18 August 2015
by Paul Keating

Paul Keating: I didn't need the Liberals' help to change Australia

It has become a creeping part of the orthodoxy of late that the reformation of Australia's financial, product and labour markets between 1983 and 1996 was not executed by the Hawke and Keating governments but was some kind of project undertaken with the active co-operation of the then Liberal-National opposition.

Nothing could be further from the truth.

And while I appreciate John Howard's compliment of yesterday to Bob Hawke and to me about the quality of those changes, and I do, the then opposition's occasional common cause with the then Labor government is not and never was the reason for the changes being made. Or their facilitation.

The Liberal and National parties were in office for 34 years between 1949 and 1983, bar the three years of the Whitlam government. During those years they stuck to the old closeted, protected model of the economy.

The reformation of the economy between 1983 and 1996 was conceived radically. And conceived politically, not bureaucratically. Its aim was to dismantle the whole Deakin legacy and model of national protection. To fully internationalise the economy. This was not a case of incrementalism, which was always the stock in trade of the Coalition parties. It was not even accelerated incrementalism. It was the complete overthrowing of the old model. From the exchange rate through to the product markets and down to enterprise bargaining. The full monty.

The decision to float the exchange rate, which effectively I first took privately with Bob Johnston, the then Reserve Bank governor, and with Bob Hawke, in May 1983, was a risk. A risk Bob and I were prepared to take to crack Australia's hard outer shell. To crack the nut. I didn't need the opposition. And I didn't need to ask John Howard and didn't. I was prepared to take the risk, and take it on the chin if it went wrong.

The same with the financial markets: removing deposit maturity and lending controls, and in 1986 deregulating housing interest rates. I took both lots of decisions. The party was the problem, not the opposition. The caucus wanted to retain fixed rates for housing with consequent lower-level loans. I didn't need the opposition and didn't seek its support. And the same on the tariffs. My problem was getting the Labor Party, the employer groups and the trade unions into the two big rounds of tariff cuts, without spitting the Accord dummy. Or worse, industrial action.

John Howard says that his opposition supported the tariff cuts. Generally, they did. But the hard part was persisting with the cuts politically, particularly during the worst years of the recession, when any other government would have walked away from them. As prime minister, I took the heat in Victoria from individual companies, employer groups and unions. Whether the opposition supported the cuts mattered not a jot to me in their retention.

And finally, the labour market. It was the Keating government that removed centralised wage fixing after 90 years, to move to a system of enterprise bargaining with a safety net. I no more needed the then opposition's support for this than I did the earlier measures. I simply announced it to a business audience in 1993. The real problem was, again, not the opposition: it was the unions and the legacy of the former industrial relations framework.

The fact is, the economy was radically changed; by cheek and by jowl as part of a comprehensive philosophic policy. This was achieved by 13 years of hard slog. And attempts now at rewriting the history, that it was all, in some way, facilitated by the then opposition, are simply a piece of gratuitous aggrandisement.

The Accord with the trade unions was central in turning a nominal depreciation in the exchange rate into a real depreciation. That's where the competitiveness came from. The necessary wage cuts for this were buttressed by agreed tax cuts and the social wage. John Howard, as opposition labour spokesman, opposed every wage increase proposed under the eight versions of the Accord. Every one. Like he and his party opposed the introduction of Medicare, which was then the Accord's key social measure. Like he and his opposition opposed the introduction of compulsory superannuation, which was another major Accord trade-off for continuing wage restraint. And that Accord and those wage cuts, in the main, broke the back of Australian inflation. For the first time in two decades we had inflation down to 1 and 2 per cent. Of course, the interest rates helped. But even the interest rates were lifted to protect the Accord and its wage restraint from another disastrous wage blowout in the burgeoning economy of 1988-1989.

The whole policy matrix was complex, interrelated and co-operative. The opposition was simply not part of it. Not philosophically, not practically.

The same with the tax system. I cut John Howard's top personal rate from 60 per cent to 47 per cent, as I cut his company tax rate from 46 per cent to 33 per cent, while introducing full dividend imputation. Did I really need the opposition's support for this? And even then, they opposed the capital gains tax, the fringe benefit tax and other changes to corporate tax welfare. For without the capital gains tax and the fringe benefit tax, I would not have had Labor caucus support for the massive personal top rate cut or the company tax cut, let alone imputation. Without Don Chipp and the Democrats, I would never have got the big tax reform package through.

John Howard never understood that you can't support some bits of a big tax reform without the balancing bits.

The fact is the Labor government 1983-1996 completely remodelled the country. And it did it with Australia's trade unions under a formalised process, and not the federal opposition. That's the fact of it.

I give John Howard credit for his GST. It changed the tax mix but, of course, it never changed behaviour. And in his 12 years of office, I can think of no other change or group of changes which altered the micro-economy or trend productivity. He and Peter Costello walked away from competition policy as they did from lifting superannuation to 15 per cent of wages. And I don't regard WorkChoices, which was fundamentally an attack on the safety net and the right to bargain collectively, as a reform. It was just a nasty piece of ideology.

In good spirit, I appreciate John Howard's compliments. As Oscar Wilde said, "Anyone who doesn't like flattery has never been flattered." But I don't want him employing that sort of charm to either change the history or use it as some sort of battering device against the current opposition.