Keating

CHAPTER 13

And what are gods that man may not become as they ...?

Milton, Paradise Lost, Book IX

THE FIRST KEATING GOVERNMENT -- INTRODUCTION

Time in office had increased the tendency to cynical politicking.  Comparison of Peter Walsh's account of his Ministerial experiences as a member of Hawke's Government with Neal Blewett's as a member of Keating's reveals how much so.

Walsh deplores the practice of "Stunting" -- i.e. the production of statements on peripheral issues as substitutes for policy addressing real problems but Blewett wrote:

All ideals, policies and programs were judged by a single criterion:  will they or will they not contribute to re-election?  This was the most opportunistic period in the thirteen years of Labor rule. ⁽³⁶¹⁾

Blewett clearly appreciated that the Government was misusing authority but he seems to have accepted its misuse, except where his own portfolio was affected.

During 1991 the nation was suffering the "recession we had to have" with unemployment over 11%.  The Hawke Government seemed doomed.  Keating bemoaned the want of national leadership in a speech to the National Press Club during which he likened himself to Placido Domingo.  Angered, Hawke repudiated a secret 1988 agreement (the "Kirribilli House" agreement) whereby he had undertaken to pass the Prime Ministership to Keating during the term of the Government elected in 1990.  A bitter Keating challenged Hawke in May 1991 losing by 66 votes to 44 and resigning from the ministry.

By the end of the year John Kerin who had been appointed to the Treasury to replace him was stumbling and Keating was conducting a campaign to destabilise Hawke.  In November the Hewson Opposition had released its initially popular Fightback program.  The Government trailed 12 percentage points in the opinion polls and four weeks after the release of Fightback Keating challenged Hawke for the second time, this time becoming Prime Minister.

From the backbenches Keating had attacked three significant dry policies, budget balance, Medicare co¬payments and Commonwealth/State financial imbalance.  From a dry perspective he was off to a bad start.

KEATING'S "ONE NATION"

Keating needed to develop an alternative economic strategy to counter Fightback.  He released One Nation late in February 1992 characterising it as his four-year counter to the Hewson plan.  Even the opportunistic Graham Richardson described it as "full of heroic assumptions" ⁽³⁶²⁾ and Blewett's diary entry for 26 February reads in part:

First there is to be a one-off stimulus to encourage demand through lump sum payments to family allowance recipients, with follow-through to poorer families.  On infrastructure there are proposals including rail development, circular roads around major cities, new major highways, some refocusing of the Better Cities Program, more for the multi-function polis and a Brisbane-Gold Coast fast-rail transit line.  The bulk of these infrastructure programs is cyclical in nature and is linked to the early years of the four-year plan, coinciding with recession and the early years of recovery.  There are proposals for a national authority to run the electricity grid, for an open airways policy and for what looks like a Commonwealth take-over bid for further education.

There are schemes for stimulating private investment:  a new depreciation schedule that shortens significantly the time to write off major investments and that will be competitive with any regime in the developed world;  a pooling of development funds to provide investment resources for people running small businesses;  encouragement of private provision of capital for road, rail, ports electricity through tax concessions on bonds so that funds for these purposes could be discounted;  and a 10% concession through development allowances for early implementation of major development projects.

The ACTU was given a renewed Accord commitment on wages to ensure that the inflation rate remains at or below the average of our major trading partners.  In return, the Government through a staged series of tax cuts, is committed to achieving a new 30% marginal tax rate for most Australians by the end of the four-year period, i.e. a tax-rate equivalent to that offered by Hewson but without a consumption tax.  Given that expenditure is concentrated in the early years and falls away as the economy recovers, it is anticipated that the budget will be back in surplus in 1995-96.  This however seems overly optimistic; . ...

It proved extremely over-optimistic.  It was like the irresponsible shopping lists that masqueraded as party policy during the 1960s and 1970s and it proved worse than was appreciated at the time.  If the arithmetic in Fightback was flawed, the arithmetic of this document was very much more so but it escaped substantial press evaluation.  Only the open airways promise afforded Dries comfort.

Peter Walsh was scathing:

... a firm commitment to fiscal irresponsibility -- big increases in public expenditure, two tranches of tax cuts as far ahead as 1996, ultimately costing more than $8 billion a year.  All this when the budget deficit was already running at 3.6% of GDP.  Some dodgy figuring (ie. inserting whatever rate of economic growth was needed to validate the bottom line) purported to show that the budget would be in surplus by 1995-96.  The purpose of this creative accounting was to show that Labor could get the Average Weekly Earnings marginal tax rate down to 30 cents -- the same as Fightback -- without a GST.

The economy was in recession and fiscal stimulus, although by then somewhat late, was not necessarily inappropriate.  The document's great sin was that it was based upon a hugely unlikely forecast of 4% economic growth, an expectation the Government would soon be forced to abandon.  One Nation's tax cuts could not be financed and although, after passage of the legislation, Keating assured the Press Club that they were written into "L.A.W. law", they too were ultimately abandoned.

THE SUPERANNUATION GUARANTEE LEVY

The Commonwealth Government did not fund its employees' superannuation or the old aged pension from accumulated capital.  It was in this respect a less responsible financial manager than the States, particularly Queensland.  Dries shared a widespread concern about this unfunded liability and, more generally, they worried about declining savings.  In 1970 Australians had saved 25% of GDP but by 1983 the savings ratio had fallen to 18% with most of the change accounted for by increased Government consumption.  The situation was to get far worse but most Dries even then thought that Australians were relying too heavily on foreign savings.  They had applauded when Hawke addressed the public sector's contribution to poor savings by taking the Commonwealth budget into surplus but by the 1991 recession it was again in deficit.  The State budgets and the corporate and household sectors also contribute to or subtract from net over-all savings.

When governments provides pensions, health care and unemployment relief, rational people naturally feel less need to save for rainy days.  Similarly, state provision of education and housing reduce the need for people to save nest eggs.  Dries had urged stricter means and income tests to assess eligibility for each of these benefits and the Hawke Government had moved cautiously toward needs-based welfare.

From July 1992 the Keating Government sought to address inadequate voluntary saving by the household sector with compulsory saving via the Superannuation Guarantee Levy (SGL).  Instead of requiring individuals to save, however, it required employers to find the money -- as the Hawke Government had done with the Fringe Benefits Tax.  Keating thus raised direct employment costs by 3%, or 5% if the relevant pay roll was over $500,000 per annum, an extraordinary policy when unemployment was 10.5%.  Unions welcomed the policy because they were offered roles in setting up and managing the superannuation funds.

In the long run, the cost of the Superannuation Guarantee Levy, like nearly all unions' "hard won gains", would be paid for by the employees themselves.  But immediately it was paid by employers who had no option but to reduce activity and/or substitute machinery for people.  Thus much of the initial cost of the SGL fell upon those who found themselves out of work because of it.  Only later when, in spite of the unions and the Arbitration Commission, the weight of unemployment depressed wages, could the cost be borne by those in work.  Moreover, it was not clear to what extent the SGL would result in additional saving rather than merely substitute for existing saving.  The subsequent further drop in private saving suggests that the SGL did little for aggregate savings.

The problem Keating tried to address was real.  Unfunded superannuation schemes and unfunded pensions are but promises made that the next generation of taxpayers will provide for the current generation in retirement.  The SGL was, however, a corporatist deal cooked up by the Government and the ACTU to allow both to grandstand without producing much in the way of real benefits while increasing unemployment.  The Government excluded its own budget from the SGL's provisions.  The ostensible reason for this, namely, that a Government guarantee is as safe as money in the bank and therefore does not require funding, was irrelevant to both the need to increase savings and the need to reduce the burden upon future tax-payers.

THE DEMOLITION OF FIGHTBACK

Keating employed Treasury to take Fightback apart and, of course, flaws were discovered.  He described Treasury as putting an Exocet missile through it. ⁽³⁶³⁾  In the context of the contest between political parties Treasury help for the Government was unfair but all Governments use it.  Indeed the imbalance of resources between Government and Opposition is inimical to perfect democracy.  Our democracy is, however, more than good enough to have changed our Governments at times that with hindsight seem more-or-less right.

