by John Howard
If I were to pinpoint the moment it all began to turn sour, especially on the issue of petrol, it would be Friday, 9 February 2001. I spent Thursday evening at the Lodge, at the end of a sitting week, mindful of my fortnightly interview with Neil Mitchell on 3AW the following morning. For an hour that evening I read Henry Kissinger’s book entitled Diplomacy. Over coming weeks and months I would require plenty of that.
John Anderson had warned me during the day of a just-released report from the Auditor General which essentially said that Australian motorists had been ripped off because there had been a shortfall in the amount of fuel excise committed to road construction. It was a technical breach, caused by the failure of transport ministers from both sides of politics to table a notification in parliament. To Australian motorists, however, at a time when the level of excise on petrol was a red-hot issue, the impression conveyed was that they had been short-changed in relation to roads funding.
Coming when it did, the report was dynamite and became a big problem for the Government. It made life particularly hard for the Nationals and rural Liberals. Road funding is always a controversial issue in the bush. Although the Government had put a lot of extra money into the Roads for Recovery program, there was still a real hunger for additional spending in this area.
Murdoch papers, particularly the Sydney Daily Telegraph, carried the story in lurid terms. The Australian’s headline on 9 February was ‘Drivers Short-changed $3bn’.1 Neil Mitchell went absolutely ballistic. A balanced and intelligent interviewer, Mitchell nonetheless had strong views about the state of Australian roads and the price of petrol. He rightly saw fuel prices as a sensitive hip-pocket issue for the Australian voter and never lost an opportunity to cross-examine me on the price of petrol. I had an extremely difficult interview with him. I was quite defensive. It had come from nowhere, and I was ill-prepared to handle it.
In retrospect, it is easy to see the Auditor General’s report as the spark that ignited the combustible fuel. There was latent concern and mistrust amongst Australians about the price of petrol, with the nagging sense that the Government may have diddled them when the GST was introduced. A report of this kind, particularly coming from the Auditor General, who sounded so utterly impartial, did the trick.
Meanwhile, the Liberal Party had gone through a lively process in choosing a candidate for the Ryan by-election. Michael Johnson, who later won the seat but later still lost his party membership over fund-raising issues, had been ruled ineligible by the Queensland division, thanks to a citizenship issue. The candidate ultimately chosen was the former Queensland party president Bob Tucker, the man I wanted. He was a highly successful businessman who had done a first-class job as party president in the 1996 election campaign. Subsequently, he had been ejected from the presidency through some kind of factional vengeance, which made no sense to me at all.
By early 2001, our private polling showed that the by-election was going to be extremely hard for us to win. There was not only the petrol issue but traditional Liberal voters do not like by-elections. They are far less tribal than Labor voters, and are perfectly happy to kick their own party in the shins in a by-election, with the intention of returning to their traditional allegiance when it really matters.
In the middle of the Ryan campaign came the result in Western Australia, which saw the defeat of the Court Government. The media exaggerated the federal implications of Court’s defeat and Hanson’s resurgence.
Despite the volume of criticism at the first joint party meeting of the year, Peter Costello was reluctant to move on the content of the BAS. On 21 February I convened a meeting in Sydney which included representatives of business organisations both large and small, the Taxation Office, Treasury, the Treasurer and me. The purpose of this meeting was to create a consensus for change in the format of the BAS.
Ian Macfarlane, the member for Groom, who had had plenty of small-business experience as a grain grower, made a valuable and practical contribution to the meeting. He had recently been appointed Minister for Small Business. After consistent pressure from me, Costello agreed on essential changes to respond to properly based criticism of the BAS. His slowness in responding was an illustration to me of his pointless stubbornness on issues where the case for flexibility and change was overwhelming. We were, after all, dealing with an essential part of our core constituency, small business.
The much harder issue was that of petrol. I concluded that we were fighting an unwinnable war on this issue. The public had it in its mind that, one way or another, the Government had cheated them on the petrol excise issue. They believed that inadequate compensation had been provided, through excise reductions, in response to the introduction of a GST on petrol.
I called a dinner meeting at the Lodge on 28 February 2001 of the leadership group of the Deputy Prime Minister, the Treasurer, Robert Hill, Richard Alston, Mark Vaile as Deputy Leader of the National Party and myself. I told them that I thought our political situation had deteriorated markedly since Christmas, and that the major problem was fuel. The public, in my opinion, believed it had been cheated by the Government and a big gesture was needed to turn things around.
There were two possible courses of action. We could cut the excise by a specific amount and/or we could abandon six-monthly indexation of petrol excise. The latter was a particularly sensitive issue. It had proved absolutely impossible to explain how, at a time when the price of crude oil was quite high, a further hike in the price of petrol, through an automatic increase in excise, could be justified.
I said that in order to repair the political damage it would be necessary to do both. We had to cut the excise by 1.5 cents per litre and, as well, abandon automatic indexation of fuel excise. Peter Costello did not like doing both. I could understand his viewpoint as Treasurer. On the other hand, we had allowed both the petrol excise and BAS issues to run on for too long, and we were trying to recover ground from a defensive position.
