The Kennett Revolution

CHAPTER 14

Duas tantum res anxius optat, panem et circenses
Limits its [the Roman people's] anxious longings to two things only -- bread and circuses

Juvenal

FIRST THERE WAS N.S.W.

The Greiner Government elected in NSW in March 1988, was the first in Australia with an overtly dry platform, albeit "warm and dry".  It was also the first Australian non-Labor Government to attempt substantial dry reforms.  In the event, Greiner's Governments were mildly disappointing but it is the fate of pioneers to make mistakes.  Those and his successes were instructive, especially south of the Murray.  At around the time of his election John Hyde wrote:

In Australia, warm-hearted politicians tend to favour millionaires, trade union bosses and civil servants.  So far as I can ascertain from campaign documents, Greiner's warm promises (which won't break his budget) are made to only three groups:  Aborigines, the homeless and the young unemployed.  He may be whistling in the wind, but no true dry would complain about those welfare targets.  However, I am not alone in fearing that his Government may be tempted to offer taxpayer-funded warmth to such undeserving recipients as middle-class home-owners, farmers, environmentalists and railway unions.

He has shown that dry Liberals can be elected. ... It will be a splendid Bicentennial irony if the son of Czech-Hungarian-Jewish refugees shows how to get the best out of liberal democratic capitalism.

On his election Greiner appointed a "Commission of Audit" to report on the state's finances.

The new Government started well with a mini-budget that the Sydney Morning Herald described as a "dose of economic responsibility" but the first annual budget called for 3% real growth in recurrent expenditure.  It seemed that Greiner, a manager rather than a strategist, was resolved to run a better rather than a smaller ship.  It was, however, henceforth to be run with an accounting system that treated loans for what they were, that is, repayable liabilities rather than revenue.

Greiner was inhibited from privatising by the tax disadvantage of so doing.  Instead of paying the equivalent of a dividend to the State Government, the privatised enterprises would become liable also to pay Commonwealth company tax.  Nevertheless, although assiduously avoiding the word "privatisation", it announced the sale of $1 billion of assets over 4 years -- not an ambitious program but an honest start.  The tax issue was in due course to be sorted out in negotiations between the Victorian Government and the Commonwealth.

Greiner tried to reform industrial relations by strengthening the centralised system to compel trade unions to obey the arbitral authorities' rulings.  To this end he expanded powers under the Essential Services Act.  The alternative of reducing the reach of industrial awards and allowing individual workers to opt out of the centralised labour markets, thereby making unions less powerful, was considered but not then adopted.  Initially at least, he believed that the Government needed someone to negotiate with because it was itself a big employer and it needed prompt results. ⁽³⁹⁴⁾  However, in October 1990 he legislated to allow enterprise bargaining in NSW. ⁽³⁹⁵⁾

The NSW State education system, virtually run by the militant teachers' union, was so poorly perceived that from 1983 to 1988 non-Government school numbers rose by 24,500 while Government school numbers fell by almost as much.  The Government increased government-school funding while reintroducing the School Certificate, introducing basic skills tests at Years 3, 6 and 10, and abolishing zoning.  It relied upon its own authority to achieve ends that few, other than the education unions, would dispute.  It seems, however, not to have seriously considered rendering the teacher-union bureaucracies less relevant by devolving authority to the schools.  Dr Metherell, the Education Minister, handled the politics badly and, when it came to a head-to-head battle, the unions had the built-in advantages of numbers, control of the system and lots of practice.

Metherell accused the Teachers Federation of telling "lies, and yet more lies", yet what could he do about thousands of teachers who were misinformed by their union and who passed the misinformation to parents?  Greiner was forced to take education policy out of his Minister's hands and into Cabinet, but the damage had already been done. ⁽³⁹⁶⁾

In a speech reported as pro-environment, Greiner debunked the notion that environmental consciousness and democratic capitalism conflict, proposing market-friendly ways of dealing with environmental failures.  He promised that the Government would take care of the commons while respecting the Western liberal-democratic tradition of limited Government.

Greiner and his Chief of Staff, Gary Sturges had attended Crossroads meetings.  He understood that his Government's responsibility was to serve the common good rather than that of organised interests.  His Governments restored sanity to public finances, improved the delivery of education, health and transport, got rid of some worthless organisations such as the Egg Board, and went some way towards getting criminal elements out of the police force.  It was on balance a good record and the Carr Labor Government that followed found its tasks easier because of the reforms.

Greiner's record compares favourably with, for instance, that of the Richard Court Government in WA.  It too began well, closing the inefficient publicly-owned Robb's Jetty abattoirs and the Midland Rail workshops, reducing the numbers of school cleaners and reforming industrial relations.  It too commissioned a report on the condition of the State's finances by Les McCarrey, a former Under-Treasurer, but then ignored it.  Spending was increased by 5%, the highest rate of real increase in WA for three years.  The WA Confederation of Industry commented:  "Not only has the WA Government squandered [a] tax windfall on higher consumption, it has increased its tax effort through tobacco taxes and levies on the trading enterprises, in order to fund still higher recurrent spending."

OF BREAD AND CIRCUSES

When John Hyde and his wife, Helen, moved to Victoria in March 1991, it seemed to them that Victorians were wallowing in more misery than was warranted.  So it was to prove, but at that point few anticipated a Government that would address the problems.  On top of Victorians' economic problems, unemployment and population drift from the State, there was a perception that Melbourne was, through Victorians' own fault, again losing compared to crass Sydney.  One defensive Victorian felt obliged to explain to Hyde that the Cain and Kirner Victorian Governments had not, unlike WA Inc in his home State, been corrupt, merely extraordinarily incompetent.  However, "corruption" takes many forms and, in this, as in other things, there are subtle differences between the States.  New South Welshmen (and Queenslanders and West Australians) have the reputation for harbouring more crooks who break the law; while Victorians (and South Australians and Tasmanians) are more adept at subverting the law to their own ends.

Before the 1890s "Fabulous Melbourne" had been bigger and wealthier than Sydney but since the 1880s, when it opted for protection, Victoria had been the Australian centre of wet sentiment and citadel of protectionism.  After Federation and the adoption of free trade between the States and common external trade barriers, wet sentiment had lived on in Victoria, and Melbourne steadily declined relative to Sydney.  Uncompetitive industries, particularly in the textiles, clothing and footwear and motor cars sectors, had settled in Victoria, living in a symbiotic relationship with the Tariff Board that had been based there.  The Australian Council of Trade Unions (ACTU) is based in Melbourne, living in a symbiotic relationship with the Arbitration Commission.  The Wheat Board and Wool Corporation are in Melbourne.  The Victorian Chamber of Manufactures is the most protectionist in the land and the high protectionist politicians, such as McEwen and Fraser, came mostly from Victoria.

Victorians are games-mad.  More Melburnians turned up to a rugby union match than could have been anticipated in Sydney or Brisbane where rugby rather than Australian Rules is the local code.  Melburnians take the spring horse-racing season culminating in the Melbourne Cup seriously.  The motor racing circuits at Albert Park and Phillip Island are world-class; so is the Tennis Centre.  The Melbourne Cricket Ground cannot but remind one of the Colosseum, the several horse and vehicle racing venues of the Circus Maximus and public attitudes of Juvenal's observation that the Romans limited their anxious longings to two things only -- bread and circuses.  Mercantilism had eroded Victoria's comparative wealth and influence in Australia as it had eroded Australia's comparative wealth and security in the world.

Victorian priorities had turned too far away from production towards free feeds and entertainment.  Few Melburnians allowed worries about Government debt, credit ratings and unemployment to crowd out the weather in race week or which AFL giant might transfer to which club.  By the end of the 1980s, however, taxi drivers would admit that there was something seriously wrong in the State of Victoria.  Nearer to the top of town (Melbourne is class-conscious) there was resentment that New South Welshmen referred to them as "Mexicans" and that the Newell Highway to Queensland was becoming a one-way road.

For the securely employed upper middle-class, Melbourne was a very pleasant city but its lifestyle was again becoming as unsustainable as it had been at the end of the 1880s.

Jeff Kennett, who was to prove Australia's most remarkable reformer, used the fact that Victoria was the butt of jokes to encourage financial discipline.  He declared that he wished to restore the State's AAA credit rating by 2000.  A rejoinder such as "And Hawke promised that no child would to live in poverty" might have been entirely appropriate had not Kennett actually begun a firestorm of the reforms most obviously necessary to achieve it.  Here was a different Government!

KENNETT'S STYLE

Jeff Kennett attended Melbourne's Scotch College, but the State's bluest bloods tended not accept him.  He was of very respectable middle-class parentage, but had a larrikin streak that caused him to defy proprieties that were important to others.  He belonged to a political party that was in Victoria as conservative as any in Australia, yet in most things he was liberal.  He had an army officer's respect for discipline and ran the most purposeful Government that the State had ever experienced, but he exuded personal skittishness that was to have him in continual trouble.  He was loathed among conservative vested interests from Trades Hall to the moneyed professions.  100,000 Victorian's turned out to march against him yet other Victorians decisively voted him back into office.

