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

recession. It was a brutal one by historic standards, and was all the more keenly felt because the global economy had experienced several decades of stability and solid growth. The oil crisis was partly the result of the Yom Kippur War, which broke out on 6 October 1973, pitting Israel against Egypt and Syria. Combined with aggressive cartel pricing by the Organization of the Petroleum Exporting Countries (OPEC), it saw the price of a barrel of oil more than double between October 1973 and January 1974. By late 1973, OPEC had unilaterally increased oil prices by 70 per cent. In March 1974, the OECD noted of Australia that ‘It would appear beyond doubt that the spiraling world raw material and commodity prices as well as resurgent domestic demand added last year to what had earlier been cost pressures in the Australian economy.’28

This turmoil resulted in the phenomenon of stagflation—simultaneous high inflation and high unemployment—which had been unheard of until that time. The credibility of the Phillips curve, inspired by a 1958 article by New Zealand economist William Phillips, which posited that there is a direct trade-off between unemployment and inflation, was severely tested.

The Whitlam government actually took more measures to try to counter inflation than their conservative predecessors had, but until 1975, none of these measures were budgetary. Unlike its predecessors, the Labor government did not shy away from necessary revaluations of the Australian dollar. The government increased the value of the dollar by 7 per cent in December 1972, followed by an effective revaluation of a further 11 per cent in March 1973.29 Another revaluation of 5 per cent followed in September 1973. The decision to reduce tariffs by 25 per cent was as much an anti-inflationary measure as it was a necessary reform to bring about improved productivity. From December 1972, the government also attempted to deal with the large capital inflows that were fuelling inflation, by requiring compulsory deposits of 25 per cent of all inflows to be held as a deposit with the RBA, with no interest payable. The deposit requirement was increased to 33 per cent in October 1973, showing that the government was willing to take extreme action if necessary to deal with galloping inflation. And in keeping with an election commitment, the government established a Prices Justification Tribunal, before which large companies were required to justify price increases.

However, none of these measures worked to beat inflation (although inflation would undoubtedly have been even higher without them). In 1974 Australia surpassed the average OECD inflation figure; in June of that year, the annualised inflation rate hit 14.7 per cent. Tellingly, the measures did not include reining in expenditure growth until Hayden’s Budget of 1975.

Inflation above international levels eats away at national competitiveness, is highly economically distortionary and punishes people on low and fixed incomes much more than it disadvantages people on high incomes (this is because low-income earners have no choice but to spend a higher proportion of their incomes). It was necessary for the Whitlam government to explain the need for wages restraint. It was also necessary for it to explain the need for spending increases to be slowed, and for some programs to be deferred until better economic times. Cairns’ appointment as treasurer would mean that neither of these things would happen.

Hayden would show in his 1975 Budget that a reforming Labor government could still implement important improvements while embarking on spending constraint. It was a pity for the Whitlam government, and the country, that such an approach was delayed for far longer than it should have been.

The Morosi Affair

Cairns did not bring down a federal Budget. His main impact on economic policy actually occurred before he became treasurer, when he torpedoed Crean’s plans for a contractionary Budget. What did mark Cairns’ treasurership were two high-profile scandals. One was the Morosi Affair.

The furore that accompanied treasurer Cairns’ appointment of Junie Morosi to his private office is unimaginable today. But in the early 1970s, ministers’ offices were much smaller than they are today, and key appointments of people from outside the traditional Canberra beltway were much more likely to receive critical attention. In addition, the appointment of women to senior roles was much more a rarity than it is today. Just as with the criticism of prime minister John Gorton’s appointment of Ainsley Gotto to a key role in his office a few years beforehand, there is no doubt that there was a heavy hint of sexism in the commentary. It was also unusual at the time for an Australian of Asian background to be appointed to a senior position, and there was doubtless an element of racism in some of the commentary as well.

Morosi, through the friendship she and her husband David Ditchburn had with Senate leader Lionel Murphy, sought a meeting with Cairns because she was impressed with his writings. Cairns came to like her, and he appointed her his office coordinator in December 1974, when he became treasurer. At forty-one, Morosi was not especially young for such a position, but she lacked the political and administrative experience usual in a principal private secretary to the treasurer. And her good looks and exotic background drew immediate attention.

Several days after her appointment, the Liberal backbencher John Howard alleged, under parliamentary privilege, that Morosi and her husband were directors of companies under investigation by the NSW Corporate Affairs Commission. Whitlam immediately wrote to NSW premier Sir Robert Askin, asking him to verify the accusations. Morosi decided to stand aside while the accusations were investigated, and Cairns subsequently rehired her following confirmation from the NSW Government that the Corporate Affairs Commission had no concerns in relation to the conduct of Morosi or her husband.

Cairns’ press secretary, Geoff Gleghorn, later resigned in protest not only at Morosi’s rehiring, but also at her naive decision to grant a series of interviews to Sydney Sun journalist Toni MacRae, who was married to the Liberal candidate for the federal seat of Phillip. The same journalist interviewed Cairns