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

policies, which prescribed that governments should target a rate of money supply growth, also increased the momentum for deregulation.

The first moves occurred under the Whitlam government (as did the first move towards trade liberalisation with the 25 per cent tariff cut). In 1973 the government moved to deregulate the interest rates that trading banks could pay on wholesale deposits. This was a very modest but nevertheless important initial move.

In his 1975 election policy speech, Fraser promised a review of regulation in the financial sector. The language was opaque and would have gone largely unnoticed, but it was there nonetheless: ‘There will be a comprehensive examination of the ways in which the efficiency of the Australian capital market can be improved with special reference to the availability of finance for the expansion of small business investment.’ Nothing happened regarding an inquiry in the first term of the Fraser government, nor were there any steps towards deregulation. Accordingly, Fraser made the same promise in the 1977 election campaign. It now fell to Howard as the new treasurer to appoint the members of the review and craft the terms of reference. But it was key behind-the-scenes players like Visbord, Castles and Rose (supported by Hewson in Howard’s office) who lobbied hard to ensure that this time, the opportunity for a major and independent review was not lost.

In early 1978, when he had settled in after his first few months as treasurer, Howard started the process of establishing the independent review that would eventually become the Campbell Inquiry, which would set the framework for financial deregulation. But Howard was not a particularly enthusiastic or fast worker on the project. In February 1978, the Co-ordination Committee of Cabinet asked the treasurer to come forward at its next meeting with the terms of reference, proposed membership and other arrangements for the review.25 Howard asked for a delay. It was not until October that Howard came back with a proposed list of names; he was clearly inclined towards deregulation at this time, but it was not at the top of his list of economic priorities. Howard’s recommended members, led by Sir Keith Campbell, executive chairman of the LJ Hooker Group, were all sound appointments from the business community who were likely to support a more deregulatory approach to financial laws.

Two other key moves were also made in 1978: the Department of Prime Minister and Cabinet and the prime minister’s office pushed for a more market-oriented approach to both setting the interest rate of government bonds and setting the price of the Australian dollar. In regards to government bonds, what seems from today’s perspective like a natural and incremental decision was highly controversial within the Fraser government. Fraser pushed hard for change, while Howard, initially at least, was highly resistant. It was only after an agonising process that the Fraser government eventually made the correct decision to let the market decide the interest rate on government bonds. Many years later, former RBA governor Ian MacFarlane described it as the second most important decision after the floating of the dollar.

The Fraser government did not, however, make the move to a market-based system for the dollar. This decision, the most important of all the decisions made in the deregulation process, one that instilled in the government and the markets a discipline that made further economic reform an imperative, was left to treasurer Paul Keating to make five years later.

In 1976, together with a devaluation of the dollar, the Fraser government had taken a small step towards a more sensible way of setting the value of the Australian dollar. Previously, Cabinets had agonised over movements in the price of the dollar. This had been a particularly vexed issue for coalition governments, with the Country Party fiercely resisting moves to revalue the dollar because it would make it harder for Australian agricultural goods to compete in overseas markets. So the Cabinet had adopted a new system under which one official from each of the Department of Prime Minister and Cabinet, the Treasury and the RBA would meet regularly and make small adjustments to the exchange rate. This ‘dirty float’ of the dollar was more rational than the previous policy of having the full Cabinet approve every move in the exchange rate, but it did little to engender more market rigour in the process of setting the price of the dollar.

In early 1978, the Monetary Policy Committee of Cabinet, spurred on by strong pro-market advice from the Department of Prime Minister and Cabinet, asked Howard to bring forward a paper on the benefits of the market determining the exchange rate. Howard did not jump at the opportunity to argue for a float of the dollar. Instead, in March, Howard presented the committee with a paper that had been prepared by the Treasury and the RBA, which argued that a ‘comparison of Australia’s recent experience with that of other countries where exchange rates are determined more directly by market forces does not present a convincing case for a basic change from our present forex arrangements’.26

In fairness to Howard, it was difficult for him to argue for a float of the dollar with both the Treasury and the RBA implacably opposed. He could, however, have latched on to the advice of the Department of Prime Minister and Cabinet, which was scathing in its analysis of the Treasury position:

We doubt the argument that speculation is destabilising. Some personal prejudices seem to creep into the Treasury/Reserve Bank paper on this issue … In a market based system the rate moves. In a fixed system rates move. We therefore regard the argument as sufficiently strong to move to a market determined spot and forward exchange rate system, with intervention to be determined from time to time by the government.27

That the Prime Minister’s Department was arguing with passion for an eminently logical position was not enough to overcome the inertia engendered by a hostile Treasury and RBA—that is, not without a treasurer willing to buck his department’s view. In