The challenge to Fightback's arithmetic revealed about a $3 billion discrepancy.  That was a large figure but not a sufficient one to reject the package.  The Government argued that because of the offsets needed to make the GST palatable the Liberal tax cuts were not affordable, but if One Nation's economic growth forecast were to eventuate, then they would have been more than affordable.  By the standards of Oppositions, the program had been fairly well costed and much better so than One Nation.

When Hawke resigned from the Parliament, a by-election was required in Wills.  During this campaign Keating backed away from his commitment to free trade maintaining by-elections' record of confounding sound public policy.  He dubbed Hewson "Captain Zero" the sea-green incorruptible who put purity of policy before public interest and it took Ford and Toyota no time to rediscover their demands for protection.  It bears repeating that General Motors and Mitsubishi did not join this push.

The computer industry suffered from protection of other industries and, with IAC support, the Fraser Government had protected it by bounty.  With the sharp reduction of this disadvantage achieved by the Hawke Governments, the IC now recommended that the bounty be discontinued but in the final months before the 1993 election Keating extended it to 2000, emphasising his difference from the Opposition.

The Government, worried about the loss of four sugar seats in Queensland, in February 1993, just before the election, reversed its decision to phase out the sugar tariff, promising that it would remain at $55 per tonne for three years.  It promised $20 million to facilitate restructuring and some deregulation.  The Opposition promptly promised only two years moratorium on tariff reduction and more deregulation with more money for restructuring.  Despite this bribery by Labor, the swing against Labor was 3.8% in the sugar seats compared with 1.2% in the rest of Queensland. ⁽³⁶⁴⁾  Pandering to vested interests can, at least sometimes, be poor politics.

In June, Keating sought to revive his reformist credentials by proposing two policy initiatives.  One tried to provide a legal basis for pay television but it did nothing substantial to improve the choice available to Australian viewers.  Nothing intimidates federal politicians more than the influence of the media barons and media policy remains today one of the few dry recommendations from the beginning of the 1980s that has not yet been addressed.  The Coalition gave Keating's measures a difficult passage in the Senate, but showed itself to be no more committed to economic freedom in the media than was the Government.

The other Keating initiative provided for the merger and sale of Qantas and Australian airlines.  It is significant that most of the Cabinet seemed to have accepted that there was still electoral advantage in demonstrating at least a little reforming zeal. ⁽³⁶⁵⁾

In July, unemployment at levels not seen since the 1930s and a huge blowout in the budget deficit sapped Government hope.  Blewett claims to have told Cabinet that with the election still nine months away the Government's immediate danger was of losing credibility as the Kirner Government in Victoria had lost it.  When that happened, he thought there could be no recovery. ⁽³⁶⁶⁾  That Keating managed to keep public attention on the credibility of Fightback was an extraordinary if unworthy achievement.

The expectation of big budget deficits in coming years could not be reconciled with the promised tax cuts and the final seven months to the election began with the Government's budget badly received.  The Blewett diaries had this to say:

[Keating and Dawkins] have made imprecise commitments to further taxes in order to camouflage the deficit in mid term, a policy dreamed up by the two of them without formal or clear reference to the revenue committee or the Cabinet.  Keating stressed that the legislation introduced for the new taxes would also include the mid-term income tax cuts, and that would help minimise the inevitable flak.

Elected in October of the previous year (1991) Kennett's break-neck reforms to restore Victoria's fiscal respectability and competitiveness also featured largely in Labor political rhetoric but their effects on the outcome of the Federal poll are hard to assess.  Victorians joined big protest rallies and suffered strikes.  These were not welcomed by the Keating Government, which worked with the ACTU to try to contain them.

In November, Keating announced that Labor would not block the passage of the GST in the Senate if the Coalition won the election.  His successful intention was to make the coming poll a referendum on the GST.

During the campaign Keating twice resurrected the 1989 promise that no pensioner would pay tax.  It remained unaffordable.  Peter Walsh rang John Dawkins who was unaware of the commitment.  Five days after the election, presumably without Cabinet consultation, Dawkins made a public statement repudiating it. ⁽³⁶⁷⁾

THE 1993 ELECTION

Keating called the election for the Ides of March.  Against all the apparent odds he won.  Hewson and his small band of serious followers had been brave, Sir Humphry might have said "courageous".  They are given too little credit for what they attempted and in fact what they achieved.  The Fightback policies lived on long after the political demise of most of the document's authors.

Neal Blewett's record of a Cabinet discussion prior to the election has the following revealing line:  "Dawkins agreed that Hewson was stuffed by the attitude of the business community". ⁽³⁶⁸⁾

Had Hewson won with Fightback I, implementation would have been marred by the unforeseen and there would have been occasions when he would have been accused reasonably of back-pedalling and of breaking undertakings.  The waters would have been muddied but, helped by the fact that the Hawke Government's reforms were beginning to have beneficial effect, I believe that a Coalition Government would have been seen to have substantially implemented its package.  Political campaigning in Australia would have been changed by the changed perception among politicians that the public could be trusted, even in the absence of an obvious crisis, to vote for reform.  That was not to be.  The loss to economic liberalism and the dry cause generally was, of course, immense, but the damage ultimately proved less than I at the time anticipated.

Whether Labor could have mounted an equally successful campaign by concentrating on Fightback's health or industrial relations reforms will never be known.

What I wrote shortly before the election is a better indication of how I felt than is memory that is coloured by the knowledge that the dry agenda continued to gain some ground albeit at a much slower pace.

The public knows that we are in danger of making a horrible mess of our economy, but far from trusting the public, both political parties have "gone upon every high mountain and under every green tree, and there hath played the harlot." The words are Jeremiah's but they fit the times only too well as our political leaders sell principle after principle to interest after interest in a bid to govern a nation they seem determined to render ungovernable.  Let us hope that our fate is less traumatic than that of which Jeremiah so presciently warned Israel!

In the years immediately following, that proved somewhat "over the top", if less so when petty opportunism came again to dominate politics during 2001.  That one is denied the advantage of convenient memory lapses is a drawback of having a regular newspaper column.

AUSTRALIA 2010

The Business Council of Australia's manifesto, Australia 2010:  Creating the Future Australia, published just two days before the election reflected the changed Zeitgeist.

When the BCA was formed, I had written that the last thing Australia needed was yet another powerful lobby making demands that could be met only at the expense of other parts of the economy.  In its early years the BCA seemed to fulfil my worst fears, but at this point its attitudes to protection, labour market regulation and tax distortions reflected a creditable national perspective.

With Australia 2010, the Chief Executive Officers of Australia's 50 largest companies endorsed policies which a mere ten years before, many of them would have believed unthinkable.  Inter alia they stated the following dry aims:

• ... abandoning reforms before they have yielded results only creates new problems.
• A century ago Australians enjoyed the highest standard of living in the world.  In 1970 Australia was 10th in the national league table -- we are now 18th.
• ... there is no feasible alternative to transforming Australia into an outward-looking internationally competitive economy ...
• The Accord slowed the pace of labour market reform ... [Australia should] create a system of individual and collective agreements. ... make union membership a matter of choice rather than one of legislated monopoly.
• artificial acceleration of growth does not produce long term results ... Inflation robs ... inflexibility in fiscal policy and the Accord-based wage agreements left monetary policy as the only tool. ... The legacy has been three years of recession ...
• Abolish the existing indirect tax system and substitute a broad-based consumption tax.
• Change must be executed swiftly.

It has to be asked how those motor industry CEOs, who continued to press for protection had squared their behaviour with this document's call for an "outward-looking internationally competitive economy".  They were, however, obliged to reflect their American or Japanese employers' interests and the Dries' quarrel is with Australian Governments.

It had been recognised that the unreasonable costs generated by the large public-sector monopolies in particular were as damaging to the TCF and motor industries as the high prices of clothing and motor cars were to other industries.  No country had, however, managed to do everything at once.  A large part of the case for proceeding with tariff and financial reform first had been based on experience elsewhere.  Once an economy was opened, the need to be internationally competitive then encouraged reform of its internal economy.  It had been expected (hoped) that labour market reform, the marketisation and privatisation of Government business enterprises and reform of the tax system would follow the open economy.

