Paul Keating

Following Labor's victory in the 1983 election, Keating was appointed Treasurer of Australia by Prime Minister Bob Hawke; he succeeded John Howard in the position. He and Hawke were able to use the size of the budget deficit that the Hawke Government had inherited from the Fraser Government to question the economic credibility of the Liberal-National Coalition over the coming years.[13] According to Hawke, the historically large $9.6 billion budget deficit left by the Coalition "became a stick with which we were justifiably able to beat the Opposition".[13] Although Howard was widely regarded at this time as being "discredited" by the hidden deficit, he had in fact argued unsuccessfully against Fraser that the revised figures should be disclosed before the election.[14]

In the ensuing years, Hawke and Keating developed an extremely powerful partnership, which proved to be essential to Labor's success in government; multiple Labor figures in years since have citing the partnership between the two as the party's greatest ever.[15] The two men proved a study in contrasts: Hawke was a Rhodes Scholar; Keating left high school early.[16] Hawke's enthusiasms were cigars, betting and most forms of sport; Keating preferred classical architecture, Mahler symphonies and collecting British Regency and French Empire antiques.[17] Despite not knowing one another before Hawke assumed the leadership in 1983, the two formed a personal as well as political relationship which enabled the Government to pursue a significant amount of reforms, although there were occasional points of tension between the two.[18]

Keating, along with Hawke, oversaw a "National Economic Summit" in their first month in office, with Keating leading several sessions outlining the Government's economic agenda. The Summit, which brought together a significant number of senior business and industrial figures alongside trade union leaders and politicians, led to a unanimous adoption of a national economic strategy, generating sufficient political capital for the Government to begin a wide-ranging programme of economic reform previously resisted by much of the Labor Party.[19]

Keating used the authority and relative autonomy provided to him by Hawke to become one of the major driving forces behind the various extensive macroeconomic reforms of the Government.[20] In December 1983, Hawke and Keating approved the floating of the Australian dollar in 1983, disregarding advice from the Treasury Secretary John Stone to retain the fixed currency framework. The success of the move, which was lauded by economic and media commentators, gave confidence to Keating to pursue even more reforms. Over the Hawke Government's first and second terms, Keating oversaw the gradual elimination of tariffs on imports, the privatisation of several state-owned companies such as Qantas, CSL Limited and the Commonwealth Bank, the deregulation significant sections of the banking system, including allowing for numerous foreign-owned banks to begin operating in Australia for the first time, and the granting of autonomy on decision-making to the Reserve Bank of Australia.

Keating was also instrumental in the establishment of the Hawke's Government signature industrial relations and wages policy, the Prices and Incomes Accord. This was an agreement directly between the Australian Council of Trade Unions (ACTU) and the Government to guarantee a reduction in demands for wage increases, in exchange for the Government providing a significant increase in social programmes, including the introduction of Medicare and the Family Assistance Scheme; in so doing, the Government was able to reduce inflation and unemployment over the decade.[21] Keating's management of the Accord, and the close working relationship he developed with ACTU Secretary Bill Kelty, became a source of significant political power for Keating, who negotiated multiple versions of the Accord with Kelty throughout the Hawke Government. Through the power given to him, Keating was often able to bypass the Cabinet altogether, notably in exercising monetary policy, and he was regularly referred to as "the most powerful Treasurer in modern times".[22]

In the wake of the raft of macroeconomic reforms introduced by Keating throughout the first term of the Hawke Government in particular, in 1984 he was awarded the Euromoney Finance Minister of the Year,[23] an award which became colloquially known in Australia as the "World's Greatest Treasurer", becoming the first Australian Treasurer to be presented with the award.

Keating with OECD Secretary-General Jean-Claude Paye, 1985.

Throughout the second and third terms of the Hawke Government, Keating led a significant overhaul of the long-stagnant Australian taxation system. In 1985, he became a passionate advocate within the Cabinet for the introduction of a broad-based consumption tax, similar in nature to the goods and services tax that was later introduced by the Howard Government, as a means of addressing Australia's chronic balance of payments issue.[24][25] In the build-up to the 1984 election, Hawke promised a policy paper on taxation reform to be discussed with all stakeholders at a "National Taxation Summit". Three options – A, B and C – were presented in the paper, with Keating and his Treasury colleagues fiercely advocating for C, which included a consumption tax of 15% on goods and services along with reductions in personal and company income tax, a fringe benefits tax and a capital gains tax. Although Keating was able to win the support of a reluctant Cabinet, Hawke believed that the opposition from the public, the ACTU, and the business community would be too great. He therefore decided to abandon any plans for a consumption tax, although the remainder of the reforms were adopted in the tax reform package. The loss of the consumption tax was seen a defeat for Keating; he later joked about it at a press conference, saying, "It's a bit like Ben Hur. We've crossed the line with one wheel off, but we have crossed the line."[26]

