by John Howard
Pauline Hanson, or One Nation, eventually ran out of puff and was seen as having no answer for Australia’s challenges of the late 1990s and subsequent years. This was not before her movement garnered just on a million votes in the 1998 election, most of which had come from former Coalition voters, as well as contributing to the defeat of the Borbidge/Sheldon Coalition Government in Queensland earlier in the same year. Although the Coalition in Queensland had not helped itself when in office by not at least attempting to remove Queensland’s optional preferential voting system, and restoring compulsory preferential voting. If that latter system had been in operation, Borbidge would very likely have survived.
One Nation also contributed to the defeat of the Court Liberal Government in Western Australia in 2001, but only because the Liberals’ abandonment of the Regional Forest agreement I had signed with Richard Court drove disenchanted blue-collar timber workers into the arms of Pauline Hanson.
Indirectly Pauline Hanson added to the complacency which helped cost Kim Beazley any prospect of winning the 2001 federal election. The former Opposition leader falsely imagined that the big two-party-preferred swing to Labor in 1998 represented the first stage of Labor returning to favour amongst Australian voters. As a result he wrongly assumed that Labor could essentially coast to victory in 2001 off the back of discontent with the introduction of the GST. It was famously reported that he told his caucus late in 2000 that the opposition would ‘surf to victory’ because of discontent with the GST. He was completely mistaken in his assessment. 1998 did not presage the rebirth of federal Labor. Rather, it was a one-off phenomenon partly caused by the Pauline Hanson factor. There is more on this in Chapter 27.
Could the impact of Hanson have been less if I had attacked her more strongly and openly immediately after her maiden speech? I think not. Pauline Hanson was an accident, but accidents constantly happen in politics. A more vigorous response from me would have intensified the frustrations felt by those Australians to whom she gave a voice, and gratuitously alienated them from me — and for what purpose, other than the political benefit of the ALP? Those frustrations were bound to surface at some point and, coming as they did from many citizens whose natural political bent was Coalition rather than Labor, it would have been foolish in the extreme for me to have treated them with the contempt urged upon me by my many critics.
24
THE FOUNDATION BUDGET
Peter Costello’s first budget, delivered on 20 August 1996, was the most important of all the budgets delivered during our almost 12 years in government. It was a very tough budget, but entirely appropriate for the circumstances. It was the best and bravest in 25 years, and demonstrated to the Australian electorate that we were serious about economic reform and determined to take Australia off the path of deficit and debt. It helped ensure that the Australian economy would not be engulfed by the Asian downturn two years later.
The Treasurer announced a reduction in the underlying deficit of approximately $4 billion and some $7.2 billion over two years. He foreshadowed that the budget would be balanced over the term of the Coalition’s first three years as a government. Its foundation stone was an actual cut in spending in real terms. It did not just slow the rate of expenditure growth. It achieved a real fall in outlays, which was no mean feat at a time when the Australian economy was only just beginning to gather strength. It contained major structural reforms in many areas, including employment programs, gave full effect to election commitments, and placed significant limits on growth areas in health expenditure.
The budget delivered our election promise relating to family tax measures as well as major reforms in childcare, aged care and superannuation. We also established the flagship Natural Heritage Trust (NHT). One of its controversial items was the introduction of a 15 per cent superannuation surcharge, which hit high income earners. This was a very unpopular decision amongst many Coalition supporters. I accept particular responsibility for this change. Given many of the other expenditure cuts, in areas such as education and employment services, where a major reform involving privatisation of the employment services system was introduced, I felt that for the sake of overall balance there needed to be something to which higher income earners made a contribution.
My judgement on this was to some degree validated when the Sydney Daily Telegraph with its budget headline described the Coalition’s first financial blueprint as a ‘Fair go for middle Australia’.1 That was the view Peter Costello and I took of the budget. We had tackled the deficit problem head-on, and that budget of 1996 laid the groundwork for years of successful economic management.
With the passage of time it was easy to forget the contribution that budget made to setting up the economic achievements of the Howard Government. Although the budget of 2007 was, according to polls, judged the most popular budget ever, I have no doubt that in straight economic terms the budget of 1996 was the best delivered by the Coalition.
Financial commentators widely applauded the budget. They saw in it a determination by the new government to tackle the nation’s problems and halt the growth of Commonwealth debt my Government had inherited, which peaked at $96 billion.
After this budget was brought down the Australian people were in no doubt that they had a government which was serious about responsible economic management, and would take the right decisions for the future of the country, even if some of those decisions were very unpopular. That was the Government they hoped they had elected.
On budget eve we implemented our promise to give the RBA independent authority to set interest rates. It strengthened our economic credentials. The economic theory underpinning independence of the central bank to set interest rates is that by removing that function from the political arm of government, anti-inflationary expectations are enhanced. Markets, and therefore wage-setters, pay more regard to the inflationary consequences of wage settlements when they know that interest rates are set by the central bank, and not by the Government.
Having experienced the old system under the Fraser Government, and having watched and listened as Paul Keating boasted of having the Reserve Bank in his pocket, I thought the change made a lot of sense. That is not to say that I agreed with every interest-rate decision taken by the Reserve Bank in my time as Prime Minister.
