by John Howard
As close family and some staff gathered at Kirribilli House to watch the election results, I was not optimistic about the outcome. This pessimism was confirmed when at 6.41 pm Lynton Crosby phoned through the results of the party’s exit poll. It showed 53 per cent for Labor and 47 per cent for the Coalition on a two-party-preferred basis, exactly the same as the final published Newspoll. In the Green Room in Kirribilli House, I briefed Janette and our three children on the poll outcome, telling them that I believed we were going to lose.
Grahame and Bronwyn Morris joined me in the study, with my children coming and going as the results came through. The early ones mirrored the bleak prediction of the exit poll, as we limped through the first hour of counting. Then, with a substantial percentage of the vote counted in Fran Bailey’s electorate, Grahame Morris spotted a trend in McEwen: she was hanging on; McEwen was a highly marginal Victorian seat won by Bailey in 1990 only to be lost in 1993, but regained in 1996. Shouting, ‘Go, Fran’, Grahame declared that if she could hang on, then we might survive after all. She did hang on, and we did ultimately survive, but it was to be another hour, at least, before I believed this.
As things began to stabilise I wandered into the dining room at Kirribilli House to join others who were watching the ABC coverage, just in time to see Antony Green, whose statistical analysis was always very good, declare that he thought the Coalition would win by some 10 to 12 seats. That proved to be remarkably close to the mark.
We had copped a huge swing, and the Labor Party on a two-party-preferred basis had outpolled us. ‘Gladesville man’ had done terrible damage to the Coalition vote. This was the real bonus for the Labor Party, which led the ALP to a lazy second term in opposition.
As previously stated, Pauline Hanson and One Nation, as well as the GST, caused our big loss of seats in 1998. There had been miracle gains in 1996, such as the electorates later held by Kevin Rudd and Wayne Swan in Brisbane. They would obviously revert back to the ALP absent the landslide of 1996. The next layer of Labor gains in 1998 were really seats like Stirling in Western Australia, which fell to Labor because One Nation took votes predominantly from the Coalition parties and did not return a large enough portion of them to our candidates through preferences. Between 1996 and 1998 the Coalition primary vote Australia-wide fell by 7.7 per cent, just short of the Hanson vote of 8.43 per cent in 1998. Yet only 53.66 per cent of that One Nation vote was returned to the Liberal and National parties via preferences. The ALP primary vote increased by only 1.35 per cent in 1998 compared with 1996.
Over the days ahead I would pay tribute to our marginal seat-holders, many of them women, such as the three in Adelaide — Trish Worth, Christine Gallus and Trish Draper — all of whom survived. Danna Vale increased her majority in Hughes, and Jackie Kelly had a solid win in Lindsay. Fran Bailey, of course, hung on in McEwen. The blokes also did their part in marginal spots, but the contribution of the women was quite remarkable. I would not have survived as Prime Minister without their marginal-seat-campaigning skills. They were the Golden Girls of 1998.
Before going to the Wentworth Hotel, I watched Beazley’s triumphal address in Western Australia. He had done extremely well, reclaiming many seats Labor had lost less than three years earlier. He looked and sounded like a man who believed he was now only one election away from moving into the Lodge.
Politically, I had had a near-death experience. Although the polls were bad right through the campaign, it was not until the last few days that I began to focus on the real possibility of losing. It had seemed impossible several weeks out, given the size of our majority and the fact that we had only been in government for less than three years. Yet we had been a controversial government, had done an enormous amount in changing the direction of the country and had proposed something which no previous Australian Government had attempted: we sought re-election with a policy of introducing a new tax.
Having, on election night, gone from believing that we would lose to the elation of hanging on, I felt quite light-headed as I was driven with my family to make my victory speech at the Wentworth Hotel. I felt very different from what I had some two-and-a-half years earlier. I was conscious of the large number of seats which had been lost, and that many good people would be leaving us, but in politics a win is a win. I had not given a lot of thought to what I might say and on the way in I felt I should throw forward to something of a non-economic kind. We had campaigned almost exclusively on economic issues.
My election-night speech, therefore, included a commitment to achieve genuine reconciliation between Australians and Indigenous Australians by 2001, the centenary of Federation. It had come from nowhere. Most of my followers and colleagues were quite surprised that I had raised the issue. They never saw this as being a ‘John Howard issue’. Regrettably, too many of them held the view that reconciliation was about a rights agenda. At that stage, the concept of practical reconciliation was struggling to gain traction.
I wanted to promote it as I sensed that many Australians saw reconciliation as I did: including Aboriginal people in the mainstream of the community.
Although this commitment raised eyebrows, it did not dominate news coverage of the challenges which lay ahead for the newly elected government. We had won, despite promising a new tax, and the general view was that it was an extraordinary achievement, even though we had shed much electoral blood in the process.
From the outset Beazley made it plain that the Labor Party would not respect the mandate on tax reform given to us by the Australian people. That was its attitude regarding all of the major issues for which the Coalition campaigned in 1996, 1998 and 2001. In 1998, we could not have been more explicit on tax reform. We hadn’t campaigned in general terms. We had laid out in minute detail all of the elements of our tax plans and had taken a huge risk that the Australian public would reject it and succumb to Labor’s fear tactics.