Whilst the remainder of the package represented the biggest overhaul of the Australian taxation system for decades, Keating continued to agitate for further changes to address the balance of payments problems faced by Australia. On 14 May 1986, frustrated at the slow pace of dealing with the issue, Keating caused considerable public comment and a degree of controversy when he declared on a radio programme that if Australia did not address the problem, it risked degenerating to the status of a "banana republic".[27] Although the remark was quickly disowned by Hawke in public, the Government increased efforts to deal with the growing balance of payments crisis. With no consumption tax to generate a significant increase in incomings, Keating and his ministerial colleagues led a process to significantly reduce Government outlays instead, resulting in some criticism from the grassroots of the Labor Party, who opposed cuts to spending.<refname="Guardian papers"/> Despite the criticism, the Government was able to produce a national budget surplus for the years 1988, 1989 and 1990, with the surplus of 1988 proving to be the largest budget surplus in Australian history.[28]

During the campaign for the 1987 election, Keating was credited as dealing a "fatal" blow to the Liberal-National Coalition's hopes for victory, after giving a press conference in which he exposed a significant accounting error in the costings the Liberal Party had released to demonstrate how its economic policies would be paid for.[29] Then-Opposition Leader John Howard accepted the error, and subsequent opinion polling reported that the mistake greatly contributed to Labor's vote in what proved to be a landslide victory.

Keating's later tenure as Treasurer was heavily criticised by some for consistently high interest rates, which Keating argued was necessary to reduce economic growth gradually so that demand for imports did not grow out of control. Throughout the 1980s, both the global and Australian economies grew quickly, and by the late 1980s, inflation had grown to around 9%. By 1988, the Reserve Bank of Australia began tightening monetary policy, and household interest rates peaked at 18%. It is often said that the Bank was too slow in easing monetary policy, and that this ultimately led to a recession. In private, Keating had argued for rates to rise earlier than they did, and fall sooner, although his view was at odds with the Reserve Bank and his Treasury colleagues.[22][30] Publicly, Hawke and Keating had said there would be no recession – or that there would be a "soft landing" – but this changed when Keating announced the country was indeed in recession in 1990, several months after the Hawke Government had won an unprecedented fourth consecutive term in office. Announcing the recession, Keating memorably stated that that the recession was a "recession Australia had to have". The remark was referred to by political journalist Paul Kelly as "perhaps the most stupid remark of Keating's career, and it nearly cost him the Prime Ministership." Kelly did also concede that, "...however, it is largely true that the boom begat the recession."[31]

The economic reform package throughout the 1980s has been claimed by numerous economic commentators and journalists to have been the basis for an unprecedentedly long period of economic growth, with Australia's gross domestic product increasing unbroken every year for 30 years, and the end of chronic inflation and balance of payments difficulties, along with the increasingly globalised domestic economy, enabling long periods of stability and growth.[32][33]

At the end of 1988, Keating, who had long believed that he would succeed Hawke as Prime Minister, began to put pressure on Hawke to retire in the new year. Hawke rejected this advice, but reached a secret agreement with Keating that he would remain as leader through to the 1990 election, and that he would resign in Keating's favour shortly after the election, which he convinced Keating he could win.[22] Hawke subsequently won that election, albeit narrowly, and appointed Keating his Deputy Prime Minister to replace the retiring Lionel Bowen. However by the end of 1990, frustrated at the lack of any indication from Hawke as to when he might retire, Keating delivered a provocative speech questioning the direction of the Government. As a result, Hawke told Keating he would renege on the deal on the basis that Keating had been publicly disloyal.[34]

Although tensions between the two remained private for some time, Keating eventually resigned from the Cabinet in June 1991 and challenged for the leadership. Hawke won the ballot by 66 votes to 44, and in a press statement afterwards Keating declared that he had fired his "one shot" as regards the leadership.[35][36] Publicly, at least, this seemed to spell the end of his leadership ambitions. Having failed to defeat Hawke, Keating realised that events would have to move very much in his favour for a second challenge to be even possible, and he strongly considered retiring from politics altogether.[37] However, Hawke's leadership was regarded by many as being "wounded" as a result of losing his long-term political partner and the growing confidence of the Liberal-National Coalition under the new leadership of John Hewson.[38][39] After Hawke was forced to sack John Kerin, the man appointed to replace Keating as Treasurer, for a public gaffe in attempting to combat the Coalition's new 'Fightback!' policy, Keating took the opportunity to challenge a second time in December 1991, this time emerging victorious by 56 votes to 51. Keating paid tribute to Hawke's nine years as Prime Minister, and stated that he would provide a robust challenge to Hewson.[40]