The very next day I made the necessary announcement. I took advantage of the change of policy to apologise to the Australian people for having misread the situation. Having decided to reverse our stance, it made no sense to soft-pedal on the scale of the change. In a joint news conference with John Anderson I said, ‘Let me make it clear that I was plainly wrong in not understanding some of the concerns held by the Australian people about the price of petrol and I acknowledge that.’
Every so often the public both respects and welcomes admissions from a government that it has got things wrong. Such admissions should not be required too often, and they should only occur when the issues at stake are important. The public never believes that a government is infallible, quite the contrary. Thus occasional acknowledgements of error are refreshing.
My parliamentary colleagues welcomed the petrol excise announcement. It well and truly lanced the boil on that issue, and said to a lot of them that, as Leader of the Government, I was willing to take pragmatic decisions, owing as much to political reality as economics. The petrol decision had major revenue implications, especially the dumping of automatic half-yearly indexation. I knew this, but I also knew that our political position had eroded.
To validate the adage that ‘it doesn’t rain but it pours’, we faced a one-off transitional glitch flowing from the new tax system. The introduction of the GST on new dwellings had the effect of dragging forward much construction activity before 1 July 2000. Thus an impact on building industry activity in the December quarter 2000 was expected, but when the figures came out, early in March, the activity collapse had been much more than anticipated. The Australian economy had actually contracted by 0.6 per cent in the December quarter.
This news rocked the country. With a huge banner headline, the Sydney Morning Herald declared, ‘Australia hits the wall’.2 It was obvious what had happened, and even then it seemed likely that there would be a recovery in subsequent quarters.
I was not, however, in the mood to take any chances on this. I had a brief discussion with Arthur
Sinodinos as well as one or two senior economic people in my own department. I resolved that there should be an immediate doubling of the First Home Owner Grant for an initial period which would end on 31 December 2001. Peter Costello was of the same opinion and readily agreed with my proposal. I went ahead and announced it. It received widespread support and was seen as a practical response to a difficult problem.
The Ryan by-election saw a swing of 9.6 per cent against the Liberal Party, with a narrow victory for the Labor candidate, Leonie Short. The result was still in doubt on the night, but the early postal-vote count began to favour Bob Tucker and, on the Monday after the by-election, I was hopeful that he would just make it. His rally petered out, and Labor won the seat. It was a huge blow for the Liberal Party, but calm analysis explained the reason. In the last week of the campaign, I had doorknocked part of the electorate. Voter after voter welcomed me in a friendly manner, but indicated that they had no intention of voting for our candidate because they thought that the by-election was completely unnecessary. They quickly assured me that come the general election they would naturally resume their normal Liberal voting habits.
The Ryan experience taught me never again to have an unnecessary by-election. The truth is that public attitudes, especially amongst Liberal supporters, have changed a lot on by-elections. They are widely seen as a complete waste of taxpayers’ money and indulgences by political parties and local members who are unwilling to fulfil commitments made to their voters.
Although badly shaken by the loss of Ryan, the party was mollified by the fact that decisive action had been taken on issues concerning my colleagues. There had been changes on petrol excise and the BAS. As well, the speedy response with the First Home Owner Grant had pleased the party room. They realised that I was not interested in dying wondering as to whether some tweaking of policy might be needed to improve our political position.
As 2001 went on, there was no shortage of drama on the economic front. In April the Australian dollar fell well below US50 cents. From an economic standpoint, this was not in itself something to be alarmed about. It nonetheless concerned people who saw the value of the Australian dollar against the American dollar as a measure of our nation’s economic strength. Not long afterwards our dollar began a recovery as the impact of the ‘tech wreck’ in the United States began to affect the greenback.
It was an enormous reassurance to me that, in Ian Macfarlane, Australia had a Reserve Bank governor who would respond calmly in a difficult situation and resist those who believed in kneejerk reactions, such as a sharp increase in interest rates, in the hope of lifting the value of the Australian dollar. In his view, as Australia had a floating exchange rate, we should allow market mechanisms to work their way through. Part of the market mechanism involved periodic buying and selling of currencies by the central bank. This was an essential element in smoothing currency fluctuations, not a vehicle for overturning them.
Then out of the blue in May there was the Shane Stone memo. After the easy win by Labor in the Queensland state election on 17 February 2001, Shane Stone had, as federal president, met most of the Queensland senators and members to get their views on why the Coalition had done so poorly in that state poll, and generally obtain their assessments of our federal standing. He sent me what purported to be a summary of their opinions. It was a colourful document. It would have made more sense if Shane had called on me with an oral debriefing. In any event, he didn’t do that. Amongst the observations he passed on was that the Government was seen increasingly as ‘mean and tricky’. Regrettably, that description would keep being thrown back at us.
In its slant, the document was particularly critical of Peter Costello. After reading it, I put it aside. I did not raise it with Peter. Most of the issues canvassed were now ancient history. We had acted on petrol excise as well as the BAS. We had responded immediately to the December quarter GDP slump, and by early April there was evidence that this response had borne fruit. I forgot about the memo until its explosive publication early in May.