The decision to grant the RBA independence coincided with Bernie Fraser’s retirement as governor. His replacement, Ian Macfarlane, had been deputy to Fraser and served in that position for ten years, until he was succeeded by Glenn Stevens in September 2006.
Macfarlane was the stand-out economic official in the lifetime of my Government. His advice and sense of balance was far superior to that of anybody else who provided economic advice to us. He showed remarkable calm when the Australian dollar was under enormous pressure at various stages over the term of his governorship. He knew that central bank independence should be exercised calmly and pragmatically.
The Government also introduced its Charter of Budget Honesty. This was to prevent in the future what had happened in the 1996 campaign, when both Keating and Beazley had falsely asserted that the budget was in surplus when they knew it was in deficit. Under the charter, which was enshrined in legislation, once an election was called the secretaries of the Treasury and the Department of Finance were to publish a snapshot of the national books, telling the public exactly where the budget stood in relation to its revenues and expenditure and the size of the deficit or surplus. It was a very big reform, placing a discipline on the Government as well as on the opposition.
In addition, we commissioned two important inquiries in our early months. The first of them, led by Bob Officer, was effectively an audit of the functions of the Commonwealth, which produced some challenging recommendations, not all of which the Government took up. The other inquiry was led by Stan Wallis, the former managing director of Amcor, and was asked to scrutinise the operation of the financial system. It was something of an update of the Campbell Inquiry. Its principal recommendation was to creat
e a new regulatory agency called the Australian Prudential Regulatory Authority, which took over certain supervisory functions from the RBA, as well as the surveillance of smaller financial companies.
The regulatory system covering Australian financial institutions, which by common accord has worked remarkably well, is essentially a product of the Wallis Inquiry. In talking up the strength of the Australian banking system in the wake of the global financial crisis, both Kevin Rudd and Wayne Swan were noticeably silent on the contribution to that stability made by the Wallis Inquiry, and the supervisory structure it either confirmed or recommended.
The 1996 budget was the first of 12 delivered by Peter Costello, a record for an Australian Treasurer. Peter was not only the nation’s longest-serving Treasurer, he was, in my judgement, the best-ever Treasurer. He brought high intelligence and fine rhetorical skills to the task. His question-time performances constantly demoralised the opposition with both factual rebuttal and humorous attacks. Peter could be uproariously funny, and frequently lifted the spirits of the Coalition. He mastered the intense detail of the Treasury portfolio in an impressive fashion.
Just before the 1996 budget, the Coalition received an unexpected bonus with the defection of the ALP senator from Queensland Mal Colston. The Labor Party had reneged on an earlier understanding that he would become Deputy President of the Senate. It had become something of a convention that the opposition would fill this position, with the Senate President naturally coming from government ranks. Colston was outraged at this betrayal and, having been in the Senate for some years and with his party only newly in opposition, no doubt thought that his one opportunity for preferment, courtesy of the ALP, had suddenly and unfairly disappeared. So he turned to the Coalition. He enquired whether government senators would support him for the deputy presidency. I raised no objection to this. There was no deal made about Colston voting for government legislation in return for his installation as Deputy President.
Nonetheless, we entertained the hope that he would back the Government on some important issues. He did vote for most of the budget legislation, and joined Brian Harradine in voting against a destructive ALP amendment to the New Schools Policy Bill.
Later his voting performance was more mixed. He sank our 1998 attempt to sell the remainder of Telstra; seven more years would elapse before this goal was achieved.
The ALP turned on him with fury and hatred. He was a Labor rat, pursued with a vicious campaign of bile and abuse. Even when he was diagnosed with a serious illness there was no let-up. He later faced allegations of rorting his travel allowances and was forced to quit as Deputy President.
In opposition, I had spoken frequently about raising ministerial standards. After becoming Prime Minister, my department presented me with a formal codification of previous practice in relation to ministers’ holdings of shares etc. This document largely put in writing what had been followed by a number of previous governments. I released the document as it seemed a thoroughly commonsense statement of obvious principles. Little did I realise at the time that it would cause considerable embarrassment, and for a number of my new ministers terminate their careers.
One of the requirements of the code was that ministers should avoid taking any decisions affecting companies in which they held shares, so as to avoid the appearance of a conflict of interest. Unfortunately this stipulation snared Jim Short, the assistant Treasurer, and Brian Gibson, parliamentary Secretary to the Treasurer, in October 1996. Jim Short held $50,000 worth of shares in the ANZ Bank, and in September had approved an operating licence for an ANZ Bank subsidiary. Brian Gibson had owned some Boral shares, and before the sale of them had been completed, he approved a declaration in favour of a Boral subsidiary. At the time Gibson made the decision, he erroneously believed that the sale of the shares he had owned had been completed.