The launch of Australia 2010 approximately marked the high-point of dry influence in business circles.  I recall that Professor Helen Hughes, never one to miss an opportunity to tease, sat down to applause after observing at its launch, "If your words were currency, gentlemen, we would have fixed unemployment long ago"!  The meeting became a catalogue of well-chosen "if onlys".

William Donaldson, Chairman of the New York Stock Exchange:

If only you succeed in making your companies more attractive to foreign investors -- by, for example, holding down labour costs, becoming more efficient and freeing them of unnecessary regulations.

John Ralph, Chief Executive of CRA:

We can rejoin the top ten by 2010, if only something is done about investment per head of population that has fallen to levels not seen since the Great Depression; if only the Government had not passed up the best opportunity it is likely to get to reform the nation's employee relations system;  if only the way that the High Court Mabo decision had been handled had not imposed unnecessary costs on the mining sector;  and if only the quality of investment were better.

Ted Evans, Secretary to the Federal Treasury, said that investment would be of higher quality, if only there were no distortions in the environment in which those investments were made -- that is, if only low inflation were seen as a permanent feature of our economic landscape; if only the tax system were relatively neutral as between investments;  if only in the medium-term Government deficits reduced their call on national savings; and if only Governments did not introduce further uncertainty into economic decision-making.

Don Mercer, Chief Executive Officer of the ANZ Banking Group declared:

The potential is enormous:  sadly the prospects are not;
The Government's budget deficit of 1% of GDP by 1996/97 will not be sufficient';
This economy needs a VAT approach to taxation;  and
Adequate labour market reform is not part of the present policy agenda.

I thought Mercer's speech a particularly courageous evaluation of the public policy of a Government that has lost its way.  If anyone present strongly disagreed with it, then he was not game to stand up.  Except for two questions that received little sympathy, no businessman suggested that economic reform was other than too slow.

Keating was however chained to the trade union movement.  What is more, he had won the leadership of his party by ruling out reform of the State-Federal fiscal imbalance and won the election by ruling out reform of the tax base.  Having, as Treasurer, earned much credit for himself by starting to open up the economy and perhaps even more for changing public opinion, he now, as Prime Minister, found his own political tactics standing between him and further reform.

He was, nevertheless, to achieve one hugely important "big picture" reform.

NATIONAL COMPETITION POLICY

In April 1995 the States and Commonwealth reached agreement upon a competition reform package of potentially momentous significance.  Arguably it owed its origins to the Hawke/ Greiner co-operation and to publicised studies ⁽³⁶⁹⁾ of the causes of Australia's lack of competitiveness, but it owed its fruition to Keating and its form to the Hilmer Report of 1993.

Trade practices laws had long proscribed anti-competitive conduct among private firms but the Trade Practices Act (TPA) did not effectively address Government monopolies, regulated professions, trade unions, agricultural handling and marketing authorities or regulated industries such as shipping and airlines.  John Hyde had once made a parliamentary speech noting that it concentrated on that part of the economy least in need of greater competition.  Hyde recommended that its reach be extended to the statutory monopolies such as Telecom and the Wheat Board but he did not follow the idea up and Governments take no notice of the things backbenchers say in parliaments, so long as these do not cause political problems.  Except for Sections 45D and 45E proscribing secondary boycotts, dry politicians and the public-interest think tanks had had little to say about trade practices law.  It at least was intended to make markets work better and Hyde did not wish, by criticising it, to lend credibility to the oft-repeated slander that Dries believed markets were perfect.  In short, despite his speech, Hyde (and I think others) had not really appreciated the potential of better-directed anti-trust law.

In 1985 Professor Fred Hilmer had published When the Luck Runs Out, a small rather polemical book that asked why Australians, who were so good at sport, arts etc, were so unproductive.  It proved influential.  Eight years later the Hilmer Committee's report, National Competition Policy, addressed the monopolies and instances of price fixing that were excluded from the reach of trade practices law as it then was -- the professions, electricity authorities, statutory marketing authorities, railways etc.  Most of these were the responsibility of State Governments.  The Report observed:

The greatest impediments to enhanced competition in many key sectors of the economy are the restrictions imposed through Government regulation or Government ownership. ⁽³⁷⁰⁾

The argument and examples could be traced back to Australia at the Crossroads published in 1980 that had so influenced the Dries on Fraser's backbench, and no doubt further still.  Competition Policy's development was a prime example of the cumulative effect, first of quiet nagging and second of the development of the political means to address even the best known problems.

The 1990s had already seen progress on reforms including the National Rail Corporation, road transport regulation, the Corporations Law, the mutual recognition of product standards and occupational licensing, and the regulation of non-bank financial institutions when Keating raised what became National Competition Policy with the Premiers at the Council of Australian Governments (CoAG). ⁽³⁷¹⁾  He, the Premiers and Chief Ministers agreed to adopt a package that:

• Extended the reach of the parts of the Trade Practices Act limiting anti-competitive conduct to virtually all public and private sector businesses;
• Provided for reform packages guaranteeing access to electricity, gas, water and transport infrastructure, all sectors where there is significant natural monopoly;
• Undertook to review new and existing laws that restricted competition; and
• Ensured "competitive neutrality" between Government and private businesses. ⁽³⁷²⁾

Despite the omission of trade unions, employers' organisations and industrial law generally, this was a momentous step forward.  The reforms were structural and would produce cumulative benefits provided future Governments did not reverse them.

The Commonwealth carried the Competition Policy Reform Act extending the coverage of the Trade Practices Act to its own and unincorporated business enterprises and establishing a regime for access to significant infrastructure.  The States passed similar laws.  The Australian Competition and Consumer Commission (ACCC) policed the much widened competition policy and the National Competition Council (NCC) provided on-the-record advice.

The CoAG agreement provided a mechanism for its own policing.  Section 96 of the Constitution allows the Commonwealth to "grant financial assistance to any State on such terms and conditions as the Parliament thinks fit".  The Commonwealth agreed to make specific purpose payments (S96 grants) to the States that were conditional upon their meeting agreed micro-economic reforms.  The NCC filled in the detail and advised the Commonwealth when to withhold the agreed grants in cases of non-performance.  This encouraged or forced, as the case may be, the States to undertake politically difficult reforms and it allowed them to tell their constituents that they must meet deadlines to qualify for the Commonwealth money.

National competition policy has been inimical to privilege, and reforms to the rules governing access to water, gas and electricity and legal services have all been contested by the relevant vested interests.  The policy has been blamed for "social dislocation" and "environmental damage".  Claims of net environmental damage are easily dismissed.  Competition policy by providing for tradeable property rights has discouraged waste of resources, from water and electricity to human effort.

Some communities do however depend upon inefficiencies -- for instance, the unnecessary staffing and inappropriate location of facilities in rail, banking, telecommunications and grain handling, and the consumer subsidies paid to dairy farmers, doctors and lawyers.  Remove the monopoly or anti-competitive regulation and then, to compete, the sector must locate, staff and price to satisfy consumers' interests.  So long as the greater community is prepared to accept living standards that are lower than could otherwise be achieved, these endangered communities can be maintained for the foreseeable future.  The argument that communities should be preserved at whatever cost is put at its most extreme in the case European agriculture.  Such communities are maintained, however, by diseconomies that prejudice other communities.  About three years after the introduction of National Competition Policy a Senate select committee was to express concern that it affected the ability of Governments to govern.  It did not add, "in ways that they would prefer the public not to understand" but, since Governments' abilities to make laws over-riding competition policy were not affected, that was what was meant.

A dramatic event, the Longford fire in ESSO's natural gas plant on which the State had depended, demonstrated the advantages of access rules that allowed Victorians to receive gas from NSW during the period it lost access to the Bass Strait gas-field.  More often, however, Competition Policy's gains, although permanent and incremental, have been small on any day and of little interest to the media.  Water reform may serve as an example of what was done but, in truth, beyond the broadest principles, each industry or profession was peculiar.

