceiling on the interest that trading banks could offer on deposits.  This was the key move that made further deregulation inevitable.  He also announced the raising of the overdraft rate for loans below $100,000 by two percentage points;  and the raising of the interest charged on housing loans by one percentage point.  David Barnett writes that Howard had tried but failed to get the Cabinet to deregulate interest rates.  Since the banks could not pay a higher interest than they could receive, business continued to desert the banking sector to the less regulated non-bank financial institutions, creating an influential new lobby for more deregulation -- the banks.  The young old-men could not then bring themselves to remove the interest rate ceiling.  John Hyde congratulated Fraser on the improvements.  With Hyde believed heavy-handed humour, he told Hyde it was a bad decision because all restrictions should have been lifted. ⁽¹⁷⁹⁾

In 1982 the Commonwealth allowed the State Government electricity authorities to raise funds in the money market, from which none but the dripping wet would have excluded them.  This time the Premiers were delighted but the price they paid was to give up their ability to use the Loan Council to control the interest rates of Australian Savings Bonds.  Monetary policy was now in the hands of the Commonwealth alone.

Howard allowed the major private banks to merge until there were only three and the Commonwealth Bank.  Also in 1982 he permitted authorised dealers in the short-term money market to reduce the proportion of their securities held in Commonwealth paper.  These were not major changes.  Tony Rutherford, who worked in John Hyde's office on dry policy, likened them to emptying a full bath with a sponge, but the removal of every drip was counted a gain.

In January 1983, in the dying days of the Fraser Governments, Howard was able to lift the controls on several much used interest rates and to call for applications from foreign banks.

Barnett makes much of Howard's Campbellising by stealth.  His account rings true.  Nothing dramatic was done but taken together the moves toward freer financial markets were significant and the beginnings of momentous changes.

Nevertheless, not every Government-induced change to the financial markets during the latter Fraser years was dry.  Relapsing into the mindless autarchy that had characterised three generations of Country Party thinking, the Government tightened the restrictions on foreign investment in farmland and used the Foreign Investment Review Board to control direct foreign investment rather tightly.  The farmland decision was not of itself important but it said a lot about that Cabinet.

REPORTS AND MORE REPORTS

The Fraser Government's approach to economic reform was akin to St Augustine's to chastity -- "O Lord, Give me chastity and continency but do not give it yet".  The Campbell Report was exceptional among a plethora of reports, some of the others were commissioned in lieu of doing what was already known to be needed.  The Government inherited the Asprey Report on taxation, the Green Paper on Agriculture and the Jackson Report on manufacturing.  John Howard's failed attempt to take up Asprey's principal recommendation has been discussed above.

After the political reaction to the 25% tariff cut, the authors of the Green Paper on Agriculture believed that substantial direct reduction of import barriers was unlikely.  Conceding that, they recommended second-best policy.  They proposed that rural industries be assisted to offset the disadvantage that tariffs imposed on exporters.  Were it not for the cost of administration, the impossibility of writing law to achieve the intended outcome, and the inevitability of huge rorts, equal effective-rate assistance all round, would, after every business had absorbed the costs generated by protecting every other business, protect nobody.  It would therefore be economically efficient but pointless and administratively utterly impossible.

The incoming Fraser Government had called for further evidence before tackling such a hot potato as manufacturing protection.  In 1977 it tabled its White Paper on Manufacturing Industry.  This followed essentially the Jackson majority recommendations -- no change in protection policy, rejection of the "key" industry approach that was a popular current nostrum, and the establishing of industry councils.  One member of the Jackson Committee, Alf Rattigan the IAC Chairman, had declined to sign that Report.

It would have required a brave Government to identify only some industries as "key" so that economic folly was probably never a starter.  The industry councils were essentially the corporatist approach that had been pursued in pre-war Italy but, if anyone around the Parliament then used Signor Mussolini's name in the context of Australian industry policy, John Hyde doesn't recall it.