I had first met Kennett in Canberra where he was demanding more housing money to win an election that the Victorian Liberals did not deserve to win and had no hope of winning.  I dismissed him then as one of a type, the State politician who is in love with the trappings of authority and who blames Canberra for his failure to exercise it.  I was, of course, wrong.  He had failings that were in due course to contribute to his undoing but he defies typecasting.  By an extraordinary feat of political leadership, like Douglas and Thatcher, he was to turn a failing economy around and give hope to a despondent community.

Kennett was a small businessman accustomed to backing his judgement with his own money.  He had defied bankruptcy by taking on the Printing and Kindred Industries Union (PKIU) when that union had induced The Herald to ban copy from his advertising agency.  Without the help of other agencies, especially not the big internationals, the newspaper itself or the business community, he prevailed, using S.45D of the Trade Practices Act before the better-known Dollar Sweets Case. ⁽³⁹⁷⁾

Even so, his resolve as Premier was to surprise most people, not least the denizens of Trades Hall.  They were to be even more amazed by opinion poll and electoral evidence that Victorians liked, or at very least accepted, what he was doing.  Dries watched him with satisfaction and noted the Victorian public's response with even more satisfaction.  Unlike Bob Hawke, Roger Douglas, Ruth Richardson and Margaret Thatcher, he was to be dropped while he was still reforming, albeit at a more modest pace.  Unlike each of them, the public, rather than his party, dropped him.  Was that proportion of the public that voted him out of office fed up with his reforms or were they fed up with him? -- some of both, undoubtedly, but in what proportions?

Before his first Government in 1992, Kennett had led the Opposition for most of the time from October 1982.  He had during that time proposed many of the things that he would do in office, but such was the climate of opinion that he was not taken seriously.  Policies that would be adopted within a mere decade, and not only in Victoria, were then dismissed as gaffes.  In 1986, public ridicule had forced him to retract a proposal that the State Bank of Victoria be privatised, but a mere six years later the Kirner Labor Government would sell it to the Commonwealth Bank that Keating had part privatised. ⁽³⁹⁸⁾  He had supported even tariff reduction, albeit while urging gradualism.

Kennett was not politically correct, not socially correct, not industrially correct.  He was easily portrayed as a wild man who would disrupt rather than reform.  In the most conservative (hide-bound might be the better term) State, he threatened the established order within which people knew their places.  In this he was remarkably like Thatcher -- instinctively liberal and middle class respecting merit rather than status.  He threatened politicians who ripped off taxpayers;  uncompetitive, lettered professionals and industry captains who pillaged clients or customers;  and union bosses who exercised for themselves the power that the Hancock Report had identified.  After his successful run-in with the PKIU, the union movement detested him.  Trades Hall had effective allies at The Age and the ABC, and the top end of Melbourne was not about to defend Kennett  -- or any other alien spirit for that matter.

The ridicule he faced was approximately as vicious and beside the point of people's real objection to him as that which was once turned upon Bert Kelly.  Unlike those who turned on Kelly, Kennett's detractors included not only those who defended economic privileges but also many who could not abide an upstart.  The new Premier was dismissed as impetuous, even as a light-weight, which he certainly was not, by the establishments in politics, business, the professions, the media and by the ultra-conservative establishment in Trades Hall.  Although he remained consistently offside with the new class he had little difficulty communicating with blue-collar people -- again like Thatcher.

When we assess to what extent people of Victoria reacted to reform fatigue, Kennett's personality must enter the equation.

AFTER CAIN AND KIRNER

By 1992 the State was perceived to be in crisis.  In October the Kennett-led Coalition won a 34-seat landslide victory and control of both Houses.  Victorians were like alcoholics full of resolve upon the morning after a serious binge.  They wanted reform but had not yet experienced the discomfort of achieving it.

State debt and unfunded liabilities exceeded $60 billion.  The State's AAA credit rating had been reduced to only A1. ⁽³⁹⁹⁾  An Independent Review of Victoria's Public Sector Finances, commissioned by the Kirner Government, had estimated that $500 million dollars per year was needed until 2000, to pay capital and interest on public debt, if no more debt were incurred.  The Cain Government had had faith in forms of state intervention that by the 1980s had consistent records of failure.  It had borrowed to develop the States industrial base -- to pick winners -- and the Victorian Economic Development Corporation eventually collapsed under a load of bad debt.  Kennett had predicted its fate.

An aside throws light upon the extent to which "the establishment", ⁽⁴⁰⁰⁾ a sort of secular state church interested in trade union issues, social engineering and permissiveness, would go to frustrate Kennett.  It is peopled by those whom Katherine Betts' called the "cosmopolitan new class" who work in the knowledge industries, and who dominate universities, the media, public policy, education and the arts' and who hold values that conflict with those of the majority of Australians.  When before the 1988 election The Age was given evidence of the VEDC debacle it declined to run the story.  The West Australian had done the same with the WA Inc scandals, leaving Eastern States papers to break that story.

The merchant bank subsidiary of the State Bank, Tricontinental, racked up truly huge losses that eventually led to a Royal Commission and the sale of the State Bank in 1990.  Four years of dry policy reversed the trend, but in the ten years to 1996 Victoria lost 3.2% of its population.  This was only slightly more than NSW, which lost 3.0% but it was, nevertheless, considerable. ⁽⁴⁰¹⁾

As the election approached, the Liberal Party ran effective advertisements identifying Labor as "The Guilty Party".  Neither side resorted to the pork-barrel promises that had long been typical of them. ⁽⁴⁰²⁾

Shortly before the election John Hyde wrote that reform would take time.  Hyde was not alone in underestimating Kennett.  He immediately embarked on a program to restore integrity to the State's finances and competitiveness to its industry.  The rush to change things in Victoria, like that of the early days of Whitlam, was awesome and unsettling.  Neal Blewett wrote:

A flat poll tax, a hike in State charges, increased duties on lotteries and insurance, massive cuts in the public service, teaching and transport staff and the planned closure of 50 schools.  In industrial relations the new Government's preference for individual contracts marginalised unions and the industrial commission, while a host of employee entitlements came under attack.  Plans were announced too, to dramatically reduce the amounts paid, the duration of and the liability of employers for workers' compensation.  This ruthless austerity contrasted with provocative increases in ministerial salaries.

By November Victoria was gripped with rolling strikes, masterminded by John Halfpenny and the Victorian Trades Hall. ⁽⁴⁰³⁾

Like the Lange Government in New Zealand, the Kennett Government used the window of opportunity to achieve radical changes at a pace that would not in most circumstances have been possible.  The new Government's reforms were nowhere to go uncontested but, like Lange and Douglas, Kennett and his able Deputy, Alan Stockdale, believed in reform upon a broad front.  Unlike Lange and Douglas, Kennett and Stockdale had no pecking-order problems and they knew their strategy before they began.  Tony Parkinson, a senior journalist at The Age, in his biography of Kennett, Jeff, wrote:

No community interest group was to be left untouched.  Some of the constituencies that had enjoyed significant political leverage under the previous Labor Government, particularly the public sector trade union leadership, suddenly found the institutions that guaranteed their power base under siege ...

As Stockdale had long argued ... the only way to maintain momentum was to launch the assault across as wide a front as possible.  "I had warned the party room that we were in for a lot of flak.  We had decided to address all these issues at once.  That was the best way to split the union movement, so they could not coalesce around any issue," Kennett confirms. ⁽⁴⁰⁴⁾

Halfpenny represented only an unpopular minority, as did most that were to protest most loudly the rigor of the new order.  His biggest rally turned out about 2% of Victorians.

THE INDEPENDENT COMMISSION OF AUDIT

Various groups -- unionists, teachers, doctors, lawyers and judges, hospital staffs, shire councillors, welfare agencies etc etc -- inevitably convinced themselves that they were bearing more than their share of the pain.  It was inevitable too that "high principle" would be defined to defend privilege.  It was inevitable that even the most resolved on the morning after would crave just a little more of the cause of their discomfiture.

Shortly after winning office, the Government set up the Independent Commission of Audit to report on the State's finances, chaired by a dry economist, Professor Bob Officer, from the University of Melbourne's School of Business.  Its executive officer was Saul Eslake, a senior equally-dry private-sector economist and now chief economist with the ANZ Bank.  Its "number crunching" was undertaken by Access Economics, arguably the leading macro-economic analysts outside the Federal Treasury and the Reserve Bank.  It reported Government liabilities of $47,000 for every household in the State, $28,000 of which was owed by the budget sector.  Both the debt and the interest liability needed to be addressed but in the 1991-92 financial year the Government's expenses had exceeded its revenues by approximately $2,000 per household and the Victorian Government had been borrowing to cover day-to-day operating expenses.  One other State, Tasmania, had also done this.  Governments demand that companies publish equivalent information annually, but before this exercise the Victorian Government simply did not know its assets and liabilities.

