by John Howard
From the perspective of my portfolio responsibilities, I felt that we needed to restore business confidence by cutting government spending, pruning business regulation, providing more incentives for investment, and tackling some of the excesses of union power.
I appointed Paul McClintock, a Sydney lawyer and former president of the Liberal Club at the University of Sydney, as my principal private secretary. Paul had impressed me with his political courage in keeping the Liberal banner flying on a university campus during the early 1970s when, in the wake of debate over Vietnam and other issues, that was a particularly difficult task. Paul would later return when I was Prime Minister as head of the Cabinet Policy Unit.
Quite early, I established the Swanson Committee of Review into the Trade Practices Act. I wanted the act loosened and made more business-friendly; one of the reasons the Australian economy was performing badly was that too much red tape and regulation had been imposed on the business community. Malcolm Fraser strongly supported the review.
He did, however, backtrack on a promise to abolish the Prices Justification Tribunal. It was set up by Whitlam, and required large companies to obtain approval for price increases. It was impractical and a hindrance for business. Shortly after I became minister, Fraser rang and said it might be necessary to ‘give Hawke a win by going soft on our pre-election promise to get rid of the Prices Justification Tribunal’. Although it ran against our deregulatory thrust, I didn’t, at this early stage, question Fraser’s judgement, and we eased away from our commitment to abolish the tribunal. In those early months of government I believe that Malcolm Fraser thought that, with the odd gesture, he might win the grudging cooperation of the union movement.
At that time the Trade Practices Act penalised secondary boycotts by companies, but not by unions. I thought that this was a double standard, and therefore wrong. Unions were, for example, placing boycotts on petrol deliveries by certain tanker drivers, which forced up the price of petrol for some motorists. If a company did something like that it would be penalised, yet the unions were not.
I asked Thomas Swanson to look at this. Perhaps influenced by the conventional thinking, Swanson’s review did not recommend applying the secondary boycott law to unions. He did, however, suggest other changes which reduced the regulatory load on business, which we largely adopted. With Malcolm Fraser’s support I persuaded cabinet to bring unions within the secondary boycott reach of the Trade Practices Act, despite Swanson’s recommendation otherwise.
Thus was born what became Sections 45(D) and (E) of the Trade Practices Act, which imposed substantial penalties on unions similar to those for companies that engaged in secondary boycott conduct. It was removed from the Trade Practices Act for a period of time under the Keating Government, only to be returned to the legislation when I became Prime Minister. It survives to this day.
This was an historic change in the law affecting unions. It outraged the union leadership, particularly Bob Hawke. When the legislation was published I agreed to talk both to business groups and the unions regarding its provisions. At a meeting in Parliament House attended by Hawke as president of the Australian Council of Trade Unions (ACTU), as well as leaders of the public sector unions, Hawke glared at me across the committee room table and said, ‘If this goes through there will be blood in the streets.’ It was a nonsensical threat and one which was counterproductive. It confirmed my view that the proposal struck at the heart of the privileged position of the union movement, and I was more determined than ever that it should become law.
As Minister for Business and Consumer Affairs I had administrative responsibility for the Industries Assistance Commission. Tariff policy was, therefore, another issue I confronted. Up until then I had supported the prevailing orthodoxy.
This issue came to prominence after the Fraser Government, on 28 November 1976, devalued the Australian dollar by 17.5 per cent. Being a member of the economics committee of cabinet, I attended the cabinet discussion on devaluation. I strongly supported the decision, believing, as did Fraser, that Australian industry needed the competitive boost that the devaluation would confer on Australian exporters, because it would make their products cheaper on world markets. Likewise, it would help local manufacturers because the devaluation made imported products dearer and therefore less competitive.
It was that last point which brought in tariffs. Existing tariffs on imported goods already made them dearer for Australian consumers, therefore it was argued that unless some of those tariffs were cut following the devaluation, an unfair additional burden would be placed on consumers and importers. The contrary argument, which I supported, was that it would be self-defeating to reduce tariffs significantly, as one of the reasons for the devaluation had been to help local manufacturers.