Shortly after Keating became Prime Minister, the High Court of Australia handed down a judgment in a long-running case on Indigenous land rights; the judgement would come to be known as Mabo, and declared that a right to native title did exist in Australia, overturning terra nullius, but not clarifying exactly who had the right to access the title.[43] Keating led the Government's response to the ruling, beginning a high-profile public campaign on raising awareness of the issue, and advocating repeatedly in favour of the judgment and for an expansion of Aboriginal and Torres Strait Islander land rights. On 10 December 1992, Keating delivered a major address which came to be known as the Redfern Park Speech on Aboriginal reconciliation, a speech which has since regularly been cited as among the greatest in Australian political history, in which he explicitly noted the responsibility of settler Australians for destroying much of Indigenous society.[44][45]

This work culminated in the passage of the Native Title Act in 1993, which "provide(d) a national system for the recognition and protection of native title and for its co-existence with the national land management system".[43] As well as creating the legal field of native title, the Act established an Aboriginal and Torres Strait Islander Social Justice Commissioner, who was required to prepare an annual report to the Attorney-General on the operation of the Native Title Aact and its effect on the exercise and enjoyment of human rights of Aboriginal and Torres Strait Islander peoples, and to report, when requested by the Attorney-General, on any other matter relating to the rights of Indigenous people under the Act.[46]

Elsewhere in domestic policy, Keating established and promoted the first Commonwealth cultural policy, known as 'Creative Nation'.[47] The policy allocated AU$250 million over four years to promote the cultural and creative arts sectors in Australia. Keating had frequently espoused the benefits of the arts in public, and used the policy as an opportunity to develop the Australian cultural sector.[47] During the Keating Government, mandatory detention for asylum seekers was also introduced for the first time.[48]

Keating and his Cabinet, 1994.

Arguably Keating's most far-reaching achievement as Prime Minister was the full introduction of the National Superannuation Scheme, implemented to address Australia's long-term problem of chronically low national savings. This initiative built on policies that Keating had pursued whilst Treasurer, and was aimed at ensuring that most Australians would have enough money to retire. In 1992, the compulsory employer contribution scheme became a part of a wider reform package addressing this retirement income dilemma. It had been demonstrated that Australia, along with many other Western nations, would experience a major demographic shift in the coming decades, due to ageing population, and it was claimed that this would result in increased pension payments that would place an unaffordable strain on the Australian economy.

Keating's solution was a "three pillars" approach to retirement income, requiring compulsory employer contributions to superannuation funds, permitting further contributions to superannuation funds and other investments, and introducing, where this was insufficient, a safety net consisting of a means-tested government-funded age pension.[49] The compulsory employer contributions were branded "Superannuation Guarantee" (SG) contributions.[50] As a result of this policy, along with the gradual increases in the minimum contribution amount, Australia grew to become the fourth largest holder of pension fund assets in the world, with a balance of nearly AU$3 trillion in superannuation assets by 2020.[51]

In the aftermath of the 1990 recession, Keating appointed his close ally John Dawkins as Treasurer, and together the two developed an economic package to counter the Liberal-National Coalition's 'Fightback!' proposals; this package came to be known as 'One Nation', and involved using funding from the budget surplus to produce new welfare-to-work programmes, as well as introducing a new degree of competition within the telecommunications and communications industries and creating the Australian National Training Authority (ANTA).[52] 'One Nation' also proposed a series of further tax cuts for middle-income workers coming in two tranches, in 1993 and 1995, although these would later be deferred to 1995 and 1998, a move which cost the Government considerable political support among the public.[52] A further major economic policy development was the introduction of an enterprise bargaining scheme as part of the final stage of the Prices and Incomes Accord, intended to allow for greater flexibility and economies of scale within industrial wage arbitration, although much of this was curtailed by the Howard Government after 1996.[52]

Keating with U.S. President Bill Clinton (left) in 1993.