Kennett and Stockdale were accused of whipped up perceptions of crises to justify excessive powers.  But the Commission of Audit Report and the evaluations of the international credit rating agencies, Moodies and Standard & Poors, were not Victorian equivalents of the Reichstag fire.  And they were not used to increase Government powers significantly, but instead were used to decentralise authority and to rely on consumer sovereignty exercised through markets.  The Report was criticised as too prone to blame Labor when "Only in Labor's last three years in Government did state debt increase at a worrying rate, but even then the ratio of debt to gross state product was still only half of the 1960's level". ⁽⁴⁰⁵⁾  It is not, however, my impression that the Report exonerated either past Liberal Governments in Victoria or current Governments in other States.  It condemned these too.

Seven years later when the electorate, by the narrowest of margins, sacked Kennett the economy was buoyant and the Government's credit rating had been restored to AAA, while the NSW Government's rating was on watch.  During the intervening years Victorians had gained more freedoms than I had dared to hope for and the bread of "bread and circuses" had been reduced to levels comparable with other states.  The circuses had, however, actually multiplied.

PROJECT VICTORIA

Before Kennett's election the Victorian Chamber of Commerce and Industry, the Institute of Public Affairs (IPA) and the Tasman Institute cooperated in Project Victoria, to identify a program of radical reform for the ailing Victorian economy.  12 major corporations and 13 industry groups funded it.  The IPA and Tasman Institute published Victoria:  An Agenda for Change and subsequent papers on reform of the electricity supply, ports, transport, education, Melbourne water, workplace rehabilitation (WorkCover) and local Government.  The key elements of health-care reform had been covered in the first publication.  The actions taken by the Kennett Government in all of these areas were essentially those recommended by Project Victoria.

Was Project Victoria, with a budget in the order of a mere $200,000 and adhering strictly to the rule that liberal think-tanks provide only publicised advice, able to set the agenda in each of these important policy areas?  The alternative hypothesis, that the recommended policies were those that any reforming Government would have adopted, does not sit easily with the fact that other States did not adopt most of them or adopted them only to the extent that National Competition Policy forced them to.  The IPA has, however, never claimed the influence that some opponents of the Kennett Government ascribed to it.

The radical reform would not have proceeded without Kennett and Stockdale and it is unlikely to have proceeded as it did had not someone outlined that particular broad approach in public -- both were necessary but insufficient conditions.  Had the IPA and Tasman not existed, then advice would still have flowed from the consultants who provided the Government with detailed advice.  Consultants, however, are seldom attuned to political philosophy -- they tend, for instance, to accept that, if a power exists, it is OK to employ it, without weighing the probability of its misuse.  They are also seldom experienced in democratic political persuasion -- for instance, they usually write in a style that is beyond laymen and almost never provide the moral justifications for their recommendations.  In short their reports, even when not confidential, while excellent in explaining how to reach already-decided policy positions, convince few of the need to get to them.

Victoria:  An Agenda for Change did not whip up debt hysteria.  Its principal authors, Des Moore and Michael Porter, wrote:

At one end of the spectrum [a debt problem] ... exists when there is an incapacity to service and/or repay outstanding borrowings;  a problem of that order would however be not a problem but a crisis.  In the case of a state Government it is most unlikely that such a situation would ever arise in any absolute sense, given the assets held and the power to tax ... In assessing Victoria's debt liability, account ought to be taken of the physical assets which have been created by the borrowings ... The value of the assets would undoubtedly exceed net Victorian public sector debt.  In this sense, therefore, the state Government itself can never be considered a candidate for bankruptcy per se. ⁽⁴⁰⁶⁾

When the Victorian Audit Commission published, it was seen that the two independent institutes had somewhat understated the extent of the debt problem.

Project Victoria helped publicise the facts that caused electors to favour reform, for instance, the data showing a higher percentage of Victorians on the public pay-roll than in NSW and other States.  Victorian acute-care hospitals were staffed at levels that were nearly 15% above the average for the rest of Australia.  Salaries were 6.7% above the average.  Yet the anecdotal evidence was that Victorians were not enjoying deluxe service.  The IPA's authors recommended that hospital managements be required to provide specified services but that restrictions on how they did it be removed.  For example, managements would be able to contract out the care of "their" patients to private or specialising hospitals and their cleaning requirements to any professional cleaners etc.  They would manage their own industrial relations.  When that much was in place, then a market in health services should be established in which Health Corporations would call tenders on behalf of the Government for the delivery of services from existing and new, private and public, hospitals, clinics, psychiatric institutions etc.  Project Victoria offered only the outline of how the Government ultimately proceeded, but it did that with the arguments for the changes.  At the time I thought the following passage called for quite a bit of wishful thinking.  In the event it was not overstatement.

... the "good news" is that adversity instils resolve for change.  The community may accept, even demand, a coherent and strategic change of the Project Victoria variety, once the choices are fully understood.

The Government needed advice in much more detail than the essentially econo-political advice offered by Project Victoria.  It also needed the confidence that comes from knowing that many people have looked in vain for error in the reasoning that led to the policy recommendations.  Instead of relying on its bureaucrats it sought advice from private sector consultants.  This caused "up front" costs, although these were not large in the context of State budgets.  By separating advice from service delivery, the Government removed the likelihood that the advice would be "captured" by the public service and the union movement.  The consultants brought with them experience gained elsewhere, especially in Britain.

THE PUBLIC SERVICE

The new Government cast about for senior public servants to run its agenda.  During the early days there was much talk about getting rid of too many people or of the wrong people and of keeping people who could not be trusted.  The town was alive with rumours and then recriminations.  In the end, only five departmental secretaries were removed but these did include some key posts.  The Government recruited Ken Baxter, a noted dry from NSW, to head the public service.  His five-year contract included an extra year's pay if the State met certain goals including the restoration of the AAA credit rating --a radical innovation in public-sector employment!

One of Kennett's first reforms was of the civil service.  The Public Sector Management Act of 1992 adopted strategies already tried in New Zealand.  It:

• Provided for better remunerated departmental heads employed by the Government on contracts with limited terms.
• Gave these most senior bureaucrats responsibility for the employment of departmental staff;
• Provided for all senior staff to be employed on limited-term contracts;
• Made contracted staff eligible for performance-based emoluments;
• Reduced the number of departments from 22 to 13; and
• Reduced the number of pay structures from 120 to five broad bands. ⁽⁴⁰⁷⁾

The Government was accused of destroying the concept of a career public service and prejudicing its independence.  Its response is illuminating:

The concept of a career in the public service is no different from a career in the private sector.  A career is based on individual performance, lifelong learning and the opportunity to apply for jobs either in the public sector or the private sector. ⁽⁴⁰⁸⁾

Tony Parkinson reports that Kennett's choice of public service chiefs through his seven years in office appeared as apolitical as had been his appointment of Baxter who had worked for the Whitlam and Wran Governments.  Party allegiance is an even more unsatisfactory measure of reforming zeal and direction among civil servants than it is among politicians.  Baxter's successor, Elizabeth Proust, had worked as a senior advisor to Cain and her successor Bill Scales came from the Industry Commission to which Hawke had appointed him and he was a one-time ALP member. ⁽⁴⁰⁹⁾

Kennett did not, however, provide parity between private and public sector pay scales.  He therefore felt obliged to offer officers who had accepted contracts from positions within the public sector, that were in time not renewed, the right to return to the public sector.  This did not apply to those recruited from outside the service. ⁽⁴¹⁰⁾

The Howard Government was to attempt similar public service reforms but was frustrated in the Senate.

These changes addressed the shortcomings of the relationship between Governments and the civil service described in the Australian Institute for Public Policy's 1987 Mandate to Govern and were consistent with the dry opinion that responsibility should be clear and immediate.  The changes let Kennett proceed with a radical program without the obstruction described in Mandate to Govern.

INDUSTRIAL RELATIONS

The Kennett Government's intended industrial relations reforms were similar to Jobsback, giving primacy to the rights of individuals and voluntary escape from awards.

The Employee Relations Act provided for minimum hourly rates and mandated holiday and long-service and sick-pay rights.  Otherwise it gave employees the option of signing up to an enterprise agreement, negotiating an individual contract or opting into the award.  Compulsory closed shops were to be illegal.  There was, however, the recurring dubious provision that allowed the State to declare industrial action in vital industries unlawful.  Dries did not ask that State bullies replace the union and industrial commission bullies.  Obliging a person to work on terms not of his choosing seems to me to be about as objectionable as preventing him from working on terms of his choosing -- the free voluntary disposal of one's own labour and skill is the most basic property right!