Both Jackson and the White Paper accepted the need for industry policy that would encourage efficiency while avoiding recommending anything, except in the long future, that might achieve it.  The Jackson Committee majority had "discovered" a "deep seated malaise" and it was asserted that the White Paper was the Government's approach to it.  Nevertheless, the Government commissioned yet another group, under Sir John Crawford, to report on structural adjustment.  The Crawford Committee did not report until 1979.  Like the Jackson Committee, it reported in principle the need for secondary industry to compete in world markets but, nevertheless, recommended that long term protection should not be reduced "while unemployment remains above, say, 5%".  Twenty-three years later unemployment still exceeded 5%.  The Committee suggested the Government instruct the IAC to report on how protection might be reduced.  However, even that was more than the Government had the stomach for, so instead it said the means to achieve tariff reduction should not be referred until the general review was completed and instructed the IAC to resume the tariff review, a process that should never have been delayed.

When the Government released its bland response to Crawford, a long day of argument ensued that John Hyde's diary describes "as sometimes a little bitter".  It also records that Hyde visited Phil Lynch late at night "to apologise for giving him a rough time". ⁽¹⁸⁰⁾

The Government also commissioned the Swanson Report on Trade Practices, Borrie Report on population, Williams Report on education and training, Dix Committee Review of the ABC, Holcroft Report into domestic air travel, Myers Committee of Inquiry into technological change, Fitzgerald Inquiry on immigration, Harries Report on Australia's relations with the Third World, Davidson Committee inquiry into telecommunications and the inquiry into Australia Post's monopoly status.  So many words produced remarkably little action.

Some the words did, however, lift corners of the veil of ignorance.  Holcroft identified the cost of domestic airline regulation.  Fitzgerald drew attention to the tensions being engendered by multiculturalism.  Myers showed that Australian technology was falling behind that of important competitor nations.  Harries told us of our need to get with our Asian neighbours.  Davidson gave us some idea of the cost of regulated telecommunications and recommended increased competition of "add on" services.

COMMONWEALTH-STATE FINANCIAL ARRANGEMENTS

In 1976 Malcolm Fraser had commissioned yet another report, the Bailey Report, upon the subject of the rational division of State/Commonwealth responsibilities in the significant areas of health and welfare.  It sunk without trace.  Fraser, however, made one commendable attempt to make the State Governments more responsible for their own revenues.  In lieu of Financial Assistance Grants, he proposed that the States raise whatever rate of income tax each chose upon a tax base administered by the Commonwealth.  Grants Commission procedures for topping up the revenues of the States that enjoyed less revenue-raising capacity or greater expenditure needs, referred to as "fiscal equalisation", would be retained.  His measure was opposed by every State except WA, which did pass the necessary legislation.  It was abandoned when the Wran Government of NSW went to an election accusing the Commonwealth of "double taxation", which of course it was not.  The Premiers, more interested in the trappings of power than its substance, were like dogs with a cat up a tree that they had no wish to actually catch.  In Canberra and the State capitals the overlap and general muddle in Federal-State relations also suited empire-building bureaucrats and junior ministers who depended upon it for their jobs.

John Hyde recalled an occasion when Young Turks on the WA State Council of the Liberal Party had advanced a similar proposal.  Sir David Brand, then WA's Premier, had taken Hyde aside to explain that the States rather liked the situation that had the Commonwealth incur the odium of raising taxes and allowed them to blame the Commonwealth for the failure to make expenditures that were not affordable.  The fiscal responsibility that they professed to crave was for display only.

Fiscal equalisation, like Commonwealth taxation powers and Financial Assistance Grants, had also shaken down in a manner that suited politicians.  When in 1933 Western Australians had carried a referendum to secede from the Commonwealth their case had stated:  "The desire for secession arises mainly because of the crippling effect of the Federal protective tariff on the industries of Western Australia".  Despite carrying the referendum, Western Australians elected an anti-secessionist Labor Government and, as vigorously as the citizens of any State, were soon to defend the Commonwealth in war.  The WA Government did not, moreover, press for national free trade, instead it sought tariff autonomy and/or compensation.  Above all else it wanted easy revenue and it, therefore, settled for partial public sector compensation for the private sector disability.  NSW Premier Jack Lang wrote in his memoirs:

The wild colonial boys of the West bailed the Commonwealth up and got away with at least some loot. ⁽¹⁸¹⁾

An EPAC Council paper published in 1991 was to show that in the cases of WA and Queensland the compensation was appreciably less than half the disability. ⁽¹⁸²⁾  As things stood, fiscal equalisation was part, albeit an unsatisfactory part, of the Federal deal.  Easy access to taxpayers' pockets bought off the Governments of the States with export-oriented economies.