Water reforms affected:

• Pricing -- paying for water actually used;
• Rights/entitlements -- clarifying private and environmental water rights;
• Trading -- the buying and selling of these rights;
• Infrastructure -- the justification of new investment on economic and environmental grounds; and
• Service provision -- a focus on customer requirements. ⁽³⁷³⁾

Business Review Weekly described water trading:

Each week, Goulburn-Murray Water produces the "Water Exchange", a computer printout that gives details of volumes and asking prices for water available for temporary trading.  Goulburn-Murray matches buyers and sellers, the sends a schedule of sales to all concerned.  Permanent water rights transactions are handled by brokers.

Recent prices have ranged from $850 to $1100 per megalitre.  Four years ago, when trading began, the average price was $300 per megalitre.  As market forces have gradually directed water to higher value crops the value of the resource has increased. ⁽³⁷⁴⁾

BRW reported that by January 2000 the water market in northern Victoria had an annual turnover of $31 million.  Each year, one per cent of water entitlements was passing to new owners as people such as graziers sell their water rights to horticulturists and other "high value producers" and use the funds to move out of grazing.  Locally the horticultural industry was growing by 10-15% annually and unemployment had fallen from 13.5% to 4.2%.  Urban water charges were based more on the amount of water used and the accountability of water authorities was enhanced.  Water waste was much reduced to benefit high value consumption and the river systems.

Competition policy has benefited consumers and contributed to the fast economic growth of the latter part of the nineties.  By 1999 the National Competition Council was able to report that electricity prices on the Eastern Seaboard were down by 23% to 30%, industrial gas prices in WA were down by 50%, Perth-Melbourne rail freights were down 40%, conveyancing fees in NSW had fallen 17%, air traffic services were 40% cheaper and so on.  Such large cost reductions naturally made substantial contributions to Australia's competitiveness.  It was much the greatest achievement of the Keating Governments.  However, revealing as it does the extent of Government favour, the NCC is denigrated not only by the interests but also by politicians.  Like the Tariff Board, and for that matter the courts long ago, the NCC will have to fight for its independence.  It needs and merits champions like Kelly, Melville and Rattigan.

INFLATION

Increased budget deficits and increased money supplies can stimulate stagnant economies.  However, if these "stimuli" are not offset at other times by budget surpluses and tight money, mounting public debt and inflation will more than undo the gains.  The economic trick is to time stimuli for the early stages of recessions and restraint for the early stages of booms but Macro-economics is not an exact science and turning points that are obvious with hindsight are not always evident at the time.  The Australian Treasury tends to be cautious, advising Governments not to try to second-guess the business cycle but to maintain balanced budgets and non¬inflationary money supplies except in extreme circumstances.

Politicians, on the other hand, have had little difficulty convincing themselves that the future, when they may not be in office, will be rosier than the present.  The political trick is to time the stimuli for the early stages of elections and to postpone the restraint indefinitely.

The big budget surpluses of 1988 and 1989 had been hard won and in winning them much wasteful expenditure had been eliminated.  Keating had justly taken pride in them.  However, from the time that he resigned from the Hawke Cabinet he began advocating lax fiscal and monetary policy.  The electoral advantage of what he proposed was obvious:  the economic advantage dubious.

By 1991 the economy was in fairly deep recession with 11% unemployment.  During May zero inflation was reported for the March quarter and 1.7% for the year to March 1991.  Having for two years denied the existence of recession (the "R word"), with breathtaking chutzpah, Keating described the economic circumstances as "the recession we had to have".  With a measure of justice he claimed that the good inflation figure was the result of past policy.  The micro-economic reforms, especially tariff reduction, had contributed to lower production costs improving the inflation/unemployment trade-off but unemployment remained serious.

If the fiscal discipline of earlier years had been maintained, monetary policy would not have needed to be as tight as it was.  In fact, it was probably tighter than intended.  Bernie Fraser, who was then the Governor of the Reserve Bank, was later to say that the Bank had underestimated the effects of high real interest rates on business.  People who are too ready to criticise Thatcher for the unemployment caused by monetary policy that was too tight in appreciably more difficult circumstances might note the similar error in Australia.  Moreover, they should count the benefits in both cases, particularly that of falling unemployment, attributable to the conduct of later policy in a relatively inflation-free environment.  Finally, we all should admit that falling inflation was at the time a worldwide phenomenon.  Stagflation did seem to have become an evil of the past.

Recurrent current account deficits continued to add to foreign liabilities.  In Whitlam's time foreign liabilities had been 3.1% of the then GDP.  By 1994 they were 40% of the GDP of that time.

THE BUDGETS

The Keating Governments -- until their last year, when there was a marginal improvement -- continued the budgetary deterioration begun in 1990-91.  New initiatives, such as the Child Care Cash Rebate, the Seniors' Health Card and subsidies for sport and the arts were targeted to vociferous lobbies and tended to be regressive.

Influenced by the recession, 1992-93 saw a deficit of $14.5 billion.  The next budget forecast an underlying deficit (that is, net of asset sales, dividends and capital repayments) of $16 billion.  About half of this carried forward to future budgets.  It was predicated on annual growth of 2.75%, which some thought optimistic, but in the event growth was over 4%.  It seems now that that improvement, which was to last for the rest of the 1990s, was attributable not only to cyclical factors but also to the productivity-enhancing reforms of the Hawke years.  Unemployment in 1993-94 remained at 10%, but then the labour market had not been reformed.

Despite the nation coming out of the recession, the 9 Government budgets (6 State, 2 territory and one Commonwealth) together produced public-sector dissaving that exceeded private-sector saving.  The main cause of the savings deficit was increased public-sector consumption not matched by revenue and the main culprit was the Commonwealth.  Net Commonwealth assistance to the States had fallen from 9.5% of GDP in 1982-83 to 7.4%.  In contrast the Commonwealth had increased its own-purpose outlays from 17.2% of GDP to 19.5%.  The Commonwealth was to use 64% of its new borrowings to finance current outlays -- and that in the third year of an economic recovery!  Keating, who had once been acclaimed the world's best Treasurer, was an unusually profligate Prime Minister.

In a mere four years, a surplus of 2.2% of GDP had become a deficit of 4% and Commonwealth spending had increased by 16.5% in real terms.  The States had made savings, but the Commonwealth's own purpose outlays were two percentage points of GDP higher than when Labor assumed office in 1982-83.  Just reducing the Federal Government's own-purpose expenditure to the same share of GDP as it had been in 1989-90 would have eliminated $13 billion of the $16 billion structural deficit.  For the second consecutive year, the IPA's annual budget round up awarded the Commonwealth the lemon for the most irresponsible of the nine budgets. ⁽³⁷⁵⁾

The One Nation estimate of a budget surplus by 1995-96 was way off track.  Public debt interest, that is, the interest bill for past deficits, was estimated to be over $10 billion by 1997-98. ⁽³⁷⁶⁾  Budgetary discipline under Keating was approximately as deficient is it had been with Fraser's last budget.  One must presume to provide a rationale for breaking the L.A.W. tax promises, the Government commissioned Vince Fitzgerald to report on deficient saving and its consequences.  His Report usefully discussed the causes and consequences of poor saving.  Inconsistently, it quoted the IPA's recommendations for savings in State budgets but not its recommendations for savings the Commonwealth's own budget. ⁽³⁷⁷⁾

The Keating Governments, nevertheless, attempted some fiscal reforms.  When John Dawkins had been Treasurer, he attempted to remove the tax concession on accumulated long-service leave but, under pressure from the ACTU, his proposals were watered down.  He also attempted to increased taxes on wine to bring them more into line with other alcohol taxes but this measure was partially defeated in the Senate by Democrats with seats to protect in the South Australian Lower House and an equally hypocritical Coalition smarting from its recent defeat.