The Victorian Trades Hall Council called a one-day general strike.  The Keating Government gave it tacit support but Victorian employees' attitudes were mixed and New South Wales Labor Premier, Bob Carr, said "A day of strike action when 11% of the workforce is unemployed is not appropriate and not persuasive". ⁽⁴¹¹⁾

Long after Kennett's election, graffiti on King's Bridge still asked commuters to "Sack Kennan" and "Save Conductors".  The electorate had sacked Jim Kennan, Labor's Transport Minister, but that was not to save tram-conductors.  Kennan's Liberal successor, Alan Brown, struck a deal with the Australian Tramways and Motor Omnibus Employees Association (AT&MOEA) that gave him all that Kennan had asked.  The Kennett Government got more from the union movement in 10 weeks than Labor got in 10 years.  And it got it by negotiation.

Kennan claimed that he prepared the way for Brown's success but Kennan had negotiated from weakness and Brown from strength.  When Kennan had tried to reform the tramways, the union welded trams to their rails in Burke Street because it knew that Kennan would ultimately be forced to capitulate.  When Brown demanded the same reforms, the Victorian Secretary of the AT&MOEA, Mr DiGregorio, was quick to treat.  The Trades Hall Council had wanted the negotiations put on hold until after planned State-wide industrial action, but it had little to offer DiGregorio, whereas Brown offered him continuing relevance in the new industrial order.  In return Brown got everything he really wanted and big savings for the State budget.

The State Public Services Federation (SPSF) was reported to anticipate a 25% collapse in membership merely because payroll deduction of union fees was discontinued.  The Musicians' Union, in contrast, set itself up as an agent negotiating individual employment contracts and the Federation of Industrial Manufacturing and Engineering Employees said it would consider offering public servants advice on drawing up contracts.

The Victorian reforms were, however, being undertaken on the assumption that Hewson would win the coming Federal election and in short order implement Jobsback.  When that did not happen, Victorian unionists leaving the State industrial relations system for Federal awards frustrated the immediate reform program.  By June 1995, only 427 collective agreements had been registered in the state system compared with 5000 in the federal system.  Over the next two years, 400,000 employees moved to the federal jurisdiction. ⁽⁴¹²⁾  In November 1996 the Kennett Government in effect capitulated, announcing that it would hand over its industrial relations powers to the Commonwealth and Howard's newly-elected Government.

Dries like divided authority and the decision raised eyebrows.  However, it passed with little comment.  In the highly-regulated environment to which we were accustomed, competing jurisdictions had obvious advantage but, in a deregulated world, jurisdictional competition mattered less.  Whether Kennett's move would facilitate or hinder progress toward deregulation was a question without an obvious answer.  I expected, wrongly as it turned out, that the Coalition Government would be able to implement the central feature of Jobsback, the ability to opt out of awards.

If claims for workers' compensation was evidence, then Victorian employees were more prone to injury, sickness and stress than those of other states and the workers' compensation arrangement, despite premium increases, was heading for bankruptcy.  The Government replaced it with a less-generous and less easily cheated arrangement.

Academic advisors to the Federal Parliamentary Dries of John Hyde's days had often repeated the lesson:  "In economic life, everything depends on everything else". ⁽⁴¹³⁾  Free up the markets for what is produced and competition for sales will put pressure on the markets for the people and goods that do the producing.  Although economists and other social scientists refer to the law of "unintended consequences", in Victoria's case some of the ancillary consequences of deregulation were anticipated with relish.  The most remarkable feature of Victorian industrial relations during the Kennett years was how much changed, not as a consequence of changed employment law, but because public sector employers were forced by competition to offer better service and prices.  Union membership declined steadily.  From the middle Kennett years until the 1999 election of the Bracks Labor Government, industrial disputation was low.  Thousands of restrictive work practices were abandoned.

Trades Hall's impressive rallies had involving relatively large numbers of civil servants on flexitime but had, in fact, attracted only a modest proportion of employees and had had no apparent effect on the Government.

By the time that, for instance, Alan Brown faced the AT&MOEA, the Government had convinced the union that it would not yield to displays of force.  The unions portrayed that and other deals as victories for negotiation over confrontation. ⁽⁴¹⁴⁾  The deals could be struck because credible resolve had replaced peace-in-our-time appeasement.

THE STATE BUDGET

At the end of 1991-92 Victorian public sector debt was 29.3% of Gross State Product when WA's public sector debt was 19.2% of GSP and Queensland's only 5.8%.  Victoria did not have the worst debt to GSP ratio.  Tasmania had that.  It did, however, have the worst net-interest to revenue ratio.

Tony Parkinson described Victorians' plight this way:

In effect [Victoria] had simply deferred the ever-spiralling cost to subsequent generations.  As interest rates soared in 1988, international credit agencies became increasingly wary of the State's capacity to repay its debt.  Soon Victoria -- with a downgraded credit rating -- was paying a premium whenever and wherever it borrowed.  On every additional $100 million in debt it would be required to repay $1 million more each year in interest than would the Commonwealth, or its rival states of NSW and Queensland.

The Kennett Government came to office facing what it believed was the unprecedented risk of a state actually defaulting on its debt. ⁽⁴¹⁵⁾

The IPA and Tasman Institute had, for Project Victoria, offered the opinion that actual default was most unlikely, but the Victorians' problem was not only that their Government owed a lot of money but also that the situation was deteriorating.  What is more, Victoria's repeated large budget deficits during the 1980s had been due to significantly above average Government spending rather than to below average levels of State taxation.  In fact, over the preceding three years Victoria had raised an average of $222 million, or 4%, more in State taxes and charges than if it had imposed these at the average rate of all States.  State expenditures had risen from $6 billion in 1981-82 to $14 billion in 1991-92.  Interest payments were by then taking 20% of revenues. ⁽⁴¹⁶⁾  Spending on transport, education and health services above the Grants Commission's standardised levels accounted for much of the increased outlays while there was no evidence that Victorians are getting better quality services -- rather the contrary.  Victoria's "difficulties" would ultimately have been made into "impossibilities" by the fact that high taxes risked driving away the investments needed to provide the tax base to service the debt.  Where to cut was obvious.  If the State was not to be locked into perpetual relative decline, the Victorians needed to stop their Government spending $1,200 million or 12% more than was required to provide the same standards of services as other States.

Jeff Kennett's and his Treasurer Alan Stockdale's first priority was, nevertheless, to eliminate the budget deficit.  They did so in remarkably short order by raising new but temporary taxes as well as by reducing Government outlays.  By reducing debt they nearly eliminated the large interest bill.  By the 1998-99 budget, the fourth to show a surplus, Victoria's public debt had been reduced to the lowest level for the century and was likely to be eliminated within three years.

Within days of assuming office the Government had brought down an emergency mini-budget.  In April 1993, six months after winning office, it produced a comprehensive economic statement putting each department on notice that its budget was to be cut by a specified sum over the course of the next two years.  Departmental managers were charged with evaluating the opportunities for efficiency gains.  Dries had always been sceptical of Cabinets' abilities to manage anything in detail, and this procedure accorded broadly with their preferences.  When Alan Neave, the head of the Department of Justice, declined to take the Government's budgetary strictures seriously, Kennett replaced him with a non-lawyer -- a long overdue change in itself. ⁽⁴¹⁷⁾

Increased revenues achieved half of $2 billion deficit reduction by 1994-95.  Revenue from taxes, fees and fines was budgeted to increase by 9.0%, making Victoria the highest-taxed State in Australia.  Because of the need to hold and attract investment the revenue increases had fallen largely on individuals -- as Sir Humphrey Appleby might have observed, a "courageous" choice.

In the Government's first year, approximately a $1 billion of new taxes and charges were introduced.  These included the so-called State Deficit Levy, repealed in 1995-96 after only 3 years, and substantial taxes on gambling which continue.

Consumption and investment in playthings financed by debt for another generation to service are not moral government.  Even though the authors of Project Victoria had been charged with solving the major economic and budgetary issues without increasing the burden of taxation, Dries, who knew that public debt had limited Governments' options in the Great Depression, preferred taxes to deficit budgets.

Expenditure was reduced on a very broad front.  Programs were eliminated or service providers were required to charge for their services.  In the first year the budget sector workforce was reduced by 20% and 300 schools were closed.