Those who attacked our decision not to cut tariffs said that the higher prices of imported goods produced by devaluation would drive up inflation. This did not happen as fierce competition amongst retailers, in a still-recessed economy, meant that price increases were kept to a minimum.
In the early days of the Fraser Government, there was no stauncher high protectionist than Bob Hawke. He frequently invoked a cheap jibe against the Industries Assistance Commission, that it was really the Industries Assassination Commission. It would take the relative safety of government, and security in the knowledge that the Coalition opposition would support him, before Bob Hawke became a supporter of tariff reform.
Shortly after the devaluation, Fraser split the Treasury into two departments: Treasury and the Department of Finance. It made sense as Finance could focus more heavily on expenditure control. Fraser believed that Treasury had been responsible for a damaging press report of an earlier devaluation discussion in cabinet; this could have influenced at least the timing of his split of the Treasury. The circumstances provoked Treasury resentment, which was a pity because of the intrinsic worth of the change.
Malcolm Fraser frequently encouraged me to appear in the media and talk generally on economic issues, provided that I kept in line with government policy. My profile received a huge boost when, following a Premiers’ Conference proposal, Fraser announced that there would be a price-wage freeze for a period of three months from 13 April 1977. The Prices Justification Tribunal was charged with monitoring the freeze. Whilst it had a certain popular, limited appeal, it was economically unrealistic and could not last long. I was put in charge of the freeze, not even knowing anything about it until the announcement was about to be made.
The public liked the idea because it appeared that the Government was ‘doing something’ about inflation. The serious media ridiculed the approach, whilst more popular media took an enormous interest in the issue. I had immediate contact with all of the major employer groups and for a period of time it looked, against all expectations, as if the proposal might do some good. After several weeks it was accepted that it could not be continued because of its longer-term unworkability. There is some evidence it may have had a short-lived constraining influence on some price increases.
In May 1977 Malcolm Fraser appointed me as Minister Assisting the Prime Minister, which involved helping with the PM’s correspondence and lower-order decision-making. I continued my full duties as Minister for Business and Consumer Affairs. It was a strong endorsement by the Prime Minister of the work that I had done there. I was happy with the promotion, but conscious of some resentment building amongst colleagues that my rise had been rather too rapid.
As a minister I worked closely with the National Country Party (later National Party) trio of Doug Anthony, Peter Nixon and Ian Sinclair. I liked them a lot. Anthony was strong and open, an ideal Deputy PM to Fraser. His languid, country style masked immense political shrewdness. Nixon was a tough political operator who defended country interests whilst recognising that electoral arithmetic was inexorably moving against his party. He gave me good early advice about being a minister. Sinclair was one of the most naturally gifted politicians I have known. He was intelligent, coul
d absorb a brief rapidly — I don’t think that he read any submissions until after cabinet meetings had started — and was versatile and talented on his feet.
In July 1977 I paid my first overseas visit as a minister and, accompanied by Janette, visited Washington, London and Ottawa. There was a shock when I returned. Fraser told me that he intended to appoint me as Minister for Special Trade Negotiations, with a specific brief to spend as much time as possible in Europe trying to extract a better trade deal for Australian exporters, particularly farmers.
Earlier, when visiting Europe, the Prime Minister had a stormy session with the European Common Market chieftains, particularly Roy Jenkins, a former British Labour Chancellor of the Exchequer, with whom Fraser had clashed in a very heated fashion. He came back convinced that the only way we would make real progress would be, effectively, to have a resident minister in Europe banging on doors the entire time.
This was a novel concept, involving the creation of a new department. I was not enthusiastic about the appointment, because Janette was several months pregnant with our second child, and I knew that I would be away for lengthy periods of time. Also, I really enjoyed the job I had. But it was a promotion, and would give an international dimension to my ministerial experience.
