The Money Men by Chris Bowen (i wanna iguana read aloud .TXT) 📗

had involved the imposition of a serious red-tape burden on small businesses, which had, in effect, become tax collectors on behalf of the government. The Business Activity Statement (BAS), which small businesses had to fill in every quarter, recording every financial transaction that the business had entered into, was an onerous requirement. The smaller the business, the larger the burden on the owner, who invariably had to carry the load of paperwork. The political backlash from what was traditionally a core part of the Liberal Party’s constituency was severe. Howard, always alert to political risks, pressured Costello to make amendments to the package to address the red tape. But Costello, who had invested a great deal of time in designing the entire GST system, was very reluctant to capitulate by changing the BAS form. He only agreed to do so when, on 10 February 2001, the Liberal Party under Richard Court unexpectedly lost the Western Australian election, and the potential danger hit home.

Still, Howard had been particularly unimpressed with this example of Costello’s obstinacy. Kelly says of the dispute, ‘The truth is that Howard went on the warpath against his Treasurer. These potentially fatal events were decisive in convincing Howard that Costello’s judgement was faulty.’40

That the GST was implemented smoothly, putting aside the BAS imbroglio, is a testament to Costello’s command of detail and his political skills. He can fairly claim credit for the smooth implementation of a very significant change in the operation of the tax system. The GST was very much the culmination of the long-term hopes and ambitions of Howard as prime minister, but he had been ably supported by his treasurer.

The Independence of the RBA

Two other reforms of the Costello era relate to Australia’s reserve bank.

Since the RBA had been established in 1960, it had been subservient to the government of the day, and often to the Treasury as well. For example, interest rate decisions were taken by the treasurer or the Monetary Policy Committee of the Cabinet, on the advice (but only the advice) of the RBA. A complex mechanism had been legislated to deal with disagreements between the bank and the federal treasurer, one that drew on previous arrangements put in place to address disagreements between the Commonwealth Bank, as the nation’s central bank, and the government. In reality, though, the legislated mechanism had never been required. The closest it had come to being used was when the RBA had declined two requests for action from then treasurer Howard. On both occasions, the bank had indicated it would invoke section 11 of the Reserve Bank Act 1959 and, while carrying out the treasurer’s wishes, make it public that it objected to doing so. On both occasions, Howard relented.

The RBA had taken a big leap towards greater independence in 1983 with the float of the dollar. This move was taken on the advice of RBA governor Bob Johnston, against the advice of Treasury secretary John Stone. Importantly, the float gave the RBA the opportunity to play a role in the management of the currency independent of the wishes of the government or the Treasury mandarins. Further financial deregulation meant that the government lost the ability to require the RBA to adjust the amount of reserve deposits each private bank had to hold with the central bank, meaning that moving the cash rate effectively became the only monetary policy lever available to the Commonwealth.

The RBA’s independence had continued to develop throughout the 1990s. At the start of that decade, the bank began to announce changes to the cash rate, as opposed to the treasurer announcing them. The bank also imposed an informal inflation target of 2–3 per cent for the first time, with governor Bernie Fraser publicly stating in 1992 that such a rate was sustainable, although he stressed the bank would not strive to achieve it at the cost of other economic goals like low unemployment. In fact, such was the increased independence of the bank that by the latter part of Keating’s treasurership, he was unable and unwilling to impose his will on interest rate decisions. As RBA historian Selwyn Cornish observes: ‘For all these reasons, the early 1990s marks a historic turning point—a defining moment—in the Bank’s history and indeed the history of Australian monetary policy.’41

Australia’s experience was part of a worldwide trend. The breakdown of the Bretton Woods system had seen inflation explode around the globe and evolve into the terrible phenomenon of stagflation. Economies searched for new, more effective ways of tackling inflation. Many looked to the German experience and noted that the Bundesbank, Germany’s central bank, enjoyed a high degree of independence from the government and had had considerable success in taming inflation.

The theory underpinning central bank independence was a fairly straightforward one that gained more and more appeal—expert, independent central bankers would be more likely than elected politicians to deal with inflation by taking the unpopular decision to increase interest rates. As a result of this emerging consensus, countries as diverse as New Zealand, Chile, France, Mexico and Venezuela all achieved enhanced bank independence from the 1970s to the 1990s, while participant nations in the European Union system of central banks were likewise required to give their central banks a high degree of independence.42 There was also a long-running debate in the United Kingdom about whether to give the Bank of England a heightened degree of independence, which culminated in the newly elected Blair government granting this in 1997.

Costello watched these emerging trends as shadow treasurer. At the time, there was considerable tension between him and Bernie Fraser, which spilled into the public discourse more than once. Keating had made the relatively unusual move of passing over deputy governor John Phillips to replace retiring governor Bob Johnston, instead installing Treasury secretary Fraser. This was seen as bringing the bank closer to the government, given that Fraser and Keating were close. The opportunity for Costello to recast the bank’s personnel and its modus operandi came early in his term