Kennett and Stockdale went cap-in-hand to Canberra to seek Paul Keating's approval to borrow $1.6 billion to meet redundancy payments that would produce much greater long-term savings and big efficiency gains.  It could have been withheld under Loan Council procedures.  Keating, Dawkins, Kennett and Stockdale began bizarre discussions, at around midnight.  Keating began by delivering a lecture to the Victorians on fiscal rectitude, which by that date ill became him.  He gave the impression that support for the loan application would be conditional on reducing Victoria's own purpose expenditure.  Then Keating and Dawkins had to admit that the previous Labor Government in Victoria had borrowed $1.26 billion without Loan Council approval -- the circumstances that in 1975 had given the Coalition in Canberra the excuse to block supply.  Keating gave a confidential undertaking that the Loan Council would, so far as the Commonwealth was concerned, approve the borrowing but wished the Victorian Government to be seen to beg for it.  Keating wanted Victorian seats in the coming Federal poll.  The Victorians on the other hand looked forward to a change of Government in Canberra -- a Hewson victory.  For all of its intensity, the political posturing was not allowed to prevent the responsible Loan Council decision. ⁽⁴¹⁸⁾

In April 1993, Stockdale delivered another economic statement.  This brought pledged budget expenditure reductions to 9%.  He announced the closing or merging of another 100 schools and further reduction of the public payroll.

Even the most fiscally responsible Governments tend to ignore off-budget liabilities, of which the largest are promises to meet the income needs of future retirees.  The Kennett Government contributed a most remarkable $1.4 billion towards the unfunded liability of the State Government superannuation schemes.  The Finance Minister, Ian Smith, overhauled public-sector superannuation to reduce future liabilities without taking existing rights -- a politically and legally difficult task. ⁽⁴¹⁹⁾

Although the Kennett Government's fiscal management was described as "ruthless", and was unprecedented in the Australian public sector, 9% reductions in outlays are by no means uncommon in the private sector -- I have undertaken such belt tightening myself.

PRIVATISATION

When Kennett embarked on his asset sale program he had the political advantage that the Hawke Labor Government had already announced the privatisation of Commonwealth assets and his Labor predecessor had sold the State Bank.  The Kennett Government sold redundant school sites, the Totalisator Agency Board, the Gas and Fuel Corporation, the Grain Elevators Board, BASS Ticketing, the State Insurance Office, the State Electricity Commission, the Victorian Plantations Corporation, the railways freight and passenger services, metropolitan tram, train and bus services, the ports of Geelong and Portland, the Latrobe Valley hospital, prisons and other minor assets.  The extent of its sales rivaled the Thatcher Government's privatisations.  With the advantage of being able to learn from Britain, they were better conducted.  The utilities were sold into competitive environments and the proceeds used entirely for debt reduction.

Private sector development of new prisons and the CityLink toll freeway avoided the necessity for new capital outlays.  The operation of speed cameras, country freight services, ambulance dispatch and many local Government services were put to tender primarily for their efficiency gains.  By 1994 Melbourne water was paying 76% of its operating expenditure to external contractors. ⁽⁴²⁰⁾

Privatisations removed the interest burdens, subventions to meet losses and capital demands from the State budgets.  On the other side of the ledger, the budgets lost whatever revenues the Government-owned bodies had generated but the net budgetary effect was overwhelmingly positive.  The principal economic advantage, however, derived from increased efficiency.  Only when managers and staff know that taxpayers will not fund losses do they feel obliged to cut costs and woo customers.  Only when politicians are denied the opportunity to interfere with commercial decisions will they cease to do so.  And only where there is competition are service providers obliged to cut costs and raise service standards.  Consumer and taxpayer gains in, for instance, electricity supply have been huge but there were errors made and the privatised ambulance dispatch service was to prove a running sore for the public and politicians.

Praise and condemnation came from predictable sources and some cynicism is, I think, warranted.  The executives of publicly-owned corporations often welcome privatisation, which allows them to escape public-sector pay scales.  However, they often resist disaggregation that would oblige them to compete for custom.  Trade unions tend to resist both privatisation and disaggregation.  Rhetoric is seldom restrained:  Victorian prison warders said privatising prisons was "the depths of depravity".  Treasuries, responsible for budgetary management, too often propose the sale of State monopolies as monopolies because these bring higher prices than competitive enterprises.  Governments, wishing to avoid the charge of giving away the public's assets and hoping that the privatised businesses will not too quickly cease uneconomic services and pay off unneeded staff, too often accept the advice of the immediate vested interests.  The Kennett Government avoided these pitfalls, breaking up the monopolies and providing market rules that were as competitive as was feasible.

The state's two biggest monopolies, the State Electricity Commission and the Gas & Fuel Corporation, were broken into 16 units that sold for $29 billion.  The Government ensured competition where that was feasible and placed legislated price caps on the services where significant natural monopoly existed.  The Office of Regulator-General was established to administer these.  There is room for argument in all cases where imperfect markets are regulated but there is also a substantial body of theory and documented experience to support what the Kennett Government chose to do.

Alan Stockdale had had the advantage of observing error elsewhere and he was deaf to special pleading.  It was boasted that Victoria served as the prototype for the privatisation models adopted by the World Bank and 15 American states. ⁽⁴²¹⁾  Whatever the truth of that, it was a remarkable performance, but not one that escaped criticism.

Selling public assets does not, like the granting of a tariff, confer an economic privilege, but unfair processes can give some economic players advantages.  Some difficulties are not easily avoided.  The quality of service as well as tender price is relevant and a measure of judgement is inescapable.  Tendering itself is expensive and, to reduce wasted effort, preferred tenderers must be short-listed and small contracts assigned by ministers and bureaucrats.  Again a measure of discretion cannot be avoided.  It is likely to be difficult to assess the value of a monopoly sold into competition.  (Opinion after the event is that the Victorian Governments sold extremely well.  There was no doubt some luck in this and the part-reformed Australian economy was switching to a higher growth path that made the assets more valuable.)

A problem that the Government brought upon itself arose from its not being conspicuously open about the processes.  Had the Government not claimed that relevant information was commercial in confidence, had it encouraged the Auditor General to report critically and had it provided Parliament with greater opportunity to question its procedures, it would have faced nit picking, the steady raising of the procedural bar, and delay.  It avoided these by treating the Auditor General, Ches Baragwanath, and the Parliament with contempt and both exacted reprisal.

Roger Hallam, who became Minister for Finance in the Second Kennett Government, concedes that it would have been better to have told companies that when dealing with the Government they could not expect commercial confidentiality. ⁽⁴²²⁾  Had the Government done so, a politically costly public row with the Auditor General may have been avoided.  Even though the Government would have still faced criticism -- possibly more of it since the vested interests would have gained time to organise and discover better arguments -- the most serious accusations of preferment or procedural breakdown could have been rebutted.

The State-owned Enterprise Act of 1992 had empowered the relevant ministers to pave the way for privatisation by removing or making explicit hidden cross-subsidies and community service obligations.  It enabled, in some cases for the first time, a commercial accounting of the provision of the various services.  However, the Act also had the effect of removing the organisations from parliamentary scrutiny.  The Victorian Parliament had never been diligent, or even competent, in its oversight of the statutory authorities but Parliament is an honoured institution that is as effective as any at making the public aware of matters of which it might not approve.  The necessity of guarding the guardians does not disappear because particular guardians are dry.

Some Government assets that were not considered for privatisation were instead asked to show a return on public investment.  National parks in the snow country, the Grampians, Wilson's Promontory and at The Twelve Apostles were expected to develop their tourist potential.  Amid much controversy, the Government developed Albert Park as a venue for the Grand Prix.  Dries were as happy as anybody else to see the run-down Albert Park rejuvenated but suspected Governments that ran circuses.

When the errors are conceded, the Victorian privatisation program remains as well conducted or better than any in the world.

LOCAL GOVERNMENT

Victorian local Governments were small, inefficient and high cost.  The Minister, Roger Hallam, had this to say about them:

Municipal reform is important not only because this is a major industry --with turnover of more than $3 billion in Victoria alone -- but also because local Government has a major impact on other parts of the economy.

Aggregate local Government expenditure in Victoria is 23% above the average for all States.  Expenditure per capita is 20% higher.  Victorian councils exact 12% more rates, fees and fines than other councils around the nation.  Only part of this picture can be explained by the fact that Victorian Councils provide more in human services than interstate.

Business in Victoria is hampered both by these cost structures and by the vagaries of a planning approvals system that might deliver a decision in one week or ten depending on which side of the municipal frontier the applicant happens to be on.

Previous attempts to lift the performance of Victoria's councils were stymied by legislative inadequacies and the willingness of vested interests to squander vast sums of public money to frustrate reform. ⁽⁴²³⁾

Whether the gross inefficiency of the sector was due primarily to diseconomies of scale or to union capture and administrative sloth is not clear.  Project Victoria had, however, identified the fact that per-capita expenditure was 20% above the national average and that the least cost-efficient municipalities were the small ones.  It had recommended that the inefficiencies be addressed by tendering out all major expenditures and by amalgamating local Government areas to form more efficient units.  The first recommendation was sound but compulsory amalgamation was not consistent with the usual dry preference for decentralised participatory democracy.  It caused considerable resentment that contributed to Kennett's ultimate defeat.