As people live longer the dependency of old people upon the earnings of a smaller proportion of working-age population becomes less manageable.  Even if expectations of more comfortable retirements do not rise, unless productivity gains offset the declining proportion of the population that is producing, then the alternatives are limited to reducing pensions and benefits or restricting eligibility for them.  When in a budget context the Government said that the pensionable age for women would be lifted to the same age as it is for men -- some day -- it raised an issue that will one day have to be faced.  That day is not as close in Australia with its much younger population as it is in Europe and Japan, but the sooner it is faced the less painful the necessary adjustments will be.

The 1994 budget, Ralph Willis's first, produced a deficit of $11.62 billion and the 1995 budget one of $5.1 billion.  The Government had, however, tried to portray the latter as being in marginal surplus by, among other things that were later to be questioned, adding in asset sales of $5.35 billion.  The privatisations were welcomed by Dries but for reasons other than budget balance.

MEDICARE CO-PAYMENTS

Since Whitlam and his then Health Minister, Bill Hayden, "free" medical and hospital care irrespective of income has been an icon-status policy for sections of the Labor Party.  Although the consequent waste of health-care resources must run to a billion dollars or more annually, dry opposition to free-to-patient services had been based less on over-servicing and high transaction costs, of which there were no adequate measures, than upon the inefficiency of the system in assisting the poor.  Most of the benefit went to those members of the middle-class who chose not to insure.  Kerin's 1991 budget had provided for co-payments, that is, a portion of a medical bill paid by the patient.  During his period on the backbench establishing his leadership credentials, Keating had attacked these ⁽³⁷⁸⁾ and after becoming Prime Minister abolished them in spite of the protests of his Treasurer, Ralph Willis. ⁽³⁷⁹⁾  Co-payments paid by rich and poor alike may not the best way to reform Medicare, but they did begin to address a serious inefficiency.

Neal Blewett, who had been Health Minister in the Hawke Governments, attributed much of the difficulty in arriving at satisfactory policy to the fact that the health lobbies and vested interests were far more powerful than any in his then current portfolio area, social security. ⁽³⁸⁰⁾  Most Dries would agree with him.

INDUSTRIAL RELATIONS

Early in March, Industrial Relations Minister Peter Cook brought a submission to Cabinet seeking freedom for enterprise bargaining with appeals to the Industrial Relations Commission under a fairness test.  Keating and several other Cabinet members opposed him on grounds that included the possibility of a wages break out causing unemployment and inflation, and the inadvisability of playing into Opposition hands.  The issue was not resolved then and Cook was asked to have further discussion with the ACTU. ⁽³⁸¹⁾

In July, however, Cabinet agreed to work-place bargaining.  The work-place agreements were to be certified and minimal awards were to continue.  This did not give the individual employee the freedom sought by the Coalition but, at face value, it was a step toward economic freedom.  Complex arrangements to reflect productivity gains in public sector wages were also approved.  Labour market reform, nevertheless, remained substantially beyond Keating's reach, vetoed by the ACTU.

In April 1993, immediately after the Fightback election, he had told a meeting of the Institute of Company Directors that control over wage setting would be taken from the Industrial Commission.  Nevertheless, such was the influence of the ACTU that by September he was attempting even to nullify sections 45D and 45E of the Trade Practices Act.  The Government introduced legislation to allow unions also to impose black bans for three days, then requiring employers to seek redress before the Industrial Relations Commission rather than the civil courts; restrict work-place agreements to unions;  and impose unfair dismissal legislation. ⁽³⁸²⁾  Keating's turn around again vindicated Professor Hancock's observation that it was "a mistaken view of a pluralist society that every subject is equally dominated by the might of the state and its arms of enforcement".  Where its vital interests were concerned, the ACTU remained a centre of power above the law about which this Prime Minister dared do little.

THE MABO HIGH COURT DECISION

The citizens of the Torres Strait Islands were Melanesians long accustomed to cultivation.  They were not nomads and it would not have occurred to them that they did not possess title to their land that was approximately as comprehensive as freehold.  However, their titles had been blatantly disregarded since the 1930s and further thrown into doubt during the 1987 negotiations with PNG over the border with Queensland.  It would have been singularly unjust to deprive them of ownership although it seemed they had never possessed it in formal law. ⁽³⁸³⁾  Eddie Mabo, of Murray Island in the Torres Strait, mounted a case that went to the High Court to establish his title.  The Court did more and less.  It found that he, other Torres Strait Islanders and Aborigines throughout the Commonwealth possessed a "native title" akin to that granted in the Northern Territory that was inferior to freehold in that it could not be sold or leased.  Mr Mabo deserved better and the economy deserved better.

Although some individual Dries were opposed to Aboriginal land rights themselves, most opposed only the unworkable title that the Court had dreamed up with apparent disregard for its multi-billion dollar cost.  This was wealth that could have been employed to benefit Aborigines.

The native title was an unusual form of property that, as the Court euphemistically put it, depended on "biological descent" -- less euphemistically, on race.  Not only Dries saw the court ruling as a dangerous precedent.  Dries, who were accustomed to defending private property against the Crown, were faced with at least an irony.  Native title was sometimes claimed by such small groups that it became a form of privatisation, albeit of a title with few of the important rights of freehold.

The immediate practical objection to the decision was that it left existing and intended investments in a state of great uncertainty.  Keating attempted to address this with the Native Title Act 1993.  It failed and the issue had to be revisited.

MICRO-ECONOMIC REFORM

With the very important exception of competition policy, the Keating Governments did not show the Hawke Governments' willingness to do battle with vested interests.  Nevertheless, some gains were made.  Agriculture Minister Simon Crean gained Cabinet approval to reduce dairy protection to 10% by 2000.  This was less robust than the Industry Commission or the Coalition undertaking to reduce tariffs to zero and Blewett tells us it passed Cabinet almost without dissent.

Telecom and the OTC ⁽³⁸⁴⁾ were merged and the loss-making Aussat was privatised to form part of Optus's package.  The Government licensed two new mobile phone carriers, Optus and Vodafone. ⁽³⁸⁵⁾

Aviation did not fare as well.  In 1992, Qantas had taken over Australian Airlines (TAA), agreement had been reached with New Zealand for a single trans-Tasman aviation market and Ansett had been permitted to enter the international market.  Keating's One Nation statement had called for integration of the domestic and international aviation markets.  Dries therefore anticipated "open skies" but their optimism was misplaced.  In 1994 Keating unilaterally repudiated the deal with New Zealand, and Australia still does not enjoy an aviation policy that automatically gives landing rights to foreign carriers or permits them to carry long-haul domestic traffic such as between Perth and the Eastern seaboard.

With the rise of noisy, often Government financed, environmental and aboriginal land rights activists, the mining, pastoral and agricultural industries became concerned about the security of their tenures.  They claimed that insecurity was affecting investment, as surely perceived insecurity would, but the people responsible for adjudicating and administering native title claims contended that their fears were more than was warranted.  There is no adequate measure of perceived insecurity or investment that is not made, but the more-readily¬calculated costs caused by the delays of the native title adjudication process itself certainly became substantial.

Shrill voices contended that timber cutters, farmers, miners and pastoralists did not have property rights that had adverse environmental consequences.  These opposed compensation for the loss of what they contended were only presumed rights.  Against this background clashes between environment minister Ros Kelly and resources minister Alan Griffiths became features of the First Keating Government.  To get resource security legislation through the Senate, Griffiths struck a deal with the Opposition, however, opposed by Kelly, he lost it in the Caucus.  He and Kelly, however, agreed to ban imports of tropical timbers from countries that had failed to establish sustainable forest managements.  The injury that this measure would do to the economies of Third World people may have been considered but did not warrant mention in the Blewett diaries.

Resource security again became an issue in 1995.  The then Resources Minister, David Beddall, endeavoured to resolve the ongoing dispute between conservationists and loggers by designating licensed areas for logging.  Although loggers and greenies were bound to disagree upon the extent of the designated areas, this was the conventional and sensible approach.  Conservation Minister John Faulkner, however, then "saved" 1300 "compartments" which had obviously been chosen in great haste because they included areas that had been clear felled.  That action had the unintended consequence of the parliament building being surrounded by a coalition of unionists, mill owners, contractors, owner drivers, a Premier and Deputy Premier and hundreds of very large log trucks and jinkers.  That display of ire had the intended consequence of initiating negotiations with the States to establish clear but limited logging rights.