I assembled a small task group; it could not realistically be described as a department. Philip Flood, whom I had met only a few weeks earlier when I visited Washington, became head of the group. After receiving numerous briefings and meeting industry groups, my team and I set out for Europe in September. For the next seven weeks we traipsed around various European capitals putting our case, railing against high levels of European protection, particularly for agriculture, and not making a great deal of progress. Thirty-three years on, the essential elements of the Common Agricultural Policy, the main protective mechanism for agriculture in Europe, remain in place.
Australian and New Zealand farmers have been given a raw deal by the Europeans. By any measure, our primary producers are extremely efficient and do not receive high levels of protection from their respective governments, particularly when compared with the hefty support given to farmers in Europe, Japan and the United States.
Before I left for Europe, Phillip Lynch had brought down, in August, the second budget of the Fraser Government. For reasons I was not to know then, this budget would have a very significant impact on my political career over the following two years. Surprisingly, the budget contained significant tax cuts. I did not think that the tax cuts were necessary, nor had I thought the budget could afford them, but they would be popular.
Unfortunately, the budget had other problems: the revenue estimates on which it was put together would begin to come apart in only a few months. I learned later that there had been quite an argument between Treasury and the Department of Prime Minister and Cabinet regarding the wages growth figure: Treasury had estimated 7 per cent, the Department of Prime Minister and Cabinet had said it could be as high as 7.5 per cent. The Budget Committee of Cabinet had opted for the higher figure; it produced more revenue, thus making the tax cuts more supportable. The Treasury estimate turned out to be more accurate.
Whilst I was in Europe, speculation grew that Fraser would call an election towards the end of 1977. There was a strong case for an election before 30 June 1978, otherwise the double-dissolution election of 1975 would oblige a separate half-Senate election well before the middle of 1978. Fraser’s thinking, no doubt, was that if there were to be an early election then it was better to have it at the end of the calendar year so as to restore the more normal pattern in Australian politics. The speculation was in full swing when I returned to Australia towards the end of October.
On 27 October 1977, Fraser announced an election for 10 December. It was to be the fourth general election in five years. A rather lacklustre campaign commenced. With the benefit of hindsight, the result of the election was never really going to be in doubt. There was no way that the Australian public was going to re-elect Gough Whitlam, having so totally banished him from office just two years earlier. On the other hand, however, there was a bit of suspicion about the early election, despite the strong reasons for having simultaneous elections for the two houses, and a lack of interest in the campaign. Until late in the piece, the opinion polls were very equivocal. There was the further complication of the Australian Democrats.
Some months earlier, Don Chipp had resigned from the Liberal Party and launched the Australian Democrats. He ran as somebody seeking to occupy the centre ground of Australian politics. Chipp had been a discontented soul since Fraser excluded him from the government he formed after the 1975 election. This was a major influence in his decision to form the Democrats. Don Chipp was an engaging personality who was a traditional ‘small l’ Liberal of the Victorian mould. Our worry was that the Democrats would rip votes from the Liberal Party and, through the preferential system, too many would wind up in Labor hands.
11
‘MAY I SPEAK TO THE TREASURER?’
Immediately after Malcolm Fraser called the 1977 election, there were unexpected and dramatic developments involving the Treasurer, Phillip Lynch, which derailed the campaign for three weeks. This was to have amazing consequences for me. The day before Fraser called the election, Peter Leake, a land developer, told a judicial inquiry in Victoria that he had been involved in local land speculation with his friend Phillip Lynch. Whitlam pursued the matter in parliament the day that Fraser called the election. The location of the investment was called Stumpy Gully, a colourful description which added to some of the drama. There were also questions raised about property Lynch had acquired. The press went ballistic.