If the Project Victoria advice was flawed, no one was more to blame than John Hyde was.  Hyde signed it off, blinded no doubt by the enormity of the inefficiencies it identified and by the widespread public contempt that the public had for Local Government.  Perhaps, in the general tradition of the free-market think-tanks, the IPA should have been more venturesome, recommending the ideal, a tax base upon which municipalities could survive and the phasing out of Government grants making local councils responsible for their own revenues and encouraging interjurisdictional competition.  Such a course would in time have resulted in responsible participatory democracy and, with incentives to reduce costs in place, most of the scale economies achieved by amalgamation could have been achieved by voluntary cooperation.

The Government proceeded to reduce the number of municipalities from 210 to 78 and to legislate for compulsory competitive tendering of at least 50% of local Government expenditure.  In 1996, the Government legislated to cap rates.  Kennett claimed savings of $400 million.  That figure is disputed but rates were reduced.  Victorians do not yet, however, enjoy a system of local Government that is as internally disciplined as it might be.

HUMAN SERVICES

In the human services portfolios productivity gains of approaching 30% were achieved in only four years.

Kennett's health-care reform could be only partial because the central problem was in Canberra.  The Medicare system ensures that patients face no financial incentive to economise and doctors face incentives that are perverse.  Kennett, nevertheless, proceeded on three important fronts.  He continued Labor's program of decentralisation.  He closed four uneconomic city hospitals and twelve in the country, reducing the number of hospital employees by some 10%.  And he introduced case-mix funding of hospitals, that is, payment of the hospital that is based on the number of medical and surgical procedures required and performed.  Casemix has since been partly adopted by Western Australia, Tasmania and Queensland the ACT and Northern Territory. ⁽⁴²⁴⁾

The changes were bitterly disputed by doctors, hospital administrations and spokesmen for some rural communities.  The Australian Medical Association claimed that public hospitals were chronically under-funded.  The AMA, one of Australia's most effective trade unions, never doubts that doctors are dedicated, never admits the adequacy of taxpayer funding and never proposes means to increase public revenues that call for eliminating tax breaks and tax-avoidance arrangements.

Minister for Education Don Haywood proceeded to reform education, with the teachers' union doing all that it could to prevent him.  He built the necessary trust by keeping the focus on students, asking of every move "does this add value to the students' learning". ⁽⁴²⁵⁾  The focus ensured that his reforms were remarkably dry and that they slowly won the support necessary for them to work.

Commonwealth Grants Commission figures indicated that Victoria spent 15% more in 1991-92 than was required to provide Government-school education at the same standard as the average of all States.  It cost $380 more annually to put a student through a Victorian school than a New South Wales school and $1700 a year more than a Queensland school.  Nevertheless, Victorian schools were open to students for 11 fewer days per year than NSW schools. ⁽⁴²⁶⁾  Parents were so dissatisfied with the Government system that there was a steady drift to fee-charging private schools.  The physical condition of Government school buildings was poor and deteriorating.

Education expenditure was nearly 25% of Victorian State expenditure.  It could not have been quarantined from fiscal restraint and no attempt was made to do so.  As with other portfolios, the challenge was to find solutions that benefited both taxpayers and consumers, in this case children.  To this end, with Professor Brian Caldwell, who had a long-standing scholarly interest in the subject, Don Haywood, began to decentralise authority, responsibility and accountability to individual schools.  He dubbed the program Schools of the Future.

Hayward, closed or amalgamated schools and reduced teacher numbers by some 6500 and the central bureaucracy from 2300 to 600. ⁽⁴²⁷⁾  For teachers who chose to be so paid, he introduced payment by performance through a Professional Recognition Program.

Opposition from the notoriously militant Victorian teachers' unions was to be expected and he was dealt it in spades.  Nevertheless, within only months, over half of the teachers had signed up to the Professional Recognition Program and by 1993 only 7% of primary school principals agreed with the statement:  "I would welcome a return to pre-LM [local management] days".  By 1996, 85% of principals believed that Schools for the Future had improved learning outcomes for students.  A union ban upon providing information to researchers to evaluate the results of the first intake of Schools-of-the-Future schools against others precluded more objective evaluation.  Nevertheless, 85% was remarkable support.

To identify performance requirements, Haywood established a Board of Studies that in turn established a Curriculum and Standards Framework.  About 90% of the State's education budget was decentralised so that each school had a budget based on pupil numbers and identified aspects of "disadvantage".  Local selection of teachers was introduced, as was provision for appraisal of staff.  Accountability was achieved by annual reporting to the Education Department, triennial review and (despite a union ban) a learning assessment project that tested students in literacy, mathematics and science in years 3 and 5.  Unlike in Britain, league tables of results were not published.

Schools of the Future, although radical in Victoria, had already had each of its elements implemented somewhere. ⁽⁴²⁸⁾  Its central feature, self-managing schools, had been tried as early as the 1970s in Alberta, Canada, and more recently in Tasmania, South Australia, Britain, Hong Kong and New Zealand and tentatively by even the Cain Government in Victoria.  What is more, the ideas were not just the brainchildren of right-wing Governments.  In 1976, much to the fury of the British National Union of Teachers, British Labour Prime Minister James Callaghan, in his famous (notorious) "Ruskin speech", had broadly identified the problems associated with centralised bureaucratic management and excessive union influence. ⁽⁴²⁹⁾  By the 1997 British election, self- or local-management was embraced by both Labour and the Conservatives.  In Victoria, Labor had taken the first step by abolishing school catchment zones and Ian Cathy, the Education Minister in the Cain Government, had attempted to devolve responsibility to schools.

Schools of the Future received mixed reception from within the school and parent communities but initially schools were merely invited to join it.  Interest was sufficiently high to enrol a third of the schools in the first year.  Haywood records an episode when a school council president told him how developing his school's charter had "brought the whole community together". ⁽⁴³⁰⁾  During the 1980s, many studies had shown that communities flourished best when given responsibility. ⁽⁴³¹⁾  By the 1990s Dries were predicting such outcomes.

In 1998 the Education (Self-Governing Schools) Act sought to emulate the success of the United States' "Charter Schools" and United Kingdom's "Grant Schools".  It relaxed long-standing restrictions, enabling individual schools to specialise in aspects of educational excellence, engage staff on individual contracts and enter into fee-for-service commitments with local communities.  Schools were not however forced to do these things and the only pressure that would drive them in those directions could be the success of other schools.  These changes were quintessentially dry and had been made possible by dissatisfaction with what had been and by patient persuasion.  As is often the case, the demands of the rank and file -- in this case teachers -- proved less selfish than those of their representatives.  Faced with arguments that they had initially believed to be wrong, most teachers, nevertheless, had the generosity of spirit to listen.

If the budget savings were not to result in even less satisfactory services, then transport needed changes that were fundamental.  The Kennett Government put about 80% of Melbourne's bus services to tender, closed some country rail-lines replacing them with private buses, took conductors from trams, and contracted major road works.

The Better Roads Levy, a politician's name for a three-cents-per-litre fuel tax raised to finance needed roadworks, demonstrated why, in the long run, Victoria could not afford to go the high-tax road to budget solvency.  Interstate truckies bought their fuel north of the border.

THE POLITICS OF SUCCESS

Victoria possessed considerable natural advantages to attract investment and people.  It did not have the equivalent of WA's mineral resources, but it did have population density, proximity to markets and infrastructure that was more than comparable with any other State.

Cuts in public sector employment ended a lot of jobs but increasing private-sector employment soon offset these.  Initially, unemployment did increase but the rise was entirely due to an increased participation rate.  Indeed early indications were that, in terms of employment rather than unemployment, Victoria was doing better than any other State.  By 1999 population was flowing into Victoria from other States.

Kennett soon lost majority support.  Like Thatcher in the United Kingdom, he quickly offended many vested interests and the ugly clashes between trade unionists and the police scared opinion-forming elites.  By March 1993, the Coalition's opinion-polled support had dropped to 43%.  Like Thatcher, Kennett did not blink -- better a one-term Premier than a failure -- and by August the Government's support was back to 53%.  Tony Parkinson describes the turn-around "after months of confusion and upheaval" as curious and the evidence that the majority of voters were "locking in behind the Government's strategy" as becoming incontrovertible. ⁽⁴³²⁾  Aware of the experiences of Thatcher, Lange-Douglas and Hawke-Keating, Kennett and Stockdale must have hoped for such a change in sentiment, if not daring to expect it.  It seems that when a public learns that its leader does not crave popularity, it grants it anyway.

Like Thatcher, Kennett was re-elected for a second term.  In 1996 he was returned with, 53.6% of the vote.  He was not, however, unlike Thatcher, to get a third term.