The Howard Government completed this sensible administrative process, which established encompassing principles by open debate, employed as much hard science as possible, allowed losses and gains traded to achieve most at least cost to the other party, and allowed compromises that are in their nature political.  It ultimately produced the Regional Forest Agreements (RFAs) to which, irrespective of political colour, all State Governments signed off.  To the extent that both sides complied, the outcome would have been a triumph for democracy, common sense and civility.

The RFAs broke down only in Western Australia where, to appease conservationists who had resorted to damaging property, trespass and political threat, the Court Government welshed.  Forests may be fragile but they are no more so than the civil order that depends upon people in authority keeping their word.  The Federal Government was understandably angry.

In 1991 Keating also proposed the widening of the IAC's brief to allow it to play a more positive role, rebadging it the Industry Commission, shifting it to Melbourne and appointing a businessman to chair it.  Dries' knee-jerk reaction to almost any proposal to change the IAC tended to be "hands off our Industry Commission" -- much as the New-Class Left says "hands off our ABC".  The businessman chairman was not appointed and the Industry Commission remained highly effective.  Dries too suffer some paranoia.

With the election safely behind him, Keating used the 1993 Governor General's Speech summoning Parliament to undertake to continue the tariff reduction policy.  The Uruguay Round, which formed the World Trade Organisation (WTO) with wider powers than the GATT, was completed in that year.  Despite falling short of its goals, the Round had greatly widened the scope of rules to facilitate trade.  As well as further significant reduction of the barriers to trade in industrial and resource-based products, agreements were reached for agricultural products, textiles and clothing, services and intellectual property.  It outlawed or restricted several non-tariff barriers such as voluntary export restraints and misuse of quarantine. ⁽³⁸⁶⁾  The US was, however, losing its commitment to world-wide freer trade shifting its emphasis to bilateral and regional agreements such as the North American Free Trade Agreement.  It was to discard it almost entirely in Seattle in 1999.

The May 1995-96 budget provided for the complete privatisation of the Commonwealth Bank. ⁽³⁸⁷⁾

SOVEREIGNTY

A tendency has developed to refer to non-Government organisations (NGOs) as "civil society" and to applaud their ability in partnership with Government to make enforceable rules.  This misapplies the idea of civil society, which concerns the internal institutions that regulate human interaction in contrast to state-enforced rules.

During 1994 this verbal passage of arms took place in a Senate Estimates Committee.

Senator Rod Kemp:  "I take it [you do not agree with provisions] for a parliamentary vote to ratify a treaty".

Senator Gareth Evans:  "No way, Jose".

Senator Kemp:  "That is what we thought.  We could not have the people involved at all in this?"

Senator Evans:  "Dead Right".

The Hawke and Keating Governments ceded powers over the environment, land management, immigration, the treatment of children and more to the United Nations, other supra-national bodies and NGOs, taking the authority from Australian parliaments.

Relying on the external affairs power of the Constitution, all Federal Governments had blithely signed treaties -- there are over 900 of them -- and then used these "international obligations" selectively, to get around the Constitution.  Since 1983 Labor had, however, made a welter of the practice.  The signing of an International Labour Organisation convention, without so much as a press release, immediately prior to the 1993 election that it expected to lose, had been a particularly egregious example.

The tendency for Canberra Governments to get their way in domestic matters by this means not only showed scant respect for Australian voters but also for established Australian procedures.  Some treaties allow Australian citizens to appeal against Australian law to the United Nations Committee on Human Rights, the UN Committee on the Elimination of Racial Discrimination and the UN Committee Against Torture.  When the Australian High Court, in the Teoh Case, ruled that people affected by Government decisions had a legitimate expectation that the Government would consider a relevant treaty that it had ratified, even if parliament had not implemented them in Australian law the Keating Government faced difficulties of its own making.

Even if the Government treaty making had been acceptable in principle, the particular foreign tribunals to which we were deferring sovereignty were of such low quality that they were poor repositories of our trust.  Membership of the ILO and UN Conventions includes representatives of nations whose human rights records are extremely poor and the committees' procedures employed few of the safeguards of objectivity, such the rights of interested parties to be heard and cross examine, that we take for granted.

Making commendable use of the opportunities afforded Members of Parliament, Senator Rod Kemp, who had once run the IPA, conducted a sustained campaign to inform Australians of the Government's misuse of its power to enter foreign treaties.

DIVISIVENESS

Keating exacerbated grievances.  He denigrated the British by saying some silly things about Britain's role when Singapore fell to the Japanese in World War II.  More seriously, since there is little evidence of the British dwelling on his opinion, in December 1992 he delivered the Redfern speech.  It was unlikely to have been his intention, but by it he contributed to what became the Hanson phenomenon.  Speaking of Aborigines he said:

We took away the traditional lands and smashed the traditional way of life.  We brought the disease.  The alcohol.  We committed the murders.  We took the children from their mothers.  We practised discrimination and exclusion.  It was our ignorance and our prejudice.

He raised exaggerated hopes and fears that threatened reconciliation.

If "we" is taken to mean the forebears of European descent of only some Australians, then what he said was undeniable.  The catalogue was, however, excessively one sided.  It made no mention of acts of kindness to aborigines;  the reasons why children were taken into state custody;  the punishment of the murderers; the murders of Europeans by Aborigines; material benefits arising from western technology including medicine; social benefits such as the rule of law and the status and protection of women;  and the fact that the ignorance and prejudice was (and still is) mutual.  Further, the tenor of the speech was that the sins of the fathers should be visited upon the children and millions of non-descendants whose only crime in this context was to be of races other than aboriginal.  Many good natured Australians who wished Aborigines well and who were prepared to assist in their welfare, felt no sense of guilt and resented having it thrust upon them.

Keating had not up to that time taken much interest in Aboriginal issues. ⁽³⁸⁸⁾  Not long after the address, Don Watson, a speech writer on Keating's staff, conceded that he had written the speech as an "ambit claim" and had not expected the Prime Minister to deliver it without amendment.

Keating was pandering to the politically-correct view that anyone who questioned the centrality of land to Aboriginal welfare was racist.  Seventeen years of land rights in the Northern Territory had not measurably improved the health and material welfare of the average Aborigine.  International experience was that private property title could radically improve living standards but the title had to be tradeable not an inalienable title of the type discovered by the High Court. ⁽³⁸⁹⁾  The arguments of those who questioned land rights may have been wrong or irrelevant.  For instance, one might argue that the situation was deteriorating and land rights slowed the rate of deterioration, or argue that land rights were granted to serve non-material ends.  To question the relevance of land rights to Aboriginal welfare was not, however, racist.

Keating also exacerbated differences between supporters of multicultural policy and its opponents;  between welfare recipients and taxpayers;  between country and city although no more so than the Country Party had once done;  between men and women;  and even, erratically, between collectivists and individualists.  He poured fuel on the few remaining embers of the old dispute between Irish Catholics and Anglo-Saxon Protestants but, fortunately, these failed to ignite.  He may sometimes have sought votes but mostly it seemed that he could not help himself.

He fostered what Geoffrey Blainey had referred to as the "black armband" version of Australian history, a version that would have us believe that that little noble and uplifting had been achieved since 1788 while there was much to be ashamed of.  Of course, during two centuries there were many shameful episodes but a fairer reading of the past showed our forbears in a relatively favourable light -- or so most people including historians believed.  It was asked whether any nation and especially one with a huge migrant population that was ashamed of its history could cohere.

By his invective he damaged his political standing, handing the Coalition in due course a landslide win.  The loss for the dry ideal derived from loss of his ability to lead people toward good public policy.  Moreover, by turning Australian against Australian he sacrificed some of the sense of common purpose upon which reform must rely.  Reform creates losers -- if it did not it would have been undertaken long before.  People are not as selfish as they are often portrayed and will mostly accept policy-induced losses to benefit a community that treats them fairly and listens to their contrary opinions.  However, they will not accept being put down or ignored.