Having toiled for months to put together a complex plan, and having won an election despite the burden of advocating a new tax, we still faced huge obstacles before laws were implemented giving effect to our taxation proposals. Although Labor was total negativity from start to finish, the Australian Democrats were a mixed bag. During the campaign they said they favoured taxation reform with a GST, yet were opposed to it applying to food and some other items.
Neither Peter Costello nor I wanted to exempt food from the GST. We were both steadfastly of the view that when it came to indirect taxation, the maxim must always be, the broader the base the lower the rate. As few exemptions as possible remained our goal, and we could see no logical reason to exclude food, provided that the compensation arrangements were adequate — and we believed that they were.
Except on one issue, the private health insurance rebate, the powerful Independent Brian Harradine was the great unknown. With his help, the 30 per cent tax rebate went through the Senate, in the teeth of ALP opposition, shortly after the election. It proved most successful. As to the rest of the tax plan, he had not given an indication either way during the election campaign. I remained moderately optimistic, without there being anything on which to base that optimism. We did provide a further sweetener to the compensation arrangements for low-income earners and pensioners, which we hoped would be attractive to him. I had a long and cordial discussion with him, and he gave a similar attentive ear to Peter Costello. It was all to no avail. On 14 May 1999, in the Senate, Brian Harradine uttered those memorable and decisive words, ‘I cannot.’
Harradine’s rejection of the GST was an immense disappointment. We had risked all and won an election being utterly candid with the Australian people about our plans, yet we could not get those plans through the Senate in the form in which they had received the support of the Australian people. As an exercise in representative democracy, it seemed unfair, but such feelings had no currency when it came to gathering the votes in parliament to secure passage of legislation.
Peter Costello was in the Philippines when Harradine lowered the boom on the GST. I
spoke to him and we both lamented the outcome. I knew then the only alternative was to negotiate with the Democrats, and realised that this would mean agreeing to exempt food. That is something I found hard to accept, given that it would create anomalies in our new tax plan and because of my feeling that it was outrageous for the Senate to ignore the mandate of the Australian people for a policy laid out in complete detail.
Over the next few days many leading business figures, such as Frank Lowy and James Packer, personally urged that we negotiate with the Australian Democrats. They didn’t want food exempted either but they felt that it was too big a price to pay to let the whole plan collapse. The Coalition had a choice. It could either settle for some 85 per cent of what the Australian people had supported or accept that serious taxation reform was dead indefinitely.
At a cabinet meeting in Longreach shortly afterwards, there was an overwhelming view that we should negotiate an acceptable compromise with the Democrats, knowing full well that we would have to give ground on food and also other items. Peter Costello was still abroad, but I knew from earlier discussions that he would be unhappy about making changes to the policy we had taken to the people; so was I. Realistically though, we had no alternative if we were to salvage the bulk of a reform plan vital to the national interest, and in which we had invested so much political capital.
If the whole plan fell to ground, then not only would tax reform be off the agenda indefinitely, but also the Government would suffer huge political damage. It, and most particularly its leader, would be seen as ineffective on a central economic policy. As is always the case when a government is damaged, the person suffering the biggest injury is the Leader of the Government.
The correct thing was to have Peter Costello conduct the initial discussions with the Australian Democrats. This occurred and, predictably, no progress was made. The Democrats said that there was no way they would support the tax plan without food being excluded. There were requests on other items as well. Peter Costello told them that exempting food was off the table.
The Democrats prepared to launch their campaign against the tax plan. I telephoned Meg Lees and asked that her campaign be deferred until after there had been a further meeting, this time involving me.
The first of the resumed discussions took place in the cabinet room in Melbourne. I knew that to get anywhere we had to give the Democrats something. There was no way they were simply going to change their minds, having been so vehemently opposed to aspects of the policy during the election campaign. Also, we needed to create the right atmosphere, and that involved making them feel they were being taken seriously. One of the best ways for an incumbent government to do that is to invite the people with whom it is negotiating into the place where the Government itself meets — the cabinet room.
I was conscious of the importance of these negotiations as I knew that if they failed, the Government would take an enormous amount of water. Meg Lees was accompanied by Andrew Murray, as well as her advisors John Cherry, who would later become a senator, and John Schumann, the Red Gum singer who had run Alexander Downer to a close result in his Adelaide seat of Mayo. The Treasurer and I were accompanied by our senior private office advisors, including, for my part, Arthur Sinodinos and my economic advisor, Peter Crone.
Perhaps he resented my leading the negotiations, but Peter Costello’s body language, from the very beginning, was that of a reluctant participant. I ignored it, and was determined to treat the Democrats with courtesy and attention. I wanted something from them, and it was important for the Government I led that I got it. Although it was to be some time before I finally agreed that food would be excluded, I accepted that, at the end of the day, this would happen. My tactic was to dispose of the less contentious issues at the beginning so that we could focus in detail on the more difficult propositions. These negotiations went on for several weeks, shifting from Melbourne back to Canberra, and gradually our areas of difference were whittled away.