An Age journalist asked Kennett:  "People are starting to say when will things start to improve.  We have taken this medicine for a year, when do we start to get better?"  Kennett replied:  "Well I don't think they are saying that.  It took Labor 10 years in Government to fundamentally destroy the economic base of this state.  We cannot, even if we went harder, change it in a year.  More and more of the community are saying, look, we've got to work our way through these changes.  I think a lot of Victorians today feel a lot prouder of their Victoria than they did a year ago."

The rot in Victoria had started much more than ten years before -- indeed 110 years might have been a better response -- and the economic base of the state, although seriously damaged by Labor, was far from being "fundamentally destroyed." The tenor of his reply, nevertheless, by then fairly portrayed majority public opinion.

In the same Age interview Kennett said that he now thought he had underestimated the community's acceptance of tough medicine;  that what was being done was done for the interviewer's children; that Victoria was no longer the butt of jokes;  and that his Government was respected if not liked.

The Herald Sun asked a sample of 1224 Victorian voters the simple question:  "After 300 days, do you believe the Kennett Government is doing a good job?"  Sixty five percent said "yes", only 32% said "no" and 3% said "maybe".  The sample was probably less than ideally chosen but it was large enough, the margin was huge, and the question was not loaded.

At no stage, however, did Kennett seem immune from political accident.  Speaking in WA about mid-way through Kennett's first term John Hyde said:

Labor, since Brumby became its leader, seems to have shifted its tactics from concentrating on the policies themselves to attacking Kennett, I presume with the intention of breaking down [his] respect.  Kennett is accident-prone, and this tendency may be his and the reform package's ultimate weakness.  If he can be made to look self-serving, careless of community values, or cavalier;  then the public will not trust his reforms.  That's politics!

Hyde got that one right!

Dry public policy formation in Victoria during the 1990s had, as in Canberra during the 1980s, been driven by the ideas in currency, the presence of politicians with the courage to lead, and political circumstances that allowed them freedom to legislate.  Nevertheless, Kennett's character intrudes more than that of any other dry leader except perhaps Thatcher.  His record with drugs law, a matter upon which there is no identifiable dry position, offers insight to it.

When Director of the AIPP John Hyde had over-ruled a staff member who wanted to publish a paper advocating liberalising the laws limiting access to drugs.  Hyde had agreed with the arguments but, nevertheless, had not been willing to see the Institute use up its influence on an issue where he believed it would have little effect.  In contrast to Hyde's caution, Kennett commissioned the Pennington Report and used its findings to educate a public that was 80% opposed to its findings.

Kennett had not always held consistently liberal views on drugs but by the time that Pennington reported he had come to believe passionately in individual liberty and personal responsibility.  His attitude to deregulation of drugs was consistent with, for instance, his attitude to deregulation of employment and his support for a multicultural nation while opposing demands from ethnic quarters for policies that inhibited free speech.  He cared passionately, perhaps too passionately, and was prepared, perhaps too prepared, to back his judgement.

James Rowe, writing in The Kennett Revolution, quotes Kennett as declaring in 1985:  "I consider drug trafficking the worst of all crimes ... I am dead against legalising marijuana."  And 10 years later "While it would take a 1000 horses ... to change my view, maybe there [are] a 1000 horses." ⁽⁴³³⁾  Kennett had also changed his views on economic matters.  I had once clashed with him over housing grants but he became a budget manager to rival Peter Walsh.  Contrary to what opponents said of him, he had a mind exceptionally open to argument and experience.

He, however, had two character flaws not usually associated with an open mind, arrogance and impetuousness.  When frustrated by process or opinion he was prepared to go around it.  James Rowe tells that, when Kennett was unable to change the law governing possession of marijuana, he ignored his ministers and his "angry" backbench to change the way that the law was policed.  He was a doer who was careless of process, who could, had he been less well-informed or less well-motivated, have done great damage.  This is not a trait that Dries normally admire.

Without the sober Alan Stockdale's steadying hand and dedication to the finer points of principle he would surely have crashed long before he did.  They complemented each other extremely well.

The drying of the National Party, traditionally agrarian socialist and particularly so in Victoria, was as remarkable as that of the Liberal Party.  The National Party is more a grass-roots organisation than either the Liberal or Labor Parties.  Nevertheless, by 1997, the Victorian National Party produced a policy statement that might have set, Jack McEwen spinning in his grave.  It promised among other things to:

• facilitate the success and development of private enterprise with simplified Government regulations and removal of artificial barriers to markets;
• ensure the Government ... is not manipulated by the demands of minority interest groups;  and
• limit Government activities to those which cannot or are not desirable to be provided by the private sector.

The Labor Party did not in its public statements go so far in the dry direction, but it did produce a document that claimed to have established "rigorous financial management principles and operating guidelines for a future Labor Government". ⁽⁴³⁴⁾  The Pledge faction, organised by trade unions opposed to the free-market policies pursued by Hawke and Keating in Canberra and Kennett and Stockdale in Victoria, was isolated and with little influence.  Without creating any waves, Brumby promised that Victorian Labor would follow "the third way" explored by Tony Blair in the United Kingdom.  There was unfortunately no agreed definition of this, but it was evident that Victorian Labor too was drier than it had been.

The Bureau of Industry Economics found that, after the Kennett reforms, Victoria offered the cheapest infrastructure of any state.  The State Treasury declared that Victoria's rapid productivity improvement in recent years shows that a serious and well-targeted reform program can provide tangible benefits quickly. ⁽⁴³⁵⁾

Few Dries had expected so much so quickly and they were interested in the political circumstances that had allowed it.  Could the Kennett Government have reformed so much so quickly if had it not been preceded by a Government that was so conspicuously irresponsible?  If it had not had control of both Houses?  If its Parliamentary Opposition had not been dispirited and barely credible?  If the public had not been desperate for some improvement?  If a Labor Government in Canberra had not already adopted the dry agenda?  Or if a dry agenda had not been so carefully established?

Eventually Kennett became his own undoing but even when he was riding high in the opinion polls taxi drivers gave me the impression that they did not much like him.  They knew that they needed him.  I predicted then that when his job was done he would be defeated --again I think I may claim some foresight.

POLITICAL TROUBLES

The Labor Party, wishing to avoid discussion of its record, concentrated upon Kennett's integrity. ⁽⁴³⁶⁾  They were unfair but no more so than the Coalition would have been had the boot been on the other foot.  Now that his record may be viewed with the dispassion of hindsight Kennett does not seem, other than by way of his parliamentary and ministerial pensions, to have profited from public office.  Nevertheless, Kennett was careless about keeping his company, KNF Advertising, at arm's length from the Government.  Inevitably, the Opposition and the partisan sections of the media hounded him over matters that were in a political/moral context trivial, including a disagreement with a business partner.  He was later pilloried, possibly with more justification, over his wife's purchase of shares in a company called Guandong.

Kennett was high-handed and therefore picked too many fights, clashing with the Auditor General, the Director of Public Prosecutions, the Racing Commission and the Equal Opportunity Commissioner.  In each case he tried to restructure the relevant offices.  It is alleged, probably correctly, that in each case he reduced the independence of senior officers that had been critical of him or his policies.  Both the Equal Opportunity Commissioner and the Director of Public Prosecutions resigned.  The Auditor General hung on and conducted a running criticism of the changes that had, he claimed, reduced his power to audit the Government.

Kennett was further criticised for amending the Freedom of Information legislation by increasing fees, requiring Members of Parliament to pay them and expanding the definition of exempt and commercial-in-confidence documents.  In 1994 the Government-owned Australian Grand Prix Corporation set up to run the Formula-One event at Albert Park was exempted from freedom of information law, liability for damages in defined circumstances and immunity from town planning and environmental ordinances.  Kennett was never again to go so far in using legal immunities to support a controversial project but political damage was done. ⁽⁴³⁷⁾

Business, particularly small business, claimed that the short lists for tenders were unfairly compiled.  Many, probably most, of the objections were self-serving in that they sought preferred access for Victorian businesses or small businesses, nevertheless, they encouraged the perception that Kennett was enamoured of big business and, more seriously, that he favoured his mates.

His Government abolished the Law Reform Commission and even mooted a proposal to avoid by-elections when a Government majority exceeded five.  He interfered in Ministers' portfolios.  When in November 1997, Roger Pescot resigned and in an open letter accused Kennett of being authoritarian, the accusations rang sufficiently true to be damaging.  It is not necessary to adjudicate any of these disputes to observe that even among strong supporters of the Government and its reforms the perception was established that Kennett flouted proper procedures of accountability.

During the 1990s Victoria went from being the wowser State to a State in which gambling was as important a form of recreation and Government revenue as in any.  Inevitably such a change caused considerable disquiet.  Horror stories of people ruined by gambling and of children left in motor vehicles abounded.  The decision to license one casino had actually been initiated by the Kirner Government but Kennett embraced it and continued with the tender procedures set up by Labor.  The new Crown Casino that dominated the skyline and the debate was built in his time and social conservatives blamed Kennett for the two-and-a-half-fold growth in real gambling expenditure.

