Lazarus Rising. John Howard

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СКАЧАТЬ promises from the first term of the Fraser Government preoccupied my early months as Treasurer. Treasury told me, shortly after the election, that the 1977 budget revenue estimates would not be realised. This was due to the average weekly earnings issue, already mentioned, as well as early predictions of expenditure over-runs. So from the beginning of 1978, it became increasingly apparent that my first budget would be extremely difficult. Australia still had a large budget deficit, although Lynch had made an impact on this in his first two budgets, and inflation, despite having fallen, was still quite high. Very unpopular decisions would be required if a significant reduction in the budget deficit were to be achieved.

      Then there were the interest-rate predictions made by both Malcolm Fraser and Doug Anthony during the election campaign. Interest rates in Australia at that time were high, and financial institutions within the traditional banking sector were still tightly regulated. Fraser and Anthony predicted during the campaign that interest rates would fall by 2 per cent during the next term of office. Fraser said in the campaign, ‘Falls in important interest rates could add up to a total of 2 per cent within 12 months.’ Doug Anthony said that if interest rates did not fall by 2 per cent he would eat his hat. The statements were not only wildly optimistic, but also politically unnecessary.

      At that time, bank lending and borrowing rates were subject to controls administered by the Reserve Bank. All savings bank housing loans and overdraft or business loans under $100,000 were caught by the controls. But the Government effectively decided those rates because, in administering the controls, the Reserve Bank normally reflected the views of the Monetary Policy Committee of cabinet. That committee met regularly, was chaired by Fraser, and as well as me as Treasurer, included Doug Anthony, Ian Sinclair and Peter Nixon plus Phillip Lynch and Reg Withers. The secretary of the Treasury and the Reserve Bank governor normally attended its meetings.

      Thirty years on, this may sound an interventionist system, but it was not until the election of my Government in 1996 that the bank was given full independence to set interest rates. Although there was some early success on the interest-rate front in 1978, with a small reduction, there was never any hope that that 2 per cent prediction could be realised. Increasingly, monetary conditions ran in the opposite direction.

      From the beginning, the interest-rate issue caused a lot of tension between the PM, the RBA and me. Fraser felt that the bank was dragging its feet on cutting rates. This was nonsense. He should never have made such a specific prediction in the campaign. I was caught in the middle. The Monetary Policy Committee once talked about invoking section 11 of the Banking Act, which enables the Government to direct a monetary policy move by the bank, provided the reasons for the direction and the RBA’s contrary view are tabled in parliament. I thought that such a move would be extremely damaging for the Government, because on the economic merits there was no justification for a further cut in interest rates. As part of the debate with the bank, I was asked by the Monetary Policy Committee to meet the RBA board and argue the case for a rate reduction. I felt uncomfortable carrying this brief, and simply went through the motions. Quite justifiably, the RBA did not shift. My discomfort was increased by the presence, as an RBA board member, of Bob Hawke. Fortunately, my senior colleagues thought better of invoking section 11.

      Within a few months of becoming Treasurer, it was clear to me that far from interest-rate controls keeping interest rates low, they were having the opposite effect. Banks could not attract enough money to lend for housing because the controls to which they were subject prevented them from offering sufficiently attractive interest rates to attract funds in the first place. Increasingly, as time went by, the solution seemed to me to be the removal of those controls.

      The winter of 1978 was consumed with preparing the budget, and I knew it would be extremely unpopular. The expenditure-cutting process was made even more difficult because Eric Robinson, the Finance Minister, was sidelined because of a Royal Commission. I carried both portfolios. It was a lonely exercise. Any euphoria about being the youngest Treasurer had gone. I was determined to cut the deficit, but at every turn I met solid resistance from colleagues defending their patches. There would be no last-minute revenue surge to relieve the pain. The early forecasts were that, for the first time in 20 years, the Government faced a reduction of revenue receipts in real terms.

      The main purpose of the budget, delivered in August 1978, was to cut the deficit, preferably through spending cuts, although some tax increases were needed to achieve the desired result. There was a temporary income-tax surcharge, steep increases in excise duties on spirits and cigarettes, taxation for the first time of certain lump-sum payments, the introduction of an airport departure tax, the elimination of home-loan interest deductibility (which had only been re-introduced by the Fraser Government in 1976), and the tightening of conditions relating to estimating provisional tax.

      The big long-term policy announcement in the budget was that Australian crude oil would, in future, be sold domestically at the higher world market price. It was not popular because it pushed up the petrol price by 3.5 cents a litre, but it was good policy. It priced a wasting resource at its market value — surely sound conservation policy. The price increase for crude oil meant that, overnight, oil companies would potentially enjoy a windfall profit gain, so the Government increased the production levy imposed on oil companies to the level necessary to ensure that all of the windfall gain went to the Treasury as revenue, and not to the companies.

      The budget was seen as mean and nasty, although some grudging commentary indicated that the Government was at least trying to hold onto its economic fundamentals. The problem was that it was the kind of budget that should have been introduced (with some modifications) in 1976, not two years later. The public thought that the Government was taking back things which should never have been given in the 1977 budget.

      Malcolm Fraser was very unhappy about having to take back any of the personal income tax cuts. He had been the real author of them in the 1977 budget. The initial decisions we had taken for the 1978 budget did not include the temporary income tax surcharge. Fraser had wanted a range of increases in indirect taxation, so as to preserve the 1977 tax reductions. At the last moment I persuaded him that we should substitute an income tax surcharge, as the indirect tax increases would have a very negative impact on the consumer price index, thus blunting the impact of our ‘fight inflation first’ strategy.

      Thirty years later, reading through the budget speech of 1978, I was struck by how big an emphasis I placed on the wage-fixing decisions of the Conciliation and Arbitration Commission. It was a reminder of the distance Australia had travelled concerning industrial relations — until Julia Gillard’s Fair Work Act reversed much of the progress of the past 25 years — and how all-pervasive, and therefore inimical, a centralised wage-fixation system had been for the Australian economy.

      Nasty and unpopular though it was, the 1978 budget did lay the foundation for the next two budgets and was, therefore, important in setting up our economic credentials for the 1980 election. If delivering an unpopular budget is a measure of economic responsibility, then this had been a most responsible budget. Later, whenever I heard Kevin Rudd boast about all the ‘tough’ economic decisions he had taken, I rolled my eyes and thought of my first budget, more than 30 years ago.

      In his 1977 budget speech, Phillip Lynch gave a general warning that he would ‘crack down hard’ on artificial tax avoidance schemes. In April 1978 I was informed by the Commissioner of Taxation, Bill O’Reilly, that a particular tax avoidance scheme, called the Curran Scheme, was eroding revenue conservatively to the tune of $400 to $500 million a year, with some estimates putting the revenue loss well over $1 billion; O’Reilly recommended that the Government take immediate action to proscribe it.

      Cabinet authorised me to outlaw the scheme with effect from budget night 1977. Thus began my long and often very bitter campaign against the tax-avoidance industry, which lasted whilst ever I was Treasurer. At times it poisoned my relations with a large section of the WA Liberal Party; some of its major donors had been involved in tax-avoidance schemes. Some of my anti-tax avoidance activities helped fuel the Joh for PM campaign.

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