Inside Story

From messiah to mortal

Forty years ago, another Labor government embarked on its first term in office

Mike Steketee Extract 20 September 2022 3215 words

Heading for victory: Bob Hawke campaigning in Bondi Junction in February 1983. Rob Walls/Alamy

It was the December 1982 by-election in Liberal-held Flinders, southeast of Melbourne, that sealed Labor leader Bill Hayden’s fate. Labor had been well ahead of the Coalition government in opinion polls for most of 1982. Australia was in deep recession, with unemployment at 10 per cent and inflation 11 per cent. Hopes were high for a strong swing against the government.

In the event, the swing to Labor was less than 3 per cent. Labor had been wrong-footed by Malcolm Fraser’s announcement of a national wage freeze. Its candidate was unimpressive. But inevitably the blame fell primarily on Hayden.

It was Labor’s third successive election loss, and a new mood of pessimism descended on the party. Frantic behind-the-scenes activity culminated in senator John Button, an astute and respected Labor figure who had been a close ally of the opposition leader, writing to Hayden on 28 January 1983 after unsuccessfully trying to persuade him to make a peaceful transition to Hawke.

Button’s letter summed up the mood of senior figures in the party. “You said to me that you could not stand down for a ‘bastard’ like Bob Hawke,” he wrote. “In my experience in the Labor Party the fact that someone is a bastard (of one kind or another) has never been a disqualification for leadership of the party. It is a disability from which we all suffer in various degrees… I must say that even some of Bob’s closest supporters have doubts about his capacities to lead the party successfully, in that they do not share his own estimate of his ability. The Labor Party is, however, desperate to win the coming election.”

Six days later came one of the most extraordinary events in Australian political history. On 3 February, Fraser, hoping to maintain the momentum generated by the Flinders by-election and fearful that Labor could change leaders, asked governor-general Sir Ninian Stephen for an early election. At the very same time, but without being aware of Fraser’s decision, Hayden announced his resignation to a meeting of shadow cabinet.

Hayden had been convinced by Button’s letter, which he called “brutal but fair.” Nevertheless, it was a wrenching decision. “I am not convinced that the Labor Party would not win under my leadership,” he told the media. “I believe that a drover’s dog could lead the Labor Party to victory the way the country is and the way the opinion polls are showing up for the Labor Party.”

Fraser had been outmanoeuvred. When he went to Government House, he was expecting to fight an election against Hayden. When the governor-general granted him the election, his opponent was Bob Hawke, although still to be formally endorsed by the Labor caucus five days later.

With the economy in recession, a government in its third term and the public popularity Hawke had developed over the years, only a disciplined Labor campaign was needed to ensure victory. That was not quite the foregone conclusion it seemed in retrospect, particularly after Hawke reacted angrily to a question from the ABC’s Richard Carleton about whether he had blood on his hands over Hayden’s demise. If voters had a concern about Hawke, it related to whether he had the right temperament to be prime minister. Carleton’s question touched a raw nerve in Hawke: political assassinations are never gentle affairs, however much he might have pretended.

But he was a model of statesmanship and responsibility for the rest of the campaign. He exploited the recession and condemned what he argued was Fraser’s divisive approach to government. He adopted Hayden’s campaign themes of national recovery and reconstruction and added his own “r” — reconciliation.

As well, Labor promised a big spending program, tax cuts and petrol price reductions to tackle the recession. Fraser tried a scare campaign against Labor’s “mad and extravagant promises,” saying people’s savings would be safer under their beds than in the bank. Hawke responded with a clever quip harking back to the “reds under the beds” bogy that the Liberals had used against Labor in earlier times: “They can’t put them under the bed because that’s where the Commies are!”

On 5 March 1983, at the age of fifty-three, after decades of frustration and a period of self-doubt, Hawke became prime minister. Labor’s win was convincing: the two-party swing of 3.6 per cent came on top of the 4.2 per cent it had achieved under Hayden in 1980, resulting in a final Labor vote of 53.2 per cent — the highest support it has ever received in a federal election.

The vote gave the new government a majority of twenty-five in the 125-member House of Representatives, compared with the Whitlam government’s nine-seat majority in 1972. It was all the more impressive considering that Labor had suffered a devastating loss in 1975 and some had questioned not only its legitimacy as a governing party but its very survival.

The day after the election, Treasury secretary John Stone came to see Hawke and the new treasurer, Paul Keating, with a reality check: the projected budget deficit for 1983–84 was $9.6 billion. Adding Labor’s election promises could take the figure up to $12 billion — the highest since the second world war. Hawke had received an inkling of the deficit figure before the election, leading him to qualify his election promises. It was the signal that the economy would come ahead of election promises and that pragmatism was the priority.

In truth, the $9.6 billion figure was not a measure of anything tangible but a projection that Treasury typically calculated on pessimistic assumptions. But it was the excuse Hawke and Keating used to abandon most of their promises on spending and tax cuts. And it was the political weapon that they used relentlessly to attack the Fraser government’s economic legacy.

From the very beginning, Hawke was intent on laying the foundations for something that had eluded federal Labor for all its history — long-term government — and with it the opportunity to entrench Labor policies, and even, in his fondest hopes, to become the party of natural government.

Resentment lingered within the party over how the Coalition had never accepted Labor’s legitimacy after Gough Whitlam had returned it to power in 1972. That attitude led to breaches of convention such as the Coalition parties’ blocking of the budget and culminated in the sacking of Gough Whitlam by governor-general John Kerr. But there also was a recognition of the failings of Whitlam’s government.

This is why Hawke drew an immediate and deliberate contrast with his Labor predecessor. In his victory speech on election night he promised not excitement or a great wave of reform but “calmness and a sense of assuredness.” It did not sound like a revolution, socialist or otherwise, and that was precisely Hawke’s intention. Determined not to allow a repeat of the indiscipline of the Whitlam government, his first focus was process — the orderly management of government.

Under Whitlam, all ministers were members of cabinet, meaning decision-making was unwieldy and sometimes resulted in those who lost in cabinet appealing to caucus to reverse the decision. Instead, Hawke created a cabinet of thirteen from the ministry of twenty-seven elected by caucus. Ministers, including those from the outer ministry who participated in cabinet discussions in their area of responsibility, were required to support cabinet’s decisions in caucus. In a strictly formal sense, the supremacy of the Labor caucus in decision-making was preserved but in practice it was greatly weakened.

A second contrast was on foreign policy. Where Whitlam was intent on carving out a more independent foreign policy, sometimes at the cost of criticism from the United States, Hawke went out of his way to build good relations with president Ronald Reagan and secretary of state George Shultz, despite their conservative credentials. The Americans trusted Hawke and that was a political asset in Australia.

Third, Hawke drew a sharp distinction with the Whitlam government on economic policy. Whitlam had shown little interest in economics and it became one of his government’s biggest liabilities.

In many areas, Hawke left the running to his ministers, avoiding delving into the detail of policies unless there was a pressing political need to do so. But economic policy and foreign affairs were exceptions. He had studied economics at university, prepared national wage cases for the Australian Council of Trade Unions, served on the Reserve Bank board for seven years as ACTU president, and been a member of a committee of inquiry into the manufacturing industry, headed by Gordon