Lynch had not done anything improper or illegal, but he had been politically indiscreet. It is never a good thing for a senior minister, particularly a Treasurer, to involve himself in anything that can be regarded as financial speculation. The country was still in the economic doldrums, and it was so easy for the Government’s opponents to allege double standards.
When the matter was raised in parliament, he had no immediate answer and, from the start, was on the defensive. Only a short time afterwards, the Treasurer became ill and, on 10 November, he entered Peninsula Private Hospital suffering severe kidney pains. It was at this point that I was caught up with the problems that had engulfed Phillip Lynch.
I was having dinner at home with my family on 10 November when Fraser rang and calmly told me that Lynch had gone into hospital and, therefore, had to stand aside as Treasurer, and that he wanted me to ‘become the Government’s spokesman on Treasury matters’. He didn’t say exactly that I was being appointed as acting Treasurer, although that was the case. Totally surprised, I relished the challenge; it would put me back in the mainstream of the political debate. But, at that stage, I did not imagine that this would be anything other than a temporary responsibility.
However, developments were to change that. Lynch went under the knife the next day, and five days later, convinced that it had an issue damaging to the Fraser Government, the ALP went for the jugular. Using parliamentary privilege, two Victorian upper-house MPs made sweeping allegations against Lynch. The issue ran strongly. The media and the Labor Party would not let it rest. They wanted the scalp of the Treasurer.
Fraser was unhappy with the explanations given by Lynch regarding his financial affairs and angry that every day was dominated by an issue which involved, at root, a bad judgement call by his deputy.
At a news conference called by Fraser and me, ostensibly to talk about Whitlam’s policy-speech highlight to abolish payroll tax, virtually every question focused on Lynch, and the news conference was a total wipe-out for the Government. Fraser walked from the conference with a stony face, and I knew that Phillip Lynch would not remain as Treasurer through to the election. Unless the Lynch issue was contained, it would overwhelm the entire election campaign.
Fraser correctly concluded that Lynch had to stand aside as Treasurer, leaving his future to be resolved after the election in
the event of the Government being returned. But the way in which he achieved this disclosed real flaws in Fraser’s handling of people.
Sensibly Fraser should have gone to see Lynch in hospital and talked to him directly in the presence of the party president and federal director. Instead he sent Peter Nixon, a senior National Party man, to do the job. Nixon was close to Fraser, tough, honest and skilful, but here Fraser was dealing with his own deputy. He should have been personally engaged.
On Friday 18 November 1977, after a rather tortured six-or seven-hour period of negotiations between Malcolm Fraser, who was in the Commonwealth Parliamentary Offices in Martin Place in Sydney, and Phillip Lynch, who was in hospital on the Mornington Peninsula, Lynch agreed, reluctantly, to stand aside as Treasurer, though he would stay as Deputy Leader.
Almost all of Fraser’s messages to Phillip Lynch were delivered by other people. Resentment against Fraser by Lynch’s many followers, such as Fred Chaney and John Hyde, grew out of his mishandling of this situation. He would display similar clumsiness in handling a problem with Reg Withers a few months later, resulting in Withers leaving the Government and a lasting estrangement between the two men.
As acting Treasurer I thought that I might end up as Treasurer, albeit on a temporary basis, in the event of Lynch standing aside. That was the press speculation, although Fraser never canvassed the matter with me. It wasn’t until Alan Carmody, Secretary of the Department of Prime Minister and Cabinet, said to me, after Lynch had agreed to go as Treasurer, ‘The swearing in will be at Admiralty House on Saturday at 4 pm’ that I realised that I would replace Lynch as Treasurer.
It had been an amazing day, indeed a series of amazing days. During the weekend, Janette told me that late on Friday afternoon, Sir Frederick Wheeler, the Secretary of the Treasury, had rung our home saying, ‘May I speak to the Treasurer?’ Janette deflected his enquiry by telling him that he wasn’t at home. This incident validates a long-held view in Australian politics that public servants and Commonwealth car drivers always know important things well in advance of the politicians.