Laurie Oakes had obtained a copy. He ran a Bulletin article on its contents and, naturally enough, he made a meal of it on Channel Nine.
The revelation of this memo was both painful and extremely difficult. I did not release it or, in any way, authorise its release. Its publication was bad for the Government, bad for me and bad for Peter Costello. To the best of my knowledge, there were only ever two copies. There was the one Shane Stone sent to me and, of course, the one which Shane himself retained.
Not surprisingly, Peter Costello was furious, especially as so many of the remarks in the memo were directed towards him. He and Shane had never enjoyed a close relationship. He saw Shane as a ‘Howard man’. I assured Peter that the document had not come from me. All up, it was an intensely regrettable incident, which hurt the Government. The Labor Party and the press had a lot of fun at our expense. To this day I do not know where the leak came from.
I delve more extensively into my relationship with Peter Costello in Chapter 44.
2001 was proving to be an extremely difficult year. The Labor Party had enjoyed a good polling position for some months, and commentators began to heavily discount the Coalition’s prospects of winning the election at the end of the year. Early in May, Newspoll had my satisfaction rating at 31 per cent.
On 10 May 2001 a commemorative sitting of the federal parliament took place in the Victorian parliamentary chamber. It had been preceded the day before with something of a re-enactment of the famous Inauguration of the Commonwealth in the Royal Exhibition Building, so memorably captured in the marvellous Tom Roberts painting. This event was surrounded by other centenary celebrations. One of them was a full-scale Labor dinner, complete with plenty of hubris and exaggerated predictions regarding the outcome of the next federal election.
Through all of this I maintained a total focus on rebuilding the Government’s political support. The Government had been a good one viewed against the fundamentals, particularly of the economy. Unemployment had fallen steadily, interest rates were lower, debt was being repaid, and in May of 2001 Peter Costello would bring down his fourth successive surplus budget.
Major taxation reform had been implemented. The once notoriously inefficient Australian waterfront now had world-class productivity levels. We had commenced the privatisation of Telstra and established a major environmental trust fund. Mutual obligation had become a cornerstone of Australia’s welfare system. On the international scene, Australia had led the liberation of East Timor and restored balance to our external relations.
There was still plenty to do, but the case to be put for the Government was a compelling one. To my mind we needed to address genuine areas of concern and be willing to act decisively in so doing. That had happened in relation to petrol excise, the housing slump and the BAS.
The next area to which I turned my attention was that of older Australians. Historically, Australians over the age of 55 gave above-average support to the Coalition. Many older Australians, particularly self-funded retirees, felt nervous about the GST. On the one hand, they bought the argument that it was in the long-term interest of Australia to have taxation reform. On the other hand, however, largely being people on fixed incomes, they were apprehensive that the value of their savings would be eroded, and that there would be inadequate compensation for the impact of the introduction of a tax on most of the goods and services which they purchased.
In the months preceding the delivery of the budget in May of 2001, I had regularly put to Peter Costello the need for the budget to address these concerns. We discussed in detail what these initiatives might be, and on budget night, the Treasurer announced a suite of new policies specially directed towards older Australians.
They included significantly more generous taxation treatment as well as a liberalisation of the entitlement to the Commonwealth Health Card, regarded by older Australians as a most valuable possession. Furthermore, there was a one-off bonus of $300 for this age cohort, the firs
t of many such one-off bonuses for particular groups.
Commentators have been critical of one-off bonuses. What they fail to realise is that one-off bonuses make far more economic sense than permanent increases in benefits. If circumstances change, then there is no ongoing commitment from the Government which has provided the one-off bonus. In this way such a practice is far more responsible.
Our spirits were lifted mightily on 6 June, with the release of the March quarter GDP figures showing growth of 1.1 per cent for the quarter. It was direct evidence that our policy change on the First Home Buyers’ Grant had worked and, even more importantly, that the December negative figure had been a one-off aberration entirely due to transitional circumstances.
On the morning of 24 April Michael Ronaldson, the chief government whip, had telephoned me at 5.30 with the news that Peter Nugent, the member for Aston in Victoria, had died earlier in the morning of a heart attack. He had been with his wife at their home in Melbourne. Peter had won the seat from the sitting Labor member, John Saunderson, in the big Liberal sweep through Victoria in 1990.
Nugent had been a good local member. Although we had developed a warm personal relationship, Peter was of the ‘small l’ Liberal school of thought. He would not have shared my views on the republic or many aspects of Aboriginal policy. He argued against features of the 10-point plan in response to the Wik decision. Having, however, put his views in the party room, he accepted majority decisions and well and truly played the party game. He had won my respect and support. I felt the loss of him as a valued colleague and parliamentary friend.
For a short period there was speculation that his wife, Carol Nugent, might nominate for the seat. She was articulate, well liked and widely known in the electorate. In the end she decided against it and explained the reasons why in a conversation with me.