Short and Gibson had been but two among thousands of small shareholders in the two companies concerned, and the decisions which each of them took could in no way have enhanced their share values. It was inconceivable that either of them had the remotest thought of personal enhancement when they made the relevant decisions. They had, from inexperience, overlooked the fact that they held shares in corporations affected by their decisions. It was sadly the case that in both instances they had technically breached the ministerial code, and I had to accept their resignations. I felt sorry at the time for both of them, and to this day I feel that they paid a heavy price for an oversight that involved no skerrick of personal gain or malfeasance.
These resignations really upset me, and I saw them as the first big setback for the Government. We took an awful bath in the media. They occurred on the eve of an unexpected by-election in the Penrith-based seat of Lindsay in western Sydney.
This was the seat that had been won by the RAAF legal officer, Jackie Kelly. Jackie was a young, attractive Olympic rower who had been born in New Zealand. Therein lay the problem. Apparently she had not fully renounced her New Zealand citizenship before the election. There had also been some questions raised about whether she had resigned in time from the RAAF so as to avoid the ‘office of profit under the Crown’ prohibition. On 11 September the Court of Disputed Returns had found against Kelly and ruled that the election in the division of Lindsay was void and she would need to face a new election in that electorate. I thought it was a huge setback and worried about our prospects of holding the seat.
Jackie Kelly handled the situation extremely well, immediately taking a part-time job as a waitress in a local coffee shop and attending to the citizenship matter in preparation for the by-election. In a few short months she had established a higher-than-ever profile in the electorate, but many of us had our doubts, given the history of the seat, that she would retain it. Ross Free, the former ALP member, was chosen again as the Labor candidate, and as the by-election occurred in the wake of the resignations of Short and Gibson, and also the first budget of the new government, which had cut spending savagely and introduced a number of quite unpopular measures, I thought that we would probably lose the seat in the by-election.
To my great delight not only did Jackie Kelly hold Lindsay but she increased her majority by 4–5 per cent. It was obvious that the people of Lindsay were irked about the by-election. For them the ministerial resignations hadn’t even touched the sides. Another factor in their decision was that, having seen a little bit of Jackie Kelly, they thought that she was the kind of fighter that a battler electorate like Lindsay needed.
Our first year in government ended with a startling decision from the High Court of Australia on native title, to which I will return shortly. That notwithstanding, it had been ten months of considerable achievement in which the economic direction of the nation had been changed, the style of government substantially altered, and a path set for a greater level of national self-belief and international respect.
For me it had been a deeply satisfying journey. After long years in parliament, marked at first by occasions of real success serving in a government led by another person, then the turbulent and frustrating 13 years of opposition, I finally had full control of the affairs of Australia’s Government. I had not sought to exercise this authority capriciously or arrogantly, but in a cooperative fashion with colleagues, although recognising that, at the end of the day, I was ultimately responsible for all of the major decisions and the central direction of the Government. Much progress had been made in a short period of time.
The Howard Government had been an activist and reforming one. I was always seized of the possibility that the Government might not last very long. It was natural caution. Therefore I was resolved from the start not to waste time or put off hard decisions. It is always easier to do the unpalatable things at the beginning. The electorate cuts a government less slack as time passes. Looking over our first ten months, my Government had been intensely busy and had made its mark. Not everyone liked what we had done, but we had made a difference and in particular had laid the groundwork for a decade of cont
inuous economic growth through repairing the budget and reforming industrial relations. More was to come in our second year.
25
THE CHALLENGE OF INDIGENOUS POLICY
If ever a portfolio required a combination of idealism and pragmatism it was Indigenous Affairs, long the political graveyard of ministers who failed to understand the importance of that mixture. For my Indigenous Affairs Minister I chose the 63-year-old Brisbane general surgeon Senator John Herron. A former president of the Liberal Party in Queensland, father of ten, devout Catholic, dedicated humanitarian but hard-headed pragmatist, John Herron seemed to me to fit the bill.
I had a theory that one should avoid appointing somebody from Sydney or Melbourne to this position. The guilt syndrome was far too strong in those cities. By contrast, people from Queensland and Western Australia had a more pragmatic view about Aboriginal issues. They were not insensitive but they understood that one should, where possible, avoid the perception of special privileges for Indigenous Australians, as this frequently aggravated less well-off people from the rest of the Australian community, who felt that a special deal was being done for people whose social position was little different from their own. The other reality was that most Australians who lived in places such as Sydney and Melbourne never came into contact with Aboriginal people on a daily basis, whereas people from Queensland, the Northern Territory and Western Australia more commonly did.
Whatever the logic, I decided on John Herron. He leaped at the opportunity and came to the task with impeccable professional and personal qualifications. I had heard a lot of lofty speeches in the parliament, particularly from Labor members, about the need to help the less privileged in our community, most especially Aboriginal people. John Herron had practised what others had preached. For eight weeks in 1994, John had volunteered his services to operate on the victims of the Rwandan massacre. He applied his considerable surgical skills to helping humanity in the most wretched of circumstances. I spoke to him after he had returned from Rwanda. As a hardened surgeon of more than 30 years’ practice, he had plainly been deeply affected by his Rwandan experience. To him it was using his professional skills to help suffering people. I thought a man like this, with such experience and heart, was the right person for Indigenous Affairs.