The Money Men by Chris Bowen (superbooks4u .txt) 📕

of Representatives to whoops of joy from the Liberal opposition, who smelt electoral blood. The Liberal Party went to the 1987 election promising to abolish the capital gains and fringe benefits taxes, as well as promising to reverse the abolition of the tax deductibility of business entertainment expenses. It would be the first and last time the Liberal Party would make such a promise, and these reforms are now an accepted part of the taxation infrastructure.

Building on the success of financial deregulation and the partial success of tax reform, Hawke and Keating formally embraced the concept of micro-economic reform in the 1987 election campaign. Building on their reputation as superior macro-economic managers, they made a conscious decision to become the first prime minister – treasurer duo to adopt supply-side micro-economic reforms as a key plank in their economic policy. Hawke went on to make a speech calling for a change from a ‘complacent country to a productive country’. This was accompanied by a twelve-point plan for micro-economic reform. Although it looks piecemeal and unambitious by the standards of the reforms that followed, it was revolutionary at the time, calling as it did for the abolition of the restrictive two-airline policy, incremental reforms of work practices on the waterfront, deregulation of crude oil marketing, trade union amalgamation, and a focus on research and development.

Having been re-elected on this platform, Keating used his May 1988 economic statement not only to engage in macro-economic contractionary policies, but also to announce further micro-economic reforms. The most important of these was an assault on industry protection.

The last attempt to reduce tariffs had been Gough Whitlam’s 25 per cent, across-the-board tariff cuts. As Whitlam had found, reducing tariffs was difficult politics. Not only were tariffs an accepted part of economic policy, but they also took on an emblematic importance in terms of promoting national pride in manufacturing, and they were in keeping with the nation-building ethos that permeated Australia. As a result, Australia in 1988 was still one of the most protected nations in the world. But the protectionist regime that had reached its high point under Menzies’ trade minister, Country Party leader Jack McEwen, had debilitated the Australian economy. Australian consumers paid far more for goods than would have been the case in the absence of high tariffs, and industry was shielded from the need to innovate to remain competitive. World trade exploded from the 1950s onwards, but Australia’s sclerotic and protected industries did not benefit. Its share of world exports fell from 1.7 per cent in 1960 to just 1.1 per cent in 1987.32

Keating’s 1988 statement was a bold attack on protectionism. It came at a time when the economy was already undergoing substantial structural change, and there were plenty of people who cloaked their opposition to tariff reductions in the language of timing, arguing that there must be a better (much later) time to expose the economy to the rigours of competition. Nevertheless, Keating proposed a substantial reduction in tariffs, with a new two-tier regime of 10 per cent and 5 per cent to be introduced over four years. Largely as a result of this statement, the effective average tariff rate of 150 per cent that the Labor Party had inherited when it came to office in 1983 had shrunk to 20 per cent by the time it left office in 1996.

Hawke and Keating faced bigger obstacles in their efforts to privatise government enterprises for which federal ownership no longer made sense. Although by and large they eventually prevailed, the years of delay in implementing their changes were very costly to the Budget bottom line.

In 1988, the Cabinet proposed the privatisation of Qantas and Australian Airlines. Both were in need of substantial capital injections, and it was very difficult to justify the use of millions of taxpayer dollars to recapitalise companies operating in competitive markets. The ALP platform, however, committed the government to maintaining public ownership of the airlines. Indeed, the 1988 ALP National Conference was asked to authorise a change in party policy, but it instead referred the matter to a committee, which amounted to a repudiation by the party of Hawke and Keating. Eventually, the party accepted the arguments for the privatisation of the airlines, but by the time this had occurred in 1991, market developments in the airline industry had seen the value of the enterprises crash. The Australian people missed out on millions of dollars of return given that they could have received a much higher price if the airlines had been privatised when Hawke and Keating had first wanted to do it.

Hawke and Keating were generally unified on the need for robust micro-economic reform during Keating’s tenure as treasurer. One exception, though, was in the area of telecommunications. After the 1990 election, Keating mounted an argument for more robust reform of the sector than was being contemplated at the time. All in the Cabinet agreed that the issue of Telecom’s monopoly of telecommunications had to be addressed, but there was acute disagreement as to the best method. Hawke had appointed Beazley as minister for transport and communications, with a mandate for developing a telecommunications micro-economic reform agenda, and he proposed merging Telecom and the Overseas Telecommunications Commission (OTC, the government body responsible for international telephone connections) into one entity and allowing only one new competitor into the market. Keating saw this as a damp squib. He proposed instead that the OTC be sold to Telecom New Zealand in order to generate a ready-made competitor to Australia’s Telecom, with full deregulation allowing any other competitor who wished to join the market to do so. A robust argument followed, with Keating storming out of the Cabinet room at one stage in disgust at the timidity being shown by his colleagues. Beazley, meanwhile, who was a traditional supporter of Keating’s economic reforms, was offended at the lack of support from the treasurer for what he regarded as a sensibly packaged agenda. Eventually, a compromise was reached by which Telecom and OTC