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

impossible, for Lynch to return to the Treasury. However, he wanted Lynch to reach that conclusion himself, rather than have it imposed on him from on high. Lynch was duly re-elected as deputy leader of the Liberal Party but indicated to Fraser that he would like to be minister for industry. He had realised that his position as treasurer was untenable, and Fraser was thus able to tell Howard that he would be continuing in the role, rather than be recorded in history as a stopgap treasurer.

Budgets and Bust-ups

Every treasurer of the 1970s grappled with international crises, revenue writedowns and burgeoning expenditure. Howard’s job as treasurer was made more difficult by three things: the unrealistic promises made by Fraser and Lynch before Howard’s ascension to the portfolio, the fact that he was a political junior and inexperienced, and an increasingly fraught and hostile relationship with his prime minister.

Howard’s tentative treasurership was overhung by promises made by Fraser and Lynch in both the 1975 and 1977 election campaigns. The 1977 promises, for example, were based on unrealistic Treasury forecasts on growth. While that year’s election campaign was Fraser’s to lose, the government had promised a continuation of tax indexation (the automatic increase in tax thresholds that is the equivalent to an annual tax cut) as well as new tax cuts. This was translated in Liberal Party advertisements into one of the more electorally powerful images of Australian political history: a ‘fist full of dollars’—advertisements that Fraser said he did not see until they were just about to go to air. Howard, as a junior minister, had thought the promises unnecessary, as the Coalition was always going to be unlikely to lose the election so soon after the 1975 landslide. The promise had also horrified Treasury deputy secretary John Stone, who advised that the tax cuts would only be affordable if they were accompanied by large spending cuts, which of course they were not. The 1977 Budget also assumed wages growth of 7.5 per cent, against the advice of the Treasury (the Department of Prime Minister and Cabinet had recommended the assumption that made the large tax cuts affordable, and the prime minister and treasurer had accepted this more optimistic departmental advice over Treasury’s warnings). Political analyst Paul Kelly describes the Liberal 1977 election campaign as ‘one of the most blatant appeals to greed in many years’.6 It was in many ways a continuation of Fraser’s approach in 1975. Despite a huge lead in the opinion polls and the implosion of the Whitlam government, Fraser had adopted a populist approach offering economic recovery without tough decisions. As future governments would realise, such overpromising leads inevitably to retreat and bitterly unfulfilled expectations. It would be Howard’s job to deal with his fiscal reality.

It was not long after the 1977 poll that the fiscal strategy the government had taken to the election began to unravel. Far from the 1978 Budget delivering continued indexation and a tax cut, Howard was forced to announce in the House of Representatives that ‘the Government has decided … to increase the standard rate of personal income tax as a temporary measure’.7 Each of the income tax rates was raised by one and a half cents. This was a massive blow to the credibility of the government and the new treasurer, even though Howard had not been responsible for the original promise.

Petrol prices rose three and a half cents a litre as the government decided to introduce import parity pricing, effectively deregulating petrol prices and allowing oil companies to charge motorists at the international level. So that the oil companies did not receive a windfall profit from this move, the tax on petrol was increased, meaning the windfall went to the Budget. Beer and cigarettes both copped the traditional tax increase, and the sales tax on cars went up substantially. An airport departure tax was introduced for the first time. The Medibank universal healthcare scheme was abolished, with its replacement, Medibank Private, a pale imitation of the original. The Australian Financial Review, accurately enough, called it the ‘toughest budget in nearly 30 years’.8 A sales tax was placed on therapeutic goods, including wheelchairs, leading to large protests by disabled people outside Parliament House and forcing Howard into a humiliating admission of error.

Extraordinarily, the Budget means-tested family payments based on the income of children. Howard was trying to stop wealthy parents from putting income in the name of their children while maintaining access to benefits. But in doing this, he inadvertently penalised young people with jobs that provided pocket money. This budget measure quickly came to be known as the ‘Newspaper Boy Tax’ and also had to be scrapped.

The Budget was responsible for a big decline in the poll rating of the government, and it was a major factor in the 12 per cent swing to future Labor treasurer John Kerin in the Werriwa by-election of September 1978, which had been caused by Whitlam’s retirement from politics.

Although the 1978 Budget was tough, Howard had the advantage that he and his prime minister agreed on the thrust of what needed to be done. Howard was helped by the fact that this was a post-election Budget and Fraser was prepared to support tough decisions in the hope of later tax cuts. Fraser had originally wanted to increase indirect taxation to avoid the increase in personal income tax, but Howard had been able to convince him that this was unsustainable. This was the case less and less, however, with each of Howard’s subsequent budgets. Fraser and Howard would increasingly differ and indeed bicker about how to respond to the worsening economic situation.

The prime minister and the treasurer viewed the second oil price shock in 1979 through fundamentally different prisms. Howard agreed with the Treasury, and with John Stone in particular, that this heightened the need for expenditure restraint and difficult cuts. Fraser thought the increase in the price of commodities would presage an income boom for Australia’s minerals exporters, which would, in turn,