Keating was, of course, to blame for only a small part of the alienation that was becoming evident in the rise of single-issue action groups and would later become more evident with the sudden rise of the One Nation Party.  He had merely climbed aboard a bandwagon that was already rolling hard, briefly demanding the bandmaster's baton.  McCarthyist accusations of racism and bigotry vented upon people who express opinions, however wrong those opinions may be, are not compatible with liberal civilised society and certainly not with a program of reform.  In a society in which democratic rights are thankfully all but inalienable, reform rests on the ability to change, not to smother, opinion.  Comments by the Race Discrimination Commissioner, Irene Moss, were symptomatic of what was becoming a problem and not just for Dries.  She had said that there must not be a referendum on the Mabo issues because the Australian people could not know or understand the facts. ⁽³⁹⁰⁾  Her assumption of superiority irritated rather than convinced people.

When Alexander Downer, who had succeeded Hewson as Liberal leader, observed to the Western Australian Liberal Party that the Native Title Act was flawed, he said almost what Justice French subsequently argued and the Prime Minister conceded, but he was hounded as "racist".  When he tried to crack a silly little joke about domestic violence, he was similarly hounded as "insensitive".  The press reactions might have been dismissed merely as unprofessional journalism during a lets-get-Downer week, of which there were several, had not the consequences of political correctness been much more serious than the downfall of yet another Opposition leader.  Bitterness that was to do some real harm (to be discussed in Chapter 16) was building up.  When resentful people are denied the right to voice their grievances, they acquire another reason, often a better one, to be resentful.

LABOR'S TEN YEARS

In 1983, when Labor defeated the Coalition, Australia was emerging from one recession and by 1993 it was emerging from another.  The vagaries of the business cycle do not, therefore, much distort Labor's record.  The often long and largely unknown lags between policy changes and their economic or social effects, however, make it difficult to assign political credit (or debit) to the appropriate ledger.  The Canadian Fraser Institute, however, rates nations by their practice of economic freedom.  In 1975 Australian economic freedom was rated 6.5 (17th best internationally).  By 1990 we rated 8.0 (11th best internationally).  An absolute and relative improvement. ⁽³⁹¹⁾

Over the decade from 1982-83 to 1992-93, the Australian economy grew by only 1.3% per head per annum compared with 2.2% over the two decades to 1982.  In consequence, Australia's GDP per head fell from 10% below the OECD average in 1982 to 16% below in 1992.  This poor showing reflected Australia's dismal productivity growth from what was, in any case, a poor base.

Real wages increased by only 0.1% per annum but, because of increased aggregate personal payments to the unemployed, the sick, aged persons etc, real household income grew at about the same rate as during the previous decade, that is, at 1.2% annually.  Consumption per head grew at 1.4%, the difference between it and income reflecting a further decline in the savings rate, which had declined in the previous decade also, and probably also some increase in earnings within the underground economy.

By the end of the Keating Government, tariff reduction was working more or less as anticipated.  Since 1986 the total value of exports had increased by 130%.  Productivity growth, for the first time in decades, exceeded the OECD average.  The Productivity Commission showed that the "multifactor productivity" of the market sector of the economy which had been a poor 1% per annum from 1985 to 1993 jumped to 2.4% per annum from 1993 to 1998. ⁽³⁹²⁾  This was indeed a big gain.  The Commission illustrated how it had been achieved with numerous case studies that showed also that the industries that had gained most freedom, a few years later, gained most productivity.

During the nineties, manufactures had increased their share of all exports from 12% to 20% if transformed commodities such as meat were excluded from the definition of manufactures, and from 53% to 61% if these were included.  Attitudes to protection had changed.  Even the president of the Textile, Clothing and Footwear Council, Tim Todhunter, had declared that his industry must abandon its sweatshop image to concentrate on exports of goods at the creative end of the market.

At the beginning of the period, net national saving, which is saving after deducting depreciation, was a dismal 0.7% of GNP per year.  This measure rose to a respectable 8% in 1988-89 only to become negative for the year to September 1992.  The most important factor affecting these trends had been the budget deficit or surplus.  When the Government was saving, that is when there was a budget surplus, Australian ownership of the total capital stock increased reasonably satisfactorily, whereas Government deficits at the beginning and end of the period offset private and business savings.

Failure to save the funds needed to finance Australian investment had been consistent with the dramatic increase in foreign debt.  Net foreign debt had increased from $23.4 billion (13.6% of GDP) to $162 billion (42% of GDP).  Interest on that debt had taken 9% of export income in 1982-83, it had risen to 20.8% in 1989-90, and fallen to 15% by 1992/93.  The current account deficit had risen from 3.8% of GDP in 1982-83 to 6.1% in 1985¬86 and fallen to 3.3% in 1992-93.

Further, the OECD, that had estimated that Australia could not maintain growth of more than 3% without unacceptable inflationary pressures, ⁽³⁹³⁾ had also estimated, that, labour market practices being unchanged, 4% growth was required to reduce unemployment.  Because the micro-economic reforms of the previous decade were beginning to take effect, the OECD's estimate that growth above 3% was unsustainable was beginning to be wrong.  Its labour market estimate was not necessarily relevant because there was no good reason not to reform the labour market practices.  Nevertheless, comparison of the 3 and 4% figures entered debate.

Over the ten years of Labor's office, employment increased by about the same rate as that of the previous two decades.  Unemployment, on the other hand, increased from just over 7% to reach 11% in 1992.  The Australian unemployment rate had increased from one percentage point below the OECD average, which includes several other sclerotic economies, to 2 percentage points above it.  If those figures were not bad enough, unless there had been a sharp decline in national health, the numbers of invalid pensioners, which had increased by 76%, hid further unemployed.

When Labor came to office, Australian inflation had been 11.5% and double the OECD average.  By 1991-92, this had been reduced to around 1% and was below the OECD average.  Despite Labor condemning Fraser's fight-inflation-first policy it had succeeded against inflation where Fraser failed.

For what the data are worth, during the Labor years the kangaroo population increased from 13 to 18 million.

If no allowance were to be made for the time between policy implementation and its intended effect, then, except for inflation, the record of the Hawke and Keating years is poor or at best mediocre.  Deregulation and privatisation do not, however, have immediate effects on productivity.  Changed incentives must first influence physical capital, skills and attitudes.  It takes years to replace, say, an obsolete steel mill and almost as long to acquire new skills.  Even to change the ratio of manpower to machines may take months of bargaining.

The most important consequences of the 1980s reforms became evident only in the 1990s.  Because of this, the Freedom Watch data do the ALP more justice.

THE LAST THREE LABOR YEARS

As the Second Keating Government progressed, the financial markets delivered pointed votes of no confidence by driving up yields.  Respected and disinterested critics, and the Prime Minister himself, contended that the higher yields were not justified by rational evaluation of the economic indicators.  That may have been the case, but the political indicators were causing disquiet.

Should investors believe that, henceforth, economic managers (particularly Governments) would show less fortitude, understanding or competence than they had hitherto, then it becomes rational to hold stocks only at lower prices.  When several sell, then yields rise.  Since investors look beyond the next election, high Australian yields and the low exchange rate were also indictments of the Opposition as it had then become.

At the point in the business cycle when deficit reduction is most easily achieved, namely in the boom when tax yields are highest, the Keating Government had used asset sales and revenues from heightened business activity to finance expenditure that increased the structural budget deficit by some $1.9 billion.  The implications for the deficit during the next economic downturn were bad and shortly the incoming Howard Government was to claim with justice that it had been left an $8 billion black hole -- shades of the $6 billion black hole inherited by Hawke.

Worse from the viewpoint of investment managers, it had become apparent that the Government no longer cared whether what it promised was credible.  A Green Paper had stated that unemployment would be reduced to 5% by 2000/2001.  This was to be achieved with an average annual growth rate of 4.75%.  Leaving aside the issue of whether, without labour market reform, unemployment could be reduced to 5% by any growth rate, the budget papers had forecast growth rates in each of the years from 1993-94 to 1997-98 of 4%, 4.5%, 4.25%, 4.0% and 4.0% respectively.  Although these excellent estimates redounded to the credit of earlier Labor Governments, there was not even one year of 4.75%.  If the employment promise were to be accomplished, average annual economic growth during the remaining three years, 1998-99 to 2000-01, of 5.75% in each year would be required.  Blocked by the unions from deregulating the labour market, the Government had plucked ridiculous growth figures from the air.  It kidded no one.

Investment in the internationally competitive resources sector faced additional disincentives caused by new environmental and native title law that had caused some marginal ones to compare badly with foreign alternatives.  Doubts had been raised about the Government's willingness to be bound by its own rules, raising niggling questions about the status of property rights.  Hawke had without compensation taken the right to mine at Corronation Hill, and the Keating Government later pre-empted the normal assessment and approval processes to prevent development of the mineral sands deposit at Shoalwater Bay.  Investors were now factoring more "sovereign risk" into their budgets.

While the Coalition cared about the long term, there remained the reasonable expectation of improvement.  However, the principled, if naive, Coalition that had lost the previous election had since then worked hard to convince investors that it was little better than Labor.

Apparently convinced that its political ship was sinking, it had cast overboard one principled policy after another starting with tax reform until it finally cast adrift the already emaciated Fightback.  It had lost sight of the simple values that had sustained it and briefly allowed its politicians to be men and women with a mission.  Its industrial relations policy was all that it had left.  I wrote at the time:

But do they believe in even it, or did Howard rescue it from a majority determined to believe in nothing? If elected, would they implement it?  What is the future of a party that lacks a cause?  Can anybody now say how a Coalition Government would govern?

I have lost count of how often I have heard the Coalition roundly criticised for being truthful on the occasion of the last election.  Business leaders and industry organisations, that only two years ago vigorously advocated needed reforms, are now scared to offend the Government.  Throughout the community, emphasis has shifted from finding and fixing the causes of economic failure towards ameliorating its consequences.

I was too pessimistic.  The Howard Government faced with a hostile Senate and an irresponsible Opposition was to achieve some reform.

The term of the Second Keating Government had been bad years for freedom and Australia was not quite the particularly attractive place to invest that it had been.  The momentous gains of the early Hawke Governments were, however, not yet undone.

DEFEAT

Keating went to the people on 2 March 1996.  Labor lost 31 seats in a landslide to the Coalition.

After the election, the contest was portrayed as between "The Hub" led by Andrew Rob, the Liberal Party Secretary and the Labor Party equivalent led by Gary Grey -- that is, a contest between spin doctors manipulating gullible voters.  Good campaigns can determine close elections but this election had not been close.

The contempt that Chattering Class elites have for the common voter is one of the more off-putting features of Australian public life, and it is misplaced.  Should the opinions of ordinary voters be left out of future attempts to reform Australian society then the attempts will fail.  If I am wrong in that, then the thrust of this whole account is wrong.

In the twelfth century, William of Occam propounded his "razor", an injunction to the religiously correct not to multiply causes beyond the need thereof.  It is still good advice.  The simplest explanation of the election was that a well-enough-informed electorate took the following decisions:

• It got rid of a bad Government, as it had done in 1972, 1975 and 1983.  It did so by an unusually large margin only because it perceived an unusually bad Government that had divided Australian against Australian and was fiscally irresponsible.
• It voted for Howard knowing that he promised to govern for all Australians and hoping he would do so.  Howard lost in the cities of Canberra, Sydney and Melbourne but won handsomely on the votes of those who had been excluded from Keating's formalised deal making with unions, business, aborigines, environmentalists and others.
• It gave big swings to Pauline Hanson in Oxley, Graeme Campbell in Kalgoorlie and two National Party MPs in Queensland, Bob Katter and Bob Burges, because these promised one class of Australians.
• It voted for Kernot's Democrats to the exclusion of the Greens because the Greens had shown themselves to have a careless disregard for the aspirations of ordinary mortals and the Democrats campaigned on the appealing slogan, "Keep the Bastards Honest".

In the event, not all of these were true to their promises but that was how they presented themselves at that time.

The Keating Governments had compared unfavourably with the Hawke Governments.  As Hawke's Treasurer Keating, advised by a consistently dry Treasury, had been directly responsible for the best of all that Hawke's Governments did -- the floating of the dollar, the budget surpluses, the tariff reduction and consequent opening up of the Australian economy, and financial deregulation.  For a time, the Hawke team -- and it was a team -- had given Australians the best Government since at least early Menzies.  That team gave the ALP tradition a period of successful peacetime Government.

Keating prided himself on being able to appreciate the "big picture".  He painted part of it.  And yet he sank to the depths of pettiness.  Although he had championed tax reform he then destroyed it.  He destroyed the Hawke/Greiner initiatives to reform the State and Federal financial relationships.  He blew the budget surpluses in an orgy of irresponsible spending.  He vandalised his own picture.

Of blue-collar stock, he had appealed emotionally to Labor's true believers and yet these were ultimately the people that he lost.  With Walsh, Hawke and Button, he provided the intellectual leadership, argument and tenacity that saw the ALP scrap old socialist dogma to embraced competitive markets and even privatise such icons as the Commonwealth Bank.  These things were done for the greater good of Australians.

Keating talked incessantly of reconciliation yet he presented Howard with the perfect election slogan, "For all of us".

---

ENDNOTES

361.  Neal Blewett, A Cabinet Diary, Wakefield Press, 1999, p4

362.  Graham Richardson, Whatever it Takes, Bantam Books, 1994, p 348

363.  Neal Blewett, A Cabinet Diary, Wakefield Press, 1999, p70

364.  Peter Walsh, Confessions of a failed Finance Minister, Random House, 1995, p 253

365.  Neal Blewett, A Cabinet Diary, Wakefield Press, 1999, pp 136 and following

366.  ibid, p 177

367.  Peter Walsh, personal communication.

368.  Neal Blewett, A Cabinet Diary, Wakefield Press, 1999, p194

369.  Such as Wolfgang Kasper, "Advancing into the 21st Century:  Visions and Challenges Facing the Downunder Economy", Australian Economic Review (Dec.) 1992, pp 27-40.

370.  National Competition Policy, AGPS, 1993, p xxix

371.  ibid, pp xvii, xviii

372.  National Competition Council, National Competition Policy:  Some Impacts on Society and the economy, January 1999

373.  National Competition Council press release, 15 June 2000

374.  Business Review Weekly, 21 January 2000, p 31.

375.  Richard J. Wood, "1994 Budget Awards and Assessment", Backgrounder, 1995.

376.  Peter Walsh, Confessions of a failed Finance Minister, 1995, Random House, p 258

377.  I'd take one small bet that they appeared in early drafts.

378.  Neal Blewett, A Cabinet Diary, Wakefield Press, 1999, p 12

379.  ibid, pp 38-40

380.  ibid, p 91

381.  Neal Blewett, A Cabinet Diary, Wakefield Press, 1999, pp 70-73

382.  David Barnett, John Howard, Viking Press, 1997 p 627

383.  David Barnett, John Howard, Viking Press, 1997, p 422

384.  OTC had monopoly rights to overseas telecommunication services

385.  Productivity Commission, Telecommunications Competition Regulation, Draft Report, 2001, p.A7

386.  Snape, Gropp and Luttrell, Australian Trade Policy 1965-1997, Allen & Unwin, 1998, pp. 370-377

387.  David Barnett, John Howard, Viking Press, 1997, p 680

388.  Peter Walsh, Confessions of a Failed Finance Minister, Random House, 1995, p 248

389.  Hernando de Soto, The Mystery of Capital, Bantam Press, 2000

390.  David Barnett, John Howard, Viking Press, 1997, p 623

391.  J Gwartney and R Lawson, Economic Freedom of the World Annual Report 2001, p 126.  (Note:  the numbers have been recallibrated and do not directly compare with numbers in earlier reports.)

392.  Productivity Commission, Microeconomic reforms and Australian Productivity:  Exploring the Links, Canberra:  Aus Information, 1999, volume 1, p 27

393.  David Barnett, John Howard, Viking Press, 1997, p 687