In the process we had to agree to a number of things I disliked intensely. One was a complicated arrangement for diesel excise rebates which involved different rates according to the size of vehicles. This was in order to meet environmental objections from the Democrats with regard to large trucks in city localities. We also had to give in to the Democrats concerning the taxation of books. This had been a symbolic matter for them for a long time.
The final outcome predictably involved exempting fresh food from the GST as well as significantly reduced thresholds at which the higher rate of taxation would apply. Fortunately we were able to hang onto tax rates whereby some 80 per cent of taxpayers paid no more than 30 cents in the dollar on any dollar of their income. Nonetheless we were saddled with an outcome where the top marginal rate applied at $60,000 a year instead of the $75,000 a year on which we had campaigned. That figure itself was still very low by world standards, but $60,000 was absurdly so.
Despite my regrets about certain things we were obliged to accept, I was elated when agreement was finally achieved. I found in Meg Lees a person of integrity, and the sense of trust that we established with each other was the major reason why the negotiations were successful. Meg Lees and I disagreed on a lot of issues. She would oppose our commitment in Iraq and felt that I was not sufficiently committed to the environment, but she was someone with whom I could not only do business but whose word could be believed. The frequently used TV images of Meg Lees and me shaking hands after the GST deal was made showed two people who trusted each other, and were well pleased with the outcome of an important and lengthy negotiation.
She showed enormous courage in negotiating the taxation compromise with my Government. In the process, she unsettled her party, and almost certainly cost herself its leadership and ultimately, therefore, her place in the Senate. Yet she could legitimately be seen as someone who facilitated one of the historic economic reforms of a generation, on terms satisfactory to her. In supporting the Government, Meg Lees and the majority of her colleagues alienated Natasha Stott Despoja and Andrew Bartlett, both of whom voted against the taxation package in the Senate. Meg Lees was well aware of their disaffection during our negotiations, but it did not deter her. Andrew Murray was also of inestimable assistance. He shared her view that Australia needed a better taxation system.
We announced the successful outcome on Friday, 28 May 1999, and I felt enormous relief to have concluded that compact with the Democrats. Although a lot of detailed haggling lay ahead and the legislation had to be piloted through the parliament, it would take an extraordinary series of events and a massive loss of goodwill for the deal to fall over. Without my personally leading the Government’s negotiations, an understanding with the Democrats would not have been concluded.
I don’t think that Peter Costello was entirely happy with the outcome. A few days later, when we were all back in Canberra, he made some remarks at a gathering, in full knowledge that the media were there, poking fun at some of the anomalies which emerged from the exclusion of food. We all knew that there were anomalies. That was why we had not wanted to exclude food. But in order to obtain the support of the Democrats, food had to go, and I could not quite understand the point of deriding an agreement that we had worked so hard to bring to fruition.
The tax plan passed into law on 29 June 1999. This was an historic achievement. At long last major taxation reform, built around the principles outlined in the Asprey Report almost 25 years earlier, had finally been legislated. This was a vindication of our determination to be a reformist government. I also felt well satisfied in our ability to negotiate a reasonable compromise with the Democrats in order to get our legislation through. All governments must negotiate and compromise. No government can roll all before it, and the Howard Government was no exception.
There would be some teething troubles, which I deal with in separate chapters, but the first stage of the great tax adventure had been successful. Of all the big economic reforms since 1980, taxation reform was the most complex and had the poten
tial to cause the most dislocation. Legislation to bring it about had now been passed. All of this had been realised by the Coalition despite carping opposition and negativity from the ALP, which would continue unrelentingly for the next two-and-a-half years. Although the challenge of implementation lay ahead, the achievement to date was something of which we were entitled to feel exceedingly proud.
28
WE STILL WANT YOU, MA’AM — THE REPUBLICAN DEBATE
On the evening of Sunday, 7 November 1999, Janette and I attended the opening of the Fox Studios at Centennial Park in Sydney. It was the day after the Australian people had voted against their country becoming a republic. The timing was a touch uncomfortable. The News Limited papers had campaigned with unrestrained vigour for a republic. Rupert and Wendi Murdoch were there. Rupert had been a long-declared supporter of an Australian republic.
Not that any of our News Limited hosts lacked grace and courtesy. The ever-polite David Armstrong, Editor-in-Chief of the Australian, congratulated me on the outcome of the referendum. I had no intention of gloating. The issue had been disposed of, and I wanted to return to the ongoing affairs of government. Moreover, it was not in my interest to have longstanding antagonisms with News Limited editors, or indeed editors of any newspapers.
I was happy at the outcome. The previous night had been a good one, with the referendum result being capped by the Wallabies winning the World Rugby Cup. I had never wanted an Australian republic. I see the value of a continuing historical connection with the second-oldest institution in Western civilisation. In addition, all of my conservative instincts told me that there was nothing to be gained by changing a structure of government which had played a big part in the incredible stability of the Australian constitutional and political system.