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

Coalition leader who was in the most political trouble, however. Hewson had built his political persona around being a conviction politician. Yet he had stayed on as leader after saying he would resign if he lost the 1993 election. He had also dumped the GST as a policy after previously having said that the GST was not negotiable and vital to Australia’s future. It was now just a matter of time before his leadership came to an end, as the Liberal Party sifted through the available options. Matters came to a head in 1994 when Victorian premier Jeff Kennett accused the so-called ‘Costello camp’ of undermining Hewson in order to promote the shadow finance minister as a leadership candidate. Costello issued a furious public denial. Hewson then miscalculated. Assuming there were no candidates ready to take him on in a ballot, he called a leadership spill, only to have Costello organise a ticket led by Downer, with himself as the candidate for deputy leader. Downer subsequently beat Hewson by forty-six votes to thirty-six. Wooldridge did not recontest the deputy leader position and Costello was elected unopposed.

Costello exercised the deputy leader’s prerogative of choosing their own portfolio. As Shaun Carney writes, ‘This was Costello’s chance and he was going to grab it, even if his schooling in economics was minimal.’5 Aged thirty-seven, and after four years in parliament, Costello was now the shadow treasurer.

Despite an optimistic start, Downer struggled with the Coalition leadership. Keating quickly had his measure in parliament, and unforced errors made many question Downer’s viability as leader. He made one gaffe about the Liberal Party’s policy on native title, subsequently blaming his error on being emotional because he had attended a corroboree, when the corroboree in question had not yet happened. Downer attempted to reset his leadership by releasing a statement of underpinning Liberal values entitled ‘The Things that Matter’. But he blew it by showing appalling judgement in cracking a puerile and unfunny joke about the Coalition’s domestic violence policy being called ‘The Things that Batter’ in a speech to the Liberal Party faithful. Downer’s position was untenable.

There were only two viable candidates: Costello and Howard. Having been burnt by too many leadership ballots, Howard insisted that the party draft him for the leadership unanimously. Costello, who still regarded himself as unready for the most senior role in the party, agreed not to run.

The Labor government, now twelve years old, was ripe for defeat. And because the Liberal Party had chosen an electable, safe pair of hands in Howard, that defeat was almost inevitable. Accordingly, the March 1996 federal election saw a landslide win for the Howard opposition, and Costello was sworn in as Australia’s thirty-fifth treasurer.

The Holy Grail: Surplus

The element of Costello’s tenure as treasurer that distinguishes him from his predecessors is his establishment of a budget surplus as the most important economic policy and political goal of the federal government. This was a new phenomenon at the time. Paul Keating’s three budget surpluses in the late 1980s were very much the exception after a sea of postwar deficits. More than one treasurer (most notably Fadden) had forecast surpluses, but they had very rarely eventuated. The Menzies government had failed to deliver a surplus, and this had not been seen as a major failing.

Indeed, earlier treasurers had, on occasion, manipulated the presentation of accounts to avoid making it clear that the Budget was in surplus, because this would lead to accusations that the government was taking more money than necessary off the taxpayer. Previous treasurers had also occasionally used surpluses to dampen demand, in keeping with Keynesian strictures. Costello, however, did not care for fiscal policy as a demand-management lever, leaving the RBA to reduce and increase interest rates as it saw fit.

Costello does not dispute this analysis. As he told me in 2015:

The capacity to use fiscal policy for demand, particularly to create demand, is much more limited than Keynesian believers would have you think. It is very slow and very hard to turn off again. The policy we instituted was to use monetary policy for short-term demand management and to use fiscal policy for the medium to long term. That was a very conscious decision. Monetary policy works much more quickly. You don’t need legislation, you don’t need to get the infrastructure projects ready, you just announce an interest rate cut and bang, it’s done.6

There is plenty of empirical analysis that disputes Costello’s argument that fiscal policy is slower in having an effect than monetary policy. On the contrary, the evidence suggests that the lag in monetary policy is longer than that of fiscal policy, as it takes consumers quite a while to accumulate enough from reduced mortgage payments to have it effect their spending—not to mention the fact that plenty of people do not have mortgages or are net savers, so interest rate cuts actually reduce their consumption rather than increase it.

Surplus budgeting was not a key election promise of the Howard opposition, but it became a mantra early in the Howard government. Surpluses were equated with strong economic management and were seen as a good outcome in and of themselves. In his 1997 budget speech, for example, Costello told parliament, ‘Paying our way and then reducing our debt means our prospects are getting brighter and our opportunities are greater.’ Costello would use his considerable communication skills to turn his record into a potent political weapon. As Paul Kelly writes: ‘Surplus politics would become his economic pride and political magic. It is where he destroyed the Labor Party.’7

Costello’s political crusade to make his party the party of surpluses, and to undermine Labor’s credibility on the issue, began the day after his swearing in as treasurer. In keeping with usual practice, the secretary of the Treasury, Ted Evans, briefed the incoming prime minister and treasurer on the state of the books on the Sunday following the 2 March election. In May 1995, when delivering that year’s Budget, then treasurer Ralph Willis had forecast