This hypocrisy annoyed John Hyde and it offered an opportunity to press the case for freer trade.  Hyde calculated WA's annual loss and later the State Treasury came up with better figures that indicated that his were not wildly out.  His protests fell on mostly deaf ears.  There was no way that the WA MPs would forego the opportunity to make big fellows of themselves at the expense of Victorian and New South Wales tax-payers and their own State's export industries.  The 1981 Federal Liberal Council did however reproach Fraser with the way that industry protection penalised the resource-rich States. ⁽¹⁸³⁾

Throughout Fraser's Governments, the levels of States Grants were to be constant sources of friction.  Arguably the Commonwealth made savings in States Grants that were not matched by reductions to its "own-purpose" expenditure but the evidence was unclear.  It was clear, however, that neither the States nor the Commonwealth had made any serious attempt to return their expenditures to pre-Whitlam shares of GDP.

---

ENDNOTES

148.  Paul Kelly, The End of Certainty, Allen and Unwin, 1992, p52

149.  Harry Knight, the Governor of the Reserve Bank, had said in the Cabinet Room that 17.5% would certainly prevent further speculation.  He probably meant that it would overkill the problem and the Government went for overkill.

150.  David Barnett, John Howard, Viking Press, 1997, p 49

151.  John Hyde's diary, 28 August 1980.  The Opposition was accusing Sinclair of illegally benefiting from his father's estate.  The accusation did not seem to Hyde to have much substance.

152.  On this occasion Murray Sainsbury, Ross Mclean, Jim Short, Jim Carlton and John Hyde.

153.  John Hyde's diary, 5 February 1980

154.  ibid, 29 and 30 June 1982

155.  John Hyde's diary, 26 November 1980

156.  ibid, 3 December 1980

157.  John Hyde's diary, 25 April 1981

158.  John Hyde's diary, 27 November 1980

159.  ibid, 12 February 1981

160.  John Hyde's diary, 14 August 1981

161.  David Barnett, John Howard, Viking Press, 1997, p 71

162.  ibid, p 71

163.  Entries from John Hyde's diary have here and elsewhere have had the punctuation clarified and spelling corrected.

164.  David Barnett, John Howard, Viking Press, 1997, p 152

165.  John Hyde's diary, 25 July 1980

166.  ibid, 3 December 1980

167.  Commonwealth Youth Support Scheme

168.  Peter Walsh, Confessions of a Failed Finance Minister, Random House, 1995 p 114

169.  John Hyde's diary, 4 July 1980

170.  The Australian, 11 August 1981

171.  John Hyde's diary, 18 August 1981

172.  Peter Walsh, Confessions of a failed Finance Minister, Random House, 1995, p 37

173.  I don't like the term because it implies that the Government owns the money but it is established in the jargon of taxation.

174.  Jim Carlton's Blue Book, p 66 and Australian Business, 21 January, 1982

175.  Peter Walsh, Confessions of a failed Finance Minister, Random House, 1995, p 37

176.  Minutes of Government Members Treasury Committee, 7 December 1981

177.  The Australian Loan Council is a Commonwealth-State Ministerial Council that oversights public-sector borrowings under voluntarily agreed arrangements.

178.  David Barnett, John Howard, Viking Press, 1997, p 79

179.  David Barnett, John Howard, Viking Press, 1997, p 130;  John Hyde's diary, 2 December 1980.

180.  John Hyde's diary 22 August 1979.

181.  JT Lang, The Great Bust, Angus & Robertson, Sydney, 1962, p 95

182.  It could be calculated from data in EPAC Council Paper No 36, that at that time protection cost the citizens of Western Australian around $640 million and Queensland around $1000 million annually.  This compared with $272 million and $304 million the Governments of those States receive respectively from fiscal equalisation.

183.  Canberra Times, 3 June 1981