Kennett got into further political difficulties over the casino tender procedures.  A monopoly, the casino was a potentially lucrative investment for the license holders -- or so it was thought.  The tenderers were short-listed and eventually were reduced to Crown, put together by Melbourne businessmen Lloyd Williams and Ron Walker, and the international hotel chain Sheraton with its Australian partner Leighton.  To many people's surprise Crown won after raising its bid in the final weeks.  Sheraton-Leighton cried foul and the Opposition accused the Government of being "corrupt at the core and at the highest levels".  Given the personnel of the Victorian Casino Control Authority who controlled the tender process, the precautions taken and the denials of people with nothing to gain or lose well after the event, it seems unlikely that there was any malfeasance, particularly not any involving anyone senior.  Nevertheless, the accusations were widely believed, particularly in a climate where the confidentiality clauses in all of the many tenders were sources of too easily exploited suspicion.

Kennett was known to be close to Williams and Walker and many Victorians suspected that the tender had been effectively decided in favour of the local boys before it closed.  After Crown had won and ITT Sheraton had lost, ITT Sheraton's public affairs manager was quoted in these terms:

Crown were allowed to raise their bid in the last few days and we were not given that opportunity ... We don't think we were treated equally ... ⁽⁴³⁸⁾

When former staff of the Casino Control Authority alleged that ministers were kept abreast of the essentials of the bids during the closing weeks of the tender process, the charge was lent added weight.  Then, when the casino management agreement was amended five times to make material changes to the terms of the winning tender, people's suspicions were further reinforced and reinforced yet again when the Auditor General claimed that the Government failed to collect $174 million in taxes that the increase in the number of gaming tables should have required.  In fact there is little evidence and none solid that the Casino tender process was corrupted and much to suggest that it was not, but swinging voters had only to have had their suspicions aroused.

Leading figures in the churches attacked the Premier.  Archbishop Keith Raynor, in an article in The Herald, wrote:

The Christian faith gives a certain perspective to life.  It is concerned with truths and values which are enduring.  In fact, they are eternal.  Not only that, but living by these truths and values is what enables life in the community to be lived in the most harmonious and fulfilling way.

The values to which the archbishop referred were presumably the moral code.  Christians don't hold a monopoly of it, but thus far the article was fair enough.

It went on, however, to object to an economic assumption that the Archbishop said was taken for granted by many on both sides of politics, namely that market forces would shape the best outcome.  At that point he wilfully or carelessly misrepresented his opponent's views.  Kennett's policies and practices had, I think better than any in the world, demonstrated his concern that under some circumstances markets do fail.  Raynor's criticism was particularly inappropriate but Kennett challenged all religious luminaries on the wrong ground, their right to enter political debate in a partisan way when his legitimate gripe concerned the low intellectual quality of the particular criticism.

Tony Parkinson, whose account of the Kennett years is not uncritical of Kennett, the person, wrote:

Menzies was known to have had a healthy distrust of the big end of town.  It was a viewpoint that Jeff -- coming from a small business background -- shared.  Kennett came into politics an anticorporatist, suspicious of deal making between big business and organised labour.  In turn, the business establishment regarded him as an unguided missile. ...

When the Business Council had threatened the Government with loss of investment if it did not cut a deal with the major electricity users, both Kennett and Stockdale in fact stared them down.  Nevertheless, the Government's opponents in the political Opposition and sections of the media successfully nurtured the impression that Kennett was far too close to big business interests for the integrity of the Government.  His tendency to go over the top lent credibility to charges that he was indeed "an unguided missile".

I have unearthed no evidence that the Melbourne establishment conspired against Kennett but they did not need to.  Many of the corporate bosses and leading professional figures regarded Kennett as beneath them.  They let it show.  They bad-mouthed him.  They backed economic and administrative nonsense.  They stared down their noses at him as their brethren in the UK had done when the Grocer's Daughter furthered competition, freedom and personal responsibility.

Throughout his whole time in office the Premier treated Parliament as an obstacle to be got around.  He rushed bills through, gagged debate and answered criticism with supercilious one-liners.  Only Keating had less apparent respect for the forms of the institution.  During the final campaign he actually gagged his ministers.  Such an exceptional display of arrogance was virtually unheard of and when his action became widely known was his final undoing.  When enough Victorians formed the belief that they no longer needed Kennett, then they were more than happy to be rid of him.  He was not, however, sacked for his reforms.  Indeed a more credible case can be made that these saved his party from the debacle suffered elsewhere and encouraged by his style.

ENDNOTES

394.  Brian Buckley, The Greiner Revolution, AIPP, 1989, p 9

395.  David Barnett, John Howard, Viking Press, 1997, p 587

396.  Brian Buckley, The Greiner Revolution, AIPP, 1989, p 11

397.  Tony Parkinson, Jeff, Viking, 2000, Chapter 4

398.  Tony Parkinson, Jeff, Viking, 2000, p 68

399.  Tony Parkinson, Jeff, Viking, 2000, p 108

400.  The expression was employed in the UK to describe similar people with similar aims and abilities.  John Ranelagh, Thatcher's People, Fontana, 1992, p 38

401.  Productivity Commission, Aspects of Structural Change, aggregating data on pp 43 and 118

402.  Tony Parkinson, Jeff, Viking, 2000, p 135

403.  Neal Blewett, A Cabinet Diary, Wakefield Press, 1999, p 235

404.  Tony Parkinson, Jeff, Viking, 2000, p 143

405.  David Haywood, The Kennett Revolution, Editors:  Costar and Economou, UNSW Press, 1999, p 139

406.  David Haywood, The Kennett Revolution, Editors:  Costar and Economou, UNSW Press, 1999, p 147.  Haywood employs the quotation to demonstrate that there never was a debt crisis.  I employ it to demonstrate that Project Victoria and the policy tanks that ran it were not prepared to exaggerate for the purpose of policy advocacy, let alone partisan politics.

407.  Tony Parkinson, Jeff, Viking, 2000, p 172

408.  Office of Public Employment, no 5, 1992.

409.  Tony Parkinson, Jeff, Viking, 2000, p 175

410.  Deidre O'Neill in The Kennett Revolution, Editors:  Costar and Economou, UNSW Press, 1999, p 85

411.  David Barnett, John Howard, Viking Press, 1997, p 607

412.  Julian Teicher and Bernadine Van Gramberg, The Kennett Revolution, Editors:  Costar and Economou, UNSW Press, 1999, p 168

413.  I think I first heard Wolfgang Kasper say it but Austin Holmes stressed the same.

414.  Tony Parkinson, Jeff, Viking, 2000, p 161

415.  Tony Parkinson, Jeff, Viking, 2000, p 145

416.  Tony Parkinson, Jeff, Viking, 2000, p 143

417.  This for the same reason that a farmer should not have agriculture, a medical doctor, health, and so on.  It should not be too easy for the players to capture the referee.

418.  Tony Parkinson, Jeff, Viking, 2000, pp 158-60

419.  Tony Parkinson, Jeff, Viking, 2000, p 163

420.  Ernst, Privatisation, Competition and Contracts, p 122, quoted in The Kennett Revolution, Editors:  Costar and Economou, UNSW Press, 1999, p 154

421.  Tony Parkinson, Jeff, Viking, 2000, p 182

422.  Tony Parkinson, Jeff, Viking, 2000, p 188

423.  Roger Hallam, Minister for Local Government, 1994 as quoted in Costar and Economou, UNSW Press, 1999, p 114

424.  Alistair Harkness in The Kennett Revolution, Editors:  Costar and Economou, UNSW Press, 1999, p 206-7

425.  Caldwell and Haywood, The Future of Schools, Palmer Press, 1998, p 166

426.  Tony Parkinson, Jeff, Viking, 2000, p 150

427.  Caldwell and Haywood, The Future of Schools, Palmer Press, 1998, p 40

428.  Caldwell and Haywood, The Future of Schools, Palmer Press, 1998, p 10-20

429.  ibid, p 87

430.  ibid, p 48-49

431.  For instance Charles Marray, In Pursuit of Happiness and Good Government, Simon and Schuster, 1988, especially Chapter 12

432.  Tony Parkinson, Jeff, Viking, 2000, p 164-165

433.  The Kennett Revolution, Editors:  Costar and Economou, UNSW Press, 1999, p 228-9

434.  Graham Hudson in The Kennett Revolution, Editors:  Costar and Economou, UNSW Press, 1999, p 100

435.  Tony Parkinson, Jeff, Viking, 2000, p 190

436.  ibid, p 209

437.  John Waugh in The Kennett Revolution, Editors:  Costar and Economou, UNSW Press, 1999, p 57

438.  "The Kennett Revolution", Editors:  Costar and Economou, UNSW Press, 1999, p 187