tag:theconversation.com,2011:/uk/topics/cabinet-papers-1989-14136/articlesCabinet papers 1989 – The Conversation2014-12-31T22:34:48Ztag:theconversation.com,2011:article/357192014-12-31T22:34:48Z2014-12-31T22:34:48ZCabinet papers 1989: Keating’s Bringing Home the Bacon budget<figure><img src="https://images.theconversation.com/files/67736/original/image-20141218-31043-pw37n7.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Mercurial, visionary: Paul Keating was by far the most industrious treasurer Australia has ever had.</span> <span class="attribution"><a class="source" href="http://photos.naa.gov.au/photo/Default.aspx?id=11607935">National Archives of Australia: A6180, 15/2/93/25</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>A <a href="http://www.theaustralian.com.au/national-affairs/treasury/joe-hockey-the-worst-treasurer-in-40-years-opinion-poll-finds/story-fn59nsif-1227162450061">recent public poll</a> showed that of Australia’s recent federal treasurers, Peter Costello and even John Howard were rated higher than Paul Keating. Joe Hockey was rated the worst. </p>
<p>Today’s release of the 1988 and 1989 Cabinet Papers by the National Archives, covering the middle years of the Hawke-Keating government, might remind us just what a mercurial treasurer Keating was. He was also - by far - the most industrious and visionary treasurer Australia has ever had. Ask any economic historian.</p>
<p>Keating handed down more budgets and economic statements than any other treasurer. His comment about being worn out by the time he won the keys to the Lodge rings true. Keating also had a visceral grasp of economics; however, it easily slipped into hubris and it was that which would prove his undoing. </p>
<p>Under his watch Australia underwent an economic revolution, transforming itself from a closed inward-looking economy to an internationalised one. Tariff cuts, asset sales, microeconomic reform, APEC, the current account deficit, corporatisation and deregulation, switching the policy levers; this was the economic lingo of that time. Some called it economic rationalism, but that phrase would become a pejorative one after the 1990 recession hit. </p>
<p>The Bicentennial year was the year when Keating brought down the budget he said would “bring home the bacon” - all the economic reforms Keating had engineered and invested in would pay dividends. He announced a mega-surplus of A$9 billion, - but as things turned out, his policy mix sowed the seeds that would end in a recession. Australia’s overriding problem at the time was a persistent current account deficit on its balance of payments. </p>
<p>The fashionable way to deal with it in economic theory terms was to amass public savings in the form of a budget surplus. This was the twin deficits hypothesis; the idea being that the two deficits were inextricably linked. Fiscal policy was kept tight as a drum while monetary policy was used for short-term stabilisation. </p>
<p>By 1989 this policy mix was under strain, with interest rates reaching double digit levels to quell an economic and asset boom. It would all end in tears. Instead of the soft landing Keating promised, the economy crashed. It’s likely that the ordinary punters equate Keating’s reign as treasurer with 18% mortgage interest rates, even higher for those with business loans.</p>
<p>Despite the “celebration of the nation” hoopla of the Bicentennial, Keating’s first cabinet memorandum for 1988 was in grim undertaker mode; he expressed forebodings about an economy still spending beyond its means. Keating wanted further reductions in public spending to achieve “a sustainable situation in our indebtedness to the rest of the world”. </p>
<p>Keating secured a commitment from the trade union movement for more responsible wage outcomes and this played their part in shaping a responsible economic policy. Keating pressed ahead with micro-economic reform. He announced a “mini budget” known as the May Economic Statement. The Hawke government committed itself to the largest tariff cut since Gough Whitlam’s infamous 25% cut in 1973. The Statement also cut business taxes, reduced government spending and reduction in assistance to the rural sector and deregulation of the telecommunications industry. The Hawke government was intent upon reducing assistance to manufacturing even though it had not been in the government’s electoral platform when first elected in 1983. </p>
<p>While industry minister, Senator John Button, welcomed the phased reductions in tariff assistance, he was beginning to think that there was not enough investment in building capacities to build things. While Button got Cabinet to offer grants to keep the <a href="http://www.powerhousemuseum.com/australia_innovates/?behaviour=view_article&Section_id=1020&article_id=10041">Sarich orbital engine</a> in Australia it was insufficient. In 1989, the Eastman Kodak film plant in Coburg decided to remain in Australia - but only after the Prime Minster intervened to offer more grant assistance. This went very much against the wishes of the Treasury. </p>
<p>In 1989 Keating informed cabinet that despite a recovery in export prices there was a danger of an inflationary boom and “a wage blowout”. Another mini budget was brought down, this time in April, with the states bearing the brunt of the cuts in reduced grants. </p>
<p>It was accompanied by further announcements on rationalisation of government business enterprises, lifting controls on their operations and enhancing their “market orientation”; asset sales were mooted starting with the government’s uranium stockpile, the Commonwealth Serum Laboratory and Cockatoo Island Dockyard. The more sensitive idea of selling off assets like the Commonwealth Bank, Telstra and Qantas would come in the 1990s.</p>
<p>The other significant import from these Cabinet papers was to act on an earlier green paper on higher education reform, specifically, to locate where the funding would come from to afford the sector’s expansion. In July 1988 Cabinet accepted the idea of ending the “isolation” of the tertiary education sector “from the major changes occurring in Australian society and the economy”. There were two aspects to this reform brought into play by federal education minister, John Dawkins. </p>
<p>Firstly, all tertiary institutions were to join a unified national system that would allow Canberra a greater purview over teaching, research and management. Colleges of Advanced Education would be transformed into universities with a few amalgamations along the way. There was a gold-rush of professorships in the offing. </p>
<p>The second part came in a submission in January 1989. Dawkins recommended to Cabinet the adoption of a Higher Education Contribution Scheme on the premise that domestic students, as beneficiaries of a university education, bear some of the costs through the tax system of their tuition. The Cabinet was heartened that public opinion supported the idea and moved to implement it.
Changed days today, with the electorate not so keen in lumbering the young and beautiful with more tax debt.</p><img src="https://counter.theconversation.com/content/35719/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alex Millmow does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A recent public poll showed that of Australia’s recent federal treasurers, Peter Costello and even John Howard were rated higher than Paul Keating. Joe Hockey was rated the worst. Today’s release of the…Alex Millmow, Senior Lecturer in Economics, Federation University AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/356912014-12-31T22:34:47Z2014-12-31T22:34:47ZCabinet papers 1989: The origins of Asian engagement<figure><img src="https://images.theconversation.com/files/67873/original/image-20141221-31573-o1za3k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Bob Hawke on a 1984 visit to China. His government implemented policies which boosted Asian engagement.</span> <span class="attribution"><span class="source">National Archives</span></span></figcaption></figure><p>The Hawke government in the 1980s is widely considered to be the most competent and effective of recent years. Some may say this is not setting the bar terribly high, but the cabinet papers of 1988-89 demonstrate a degree of coherence about foreign policy that hasn’t always been evident since.</p>
<p>This is not to say that policymakers and advisers in the Hawke era got everything right. On the contrary, India was seen as the long-term potential economic force in the region, rather than China. Likewise, 25 years ago it was Japan that was the regional economic colossus and cabinet discussions reflected this apparently immutable reality.</p>
<p>And yet on the big foreign policy issues, the Hawke government not only looks prescient, but it also displayed a surprising degree of independence of thought at times. The discussions around the formation of what came to be the Asia Pacific Economic Cooperation (APEC) grouping reveal a noteworthy recognition of the possible advantages of a “western Pacific” regional membership that excluded the US and Canada, and which could act as a “third voice” in international trade negotiations.</p>
<p>It is difficult to imagine any recent government even contemplating any policy initiative that didn’t have at least the imprimatur of the US, if not its active participation. APEC’s membership eventually expanded because its other prospective members – especially the all-important Japanese – weren’t interested in any grouping that didn’t include the US and facilitate access to north American markets.</p>
<p>Notwithstanding such diplomatic complexities, the Hawke government’s focus remained steadfastly on facilitating what has now come to be known as <a href="https://theconversation.com/profiles/david-walker-8317">“Asian engagement”</a>. While it may be the taken-for-granted orthodoxy among the major political parties and commentators now, it was still very much a work in progress 25 years ago.</p>
<p>Ross Garnaut’s <a href="http://trove.nla.gov.au/work/17491110">seminal report</a> on the Northeast Asian Ascendancy did more than anything else to give a coherent rationale for greater economic integration with the region. Even if some still question the basis of this engagement and the heavy reliance on supplying resources to a rapidly industrialising neighbourhood, the Garnaut report provided a vital part of an overarching, multi-dimensional plan with which to develop economic activity in Australia.</p>
<p>These days we might call this a “whole of government” approach. While something of a cliché, this phrase does capture the character of the Hawke government’s reformist zeal. Other cabinet papers reveal the thinking behind the structural adjustment policies that would come to be the domestic counterpart to the sort of market-oriented reforms outlined by Garnaut.</p>
<p>Whatever one may think about the wisdom of some of these initiatives 25 years later, what is most striking is that this was plainly a government that had big ideas and ambitions, as well as the people and policies to put them into place. The contrast with recent governments of both political persuasions is striking and illuminating.</p>
<p>Perhaps such confidence and ambition reflected the spirit of a time when the world seemed on the brink of momentous change – possibly, but not inevitably, for the better. 1989 was, after all, the year of wonders – bookended by the crushing of student protest in <a href="https://theconversation.com/tiananmen-25-years-on-ccp-now-fears-the-masses-gathering-online-27454">Tiananmen Square</a> and the <a href="https://theconversation.com/berlin-wall-25-years-after-its-fall-germany-is-a-curious-mix-of-success-and-struggle-33977">fall of the Berlin Wall</a>. As the paper on Australia’s regional security interests rightly observed, Soviet communism had:</p>
<blockquote>
<p>… failed to meet the challenges of the contemporary world.</p>
</blockquote>
<p>Significantly, even in late 1989, no-one was expecting the Soviet Union’s abrupt demise. By contrast, the cabinet papers were half-right about China. Although the expectation was that China would be the weakest of the world’s great powers, cabinet documents show remarkable prescience in suggesting that trouble may be in store if China pursued a “more aggressive assertion of its territorial rights”. And this is precisely <a href="https://theconversation.com/senkaku-islands-the-latest-battleground-as-japan-gets-tough-under-abe-19650">what has happened</a>.</p>
<p>This judgement is all the more remarkable, perhaps, when we remember that policymakers were preoccupied with how to deal with China in the aftermath of Tiananmen Square. This was an event that not only demolished the hopes a generation of democratic activists in China itself, but it also shattered illusions about the triumph of liberal values across the region and the world.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/67875/original/image-20141221-31560-1ublaf1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/67875/original/image-20141221-31560-1ublaf1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/67875/original/image-20141221-31560-1ublaf1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/67875/original/image-20141221-31560-1ublaf1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/67875/original/image-20141221-31560-1ublaf1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=504&fit=crop&dpr=1 754w, https://images.theconversation.com/files/67875/original/image-20141221-31560-1ublaf1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=504&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/67875/original/image-20141221-31560-1ublaf1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=504&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Australia’s response to the 1989 events in Tiananmen Square demonstrated political pragmatism.</span>
<span class="attribution"><span class="source">EPA/Michael Reynolds</span></span>
</figcaption>
</figure>
<p>Cabinet advice about how to respond to Tiananmen indicated the sort of pragmatic self-interest that has come to characterise policy across the political spectrum, despite some occasionally lofty rhetoric and posturing at times:</p>
<blockquote>
<p>Australia’s response needs to be carefully crafted to walk the fine line between continuing to condemn the leadership’s actions while avoiding unnecessary and enduring damage to our strategic and commercial interests.</p>
</blockquote>
<p>Plus ça change? But before we rush to condemn the apparent cynicism in such sentiments, we need to recognise that difficult, unpalatable decisions are a necessary part of being in government. In any case, there are limits to what a country like Australia can do. </p>
<p>Despite the occasional compromises and inevitable misjudgements, the cabinet documents reveal a government that not only had ideas and plans about what it might do while in power, but one that clearly had the capacity to implement them. Perhaps times do change after all.</p><img src="https://counter.theconversation.com/content/35691/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Beeson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Hawke government in the 1980s is widely considered to be the most competent and effective of recent years. Some may say this is not setting the bar terribly high, but the cabinet papers of 1988-89…Mark Beeson, Professor of International Politics, The University of Western AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/354192014-12-31T22:34:41Z2014-12-31T22:34:41ZCabinet papers 1989: Hawke government considered interest on HECS<p>The release of the <a href="http://www.naa.gov.au/collection/explore/cabinet/by-year/1988-89/">1988-89 cabinet documents</a> show that the Hawke government’s plans for Australian higher education were in some ways as radical as the <a href="https://theconversation.com/higher-ed-bill-explainer-what-will-pass-and-what-will-be-blocked-31019">policies</a> that Education Minister Christopher Pyne floated in 2014. What we pay for higher education and how the HECS system works came close to being very different.</p>
<p>Then-education minister <a href="http://en.wikipedia.org/wiki/John_Dawkins">John Dawkins</a> oversaw some of the biggest changes to higher education in Australia, including the introduction of HECS in 1989. This was at a time when the Hawke government had already gently shocked the country with a series of major economic reforms which changed Australia, including floating the Australian dollar.</p>
<p>One of the most dramatic changes during <a href="http://www.randomhouse.com.au/books/gwilym-croucher/the-dawkins-revolution-25-years-on-9780522864151.aspx">John Dawkins’ short few years</a> as education minister was turning Australia’s other institutions of higher education at the time – the Colleges of Advanced Education – into universities. This changed who taught in universities, who undertook research, and ultimately who was allowed to attend, as the system quickly expanded to include new students, teachers and researchers. In doing this he took an elite education system and turned it into a mass education system. </p>
<p>To fund this expansion in student numbers, Dawkins finalised the move away from Whitlam’s policy of no tuition fees for students by creating the Higher Education Contribution Scheme. A scheme now universally known as HECS.</p>
<p>Australians had become more used to the market driving much that government did, but as the cabinet documents reveal, higher education may have meant a different world for many Australian students.</p>
<p>Some of what could have become higher education policy then is being debated now. There has been a strong reaction against the government’s proposal earlier this year – since dropped – that <a href="https://theconversation.com/higher-ed-bill-explainer-what-will-pass-and-what-will-be-blocked-31019">HECS be subjected to a real interest rate</a>. The cabinet documents now show this was a live option in the design of the original HECS. The Department of Finance supported:</p>
<blockquote>
<p>… a suitable real interest rate be applied to outstanding debts.</p>
</blockquote>
<h2>HECS may never have been implemented at all</h2>
<p>In 1988, former NSW premier Neville Wran handed down a report on options for higher education financing. This examined, among others options, the world-first policy that was to become HECS. In assessing the findings of Wran’s report, a caucus consultative group was appointed to help guide options for the major government decision on how to pay for an expanded higher education system. </p>
<p>The powerful cross-factional caucus group looked at a number of options: direct student contributions through HECS, a levy on business, higher taxes for high-income earners and greater funding from general government revenue. All supported the idea that business should pay something towards the graduates they were employing (one recommendation never directly implemented). </p>
<p>But there was serious disagreement. A couple of working group members did not agree with the HECS proposal at all. In the end, the group came to recommend that HECS be supported while unanimously rejecting the push for a real interest rate. A uniform per year charge was also recommended for all students, irrespective of field of study. The group was worried that any attempt to match course cost to teaching costs in different courses might be disincentive to study in:</p>
<blockquote>
<p>… relatively high cost courses in areas of national priority (eg science and engineering).</p>
</blockquote>
<p>Unfortunately for many students in high-cost disciplines and those that are thought to offer high-wage potential, the policy of a uniform charge was overturned by subsequent education ministers, with students now paying different amounts for different courses.</p>
<p>Dawkins finally had cabinet agree on a HECS system where debts were indexed at consumer price index (CPI), as is still the case for HECS loans. </p>
<p>It is interesting to note in the current debate over <a href="http://www.alp.org.au/debtsentence">“debt sentences”</a>, the original projections included in the cabinet documents the anticipated time that it would take students to pay back their debt – albeit at a lower repayment requirement than is anticipated should the Pyne changes go through. The cost of most degrees were expected to take a decade or longer to repay. Some, like teachers, were expected to be burdened for at least 16 years. The current average time to repay across the board is <a href="http://andrewnorton.net.au/">about ten years</a>.</p>
<p>It is also worth reflecting that the original cabinet minutes recorded the fact that there was almost never a University of Canberra. Cabinet had agreed that the ANU should merge with the School of Music and the Canberra College of Advanced Education, the latter of which was to become University of Canberra. Given University of Canberra Vice Chancellor Stephen Parker has been a <a href="https://theconversation.com/stephen-parker-higher-education-changes-a-fraud-on-the-electorate-34909">vocal opponent</a> of Pyne’s proposed changes, you have to wonder whether the present government has days when it wishes the merger had gone ahead.</p><img src="https://counter.theconversation.com/content/35419/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gwilym Croucher is a higher education policy analyst in the office of the Vice-Chancellor at the University of Melbourne.</span></em></p>The release of the 1988-89 cabinet documents show that the Hawke government’s plans for Australian higher education were in some ways as radical as the policies that Education Minister Christopher Pyne…Gwilym Croucher, Higher Education Policy Adviser, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.