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

Hawke convened a Cabinet meeting while on the phone from Beijing, with Bowen chairing the meeting in Canberra. What followed was extraordinary. Hawke opened the meeting by summarising the position that he had already briefed the media on. When Keating intervened, Hawke, pretending he didn’t recognise the voice of his treasurer, asked ‘Who’s that?’ ‘Who the fuck do you think it is?’ Keating replied. When a Cabinet colleague cautioned that Chinese spy agencies would be listening in on the call, Keating was robust in his response: ‘Fuck the Chinese.’ The relationship between the prime minister and his treasurer had reached a new low point.

Keating got his way with the policy. Two long Cabinet meetings were convened on Hawke’s return to Australia, where it was agreed that there was a need, and public support, for drastic action. Hawke then decided, without reference to Keating, to give a prime ministerial address to the nation to deal with the crisis. He told viewers, in a slap in the face for Keating, that ‘the Government’s position is determined in the Cabinet room, under my leadership’. But Hawke also flagged some of the policies Keating was working on. This was the Hawke–Keating relationship simultaneously at its best and worst: they were at loggerheads over who was calling the shots, but they used their complementary and extremely effective communication skills to win the public debate on economic policy.

The government settled on a two-pronged approach: dramatic spending cuts and wage discounting through the Accord. Neither would be easy to deliver. The Accord was under pressure, with the ACTU contemplating a wages campaign that risked a return to wages breakouts. Considerable spending cuts had already been undertaken in previous budgets. Keating knew, however, that he had to deliver.

In some senses, Keating’s task was made easier by another currency crisis that occurred in late July, as the ERC was finalising the Budget. This concentrated the minds of the prime minister and his ministers and kept up the pressure to deliver further spending cuts. Cabinet met on 28 July. Keating had a mobile Reuters screen with him and kept the Cabinet updated on the rapidly depreciating Australian dollar: it fell from 63 cents to 57 cents in one day, stabilising at the lower level only due to the RBA intervening in the market to put a floor under it. Kelly says of this meeting: ‘It is doubtful if any budget meeting in the last twenty-five years has been subject to such pressure.’22

Keating and Hawke agreed to go even further in terms of harsh budget measures: there would be zero real expenditure growth and a budget deficit of $3.5 billion, which was substantially below market expectations. This was an agreement that was purely between the prime minister and the treasurer. Cabinet was neither consulted nor informed until just before the Budget was delivered in August. The 1986 Budget was only the third in thirty years to achieve zero growth in real expenditure. Signalling the seriousness of the situation, it was also announced that there would be a 2 per cent real wage cut: the first time in the life of the Hawke government that such an announcement was made without consultation with the ACTU.

Despite the comparative toughness of the 1986 Budget, this was merely a precursor to the even more dramatic fiscal tightening that occurred in 1987 in response to a stubbornly high CAD. For the first time in its history, the ALP was making an electoral virtue out of a robustly contractionary fiscal stance. Keating was recommending to Hawke that he call a mid-1987 election off the back of a mid-year economic statement. Hawke resisted at first, but he then gave in to the logic of Keating’s argument. Keating and Hawke melded good economic policy and political strategy into a synthesised approach that was deadly to their political opponents, and that led to the re-election of the government in July 1987.

The economics of 1987 played out against a backdrop of political disaster for the Liberal Party. A quixotic bid for the prime minister-ship by Queensland’s National Party premier, Sir Joh Bjelke-Petersen, led to the formal break-up of the federal Coalition on 28 April. This was a devastating blow to Australia’s conservatives. The prospect of Howard leading the Liberal Party to an election victory without being able to rely on the votes of the National Party members of parliament in the House of Representatives was seen as technically achievable but highly unlikely.

Keating saw the opportunity to land a fatal blow. He did not want to abide by the normal timetable and bring down the next economic statement in August, so he issued a May economic statement of bold fiscal contraction. It would be the best received of the statements he delivered.23 The sums were substantial: $2.6 billion of cuts to recurrent spending were accompanied by $1 billion of asset sales (including $650 million for selling the Tokyo Embassy estate) and $400 million in tax rises. The reaction was just what Keating had hoped for. Journalist Des Keegan, writing in The Australian, said ‘Mr Keating has won his spurs with the first big rollback in government spending since World War II. Modern Labor has come of age.’24

Off the back of Keating’s statement, Hawke confirmed his decision to call an unusual winter election. The battleground was clear: Labor would seek to portray itself as the superior economic manager. In this endeavour, Hawke was helped by one of the most spectacular own goals ever scored by a federal opposition.

On 10 June 1987, opposition leader Howard travelled to Box Hill, in the eastern suburbs of Melbourne, to launch the Liberal Party’s tax policy. It was at once audacious, vague and flawed. Howard promised a huge $7.3 billion in tax cuts. He promised a flattened, two-tier personal income tax regime, with rates set at 25 per cent and 38 per cent. And he promised to reduce the corporate rate from 49 per cent to 38 per