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  • Paul Tilley

Treasury and the Whitlam Government

The Whitlam government was a game-changer for the public service in Australia (and more broadly of course) and Treasury’s relationship with the government was tumultuous. As a reformist government they wanted to make big changes and fast – they did not want to get bogged down with due process – a recipe in equal part for reform and disaster.

Stagflation

The Whitlam government inherited an economy that was already facing major challenges. In Australia, and around the world, stagflationary conditions were emerging with rising inflation and unemployment. The overlay of the government’s spending plans then the 1973 oil price shock exacerbated the situation. By the mid-1970s, Australia was experiencing double digit inflation, unemployment approaching 5 per cent and economic growth falling below 2 per cent.

Treasury was arguing that ‘simple’ Keynesian macroeconomic management of stimulating the economy to reduce unemployment was not effective – it was only serving to further stoke inflation. Treasury was instead developing its ‘fight-inflation-first’ policy strategies: tighten fiscal policy; tighten monetary policy; restrain wage growth; appreciate the exchange rate. But the government, mostly, wasn’t listening.

Tariff cut

A major economic reform that the Whitlam government did undertake was a 25 per cent tariff cut – a recommendation of the Rattigan committee and a major break with the protectionist culture of Australian governments since federation. While the decision was motivated by a desire for an anti-inflationary measure to counter the government’s spending plans, it nonetheless represented a major shift in opening up the Australian economy to greater competition.

The decision was also noteworthy for being opposed by Treasury. While Treasury had previously argued against trade barriers – through the great debates of the 1960s with the ‘Black Jack’ McEwan protectionist forces – it now argued that it preferred an appreciation of the exchange rate. Needless to say, Whitlam was not impressed! Treasury’s baffling position, though, was probably more about its territorial resistance to ideas that came from elsewhere.

Budgets

The Whitlam government’s spending aspirations climaxed with the 1974 Budget. This was a major fiscal break-out with payments increasing by 40% and receipts increasing by 28%. The budget balance went from a 1.9 per cent of GDP surplus in 1973-74 to a 1.8 per cent of GDP deficit in 1975-76. While the budget was presented by Frank Crean as Treasurer, Jim Cairns was emerging as the driving force of the government’s budget and economic strategies. Treasury was alarmed!

The formulation of the budget resulted in a major stand-off with Treasury who were arguing for their fight-inflation-first policies and implacably opposed to such big spending, prompting Whitlam to say “If Treasury was not actually on strike, it certainly went into a sulk.” While the 1975 Budget brought some restraint, with Bill Hayden as Treasurer, it came too late to save the government. The Loans Affair would engulf them.

Loans Affair

The most controversial issue of the Whitlam government’s reign, and the one that ultimately brought it down, was the Loans Affair – and Treasury was at the epicentre of a series of dramatic events. Perhaps as a result if its mistrust of the public service and Treasury the government tried to circumvent official channels (Treasury and the Loan Council) and raise a $4b loan, for a large infrastructure program, through unofficial channels – Rex Connor approaching Tirath Khemlani.

When Treasury became aware of these attempts it advised in the strongest terms against them. As secretary, Wheeler wrote “Lest there be any misunderstanding because of haste, I now record my firm view that the Government would be unwise to proceed with this project.” Treasury even sought legal advice about the legality of another approach by the Treasurer Jim Cairns – which led to his sacking. The whole Loans Affair blew up into a spectacular own-goal for the government which was used lethally against it politically. Relations with Treasury were at an all-time low.

Ministers’ offices and the relationship with the public service

Another feature of the Whitlam government was the expanded size and the role of the ministers’ private offices. Having been out of power for more than 2 decades the government was suspicious of the public service and had come to rely on their private office staff. The ministers’ offices exercised considerable influence, including in Treasury’s space of budget and economic management.

This changed the nature of the relationship between the public service and the government, with the private offices providing an alternative source of policy advice – one that was politically attuned. At times this would be a positive dynamic but at other times the political advice of the offices dominated. For better or worse, however, the expanded ministers’ offices would be a permanent fixture of future governments – that genie was out of the bottle.

Conclusions

The vexed relationship between Treasury and the Whitlam government was symptomatic of a broader transition in the nature of the Westminster system in Australia. Much government business had previously been run from behind the scenes by the public service but the increasingly assertive governments of the post-Menzies era were changing that. Treasury, though, would not loosen its hold of the reins easily.

Stagflation

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