Throughout his time as Prime Minister, Keating took a number of steps to strengthen and develop bilateral links with Australia's closest neighbours; he frequently said that there was no country in the world that was more important to Australia than Indonesia, and undertook his first overseas visit to the country, becoming the first Australian Prime Minister to do so.[53] Keating made a conscious effort to develop a personal relationship with Indonesian President Suharto, and to include Indonesia in multilateral forums attended by Australia. Keating's friendship with Suharto was criticised by human rights activists supportive of East Timorese independence, and by Nobel Peace Prize winner José Ramos-Horta. The Keating Government's cooperation with the Indonesian military, and the signing of the Timor Gap Treaty, were also strongly criticised by these same groups. It was alleged by some that Keating was overlooking alleged human rights abuses by the Indonesian government as part of his effort to dramatically increase Australia's cultural, diplomatic and economic ties with Asia.[54]

Following the creation of the Asia-Pacific Economic Cooperation (APEC) Economic Forum by Bob Hawke, Keating developed the idea further, winning the support in 1993 of recently-elected US President Bill Clinton and Chinese Premier Li Peng to expand APEC to a full Leaders' Meeting. This led to APEC becoming one of the most significant high-level international summits, and at the 1994 APEC Leaders' Meeting, hosted by Indonesia, members agreed to the Keating Government's proposals for what became known as the Bogor Declaration, which set targets for a significant increase in free trade and investment between industrialised APEC countries by 2010 and between developing APEC countries by 2020.[55] In December 1993, Keating became involved in a diplomatic incident with Malaysia when he described Prime Minister Mahathir Mohamad as "recalcitrant". The incident occurred after Mahathir refused to attend the 1993 APEC summit. Keating said, "APEC is bigger than all of us – Australia, the U.S. and Malaysia, and Dr. Mahathir and any other recalcitrants." The translation of the word "recalcitrant" into Malaysian rendered the word a more egregious insult, and Mahathir demanded an apology from Keating, threatening to reduce diplomatic ties and trade drastically with Australia, which became an enormous concern to Australian exporters. Some Malaysian officials talked of launching a "Buy Australian Last" campaign; Keating subsequently apologised to Mahathir over the remark.[56]

Keating at the White House in 1993

As Prime Minister, Keating maintained his aggressive debating style. When asked by Opposition Leader John Hewson why he would not call an early election, Keating replied, "because I want to do you slowly." He referred to the Liberal Party as "a motley, dishonest crew", and the National Party as "dummies and dimwits; desperadoes". During an opposition debate that sought to censure Keating, he described being attacked by Peter Costello as "like being flogged with warm lettuce". Despite this renewed attack on the Opposition, and a busy legislative agenda, many commentators predicted that the 1993 election was "unwinnable" for Labor.[57]

During the campaign, Keating focused a great amount of effort on attacking the Coalition's proposed goods and services tax (GST), arguing that it would prove "a dead weight" on the economy, and stating that "every time you put your hand in your pocket, Dr. Hewson's will be in there with you". He was helped by Hewson struggling towards the end of the campaign to explain exactly which products would have the GST levied on them, and which would not. Having begun the campaign far behind the Coalition in opinion polls, on 13 March Keating led Labor to an unexpected and record-breaking fifth consecutive election victory, picking up a two-seat swing. The speech Keating delivered at the victory celebration has been described as one of the great Labor speeches.[58][59][60][61] Opening with "This is a victory for the true believers; the men and women of Australia who, in difficult times, have kept the faith", the speech has been described as providing a source of inspiration for Labor Party faithful to the present day.[62]

Like Hawke before him, Keating was able to benefit from disunity in the Liberal Party. Fourteen months after the March 1993 election, John Hewson was replaced as Liberal Leader by Alexander Downer, whose leadership was quickly marred by gaffes and controversies within months. Keating routinely succeeded in outwitting Downer within Parliament, and in early 1995, Downer resigned to be replaced by John Howard, who had previously led the Liberals from 1985 to 1989. Howard was able to give the Coalition renewed momentum after Labor lost the seat of Canberra in a by-election. In contrast to Hewson, Howard adopted a "small target" campaign strategy for the 1996 election, publicly committing to keep numerous Labor reforms such as Medicare, and defusing the republic issue by promising to hold a constitutional convention.[63] This combined with a narrative of "time for a change" led to a heavy defeat for the Keating Government on 2 March 1996, suffering a five percent two party preferred swing and losing 29 seats, making it the second-worst defeat of a sitting government in Australian history. Keating announced he would retire as Labor Leader and from Parliament, and tendered his resignation as Prime Minister on 11 March, 13 years to the day after Bob Hawke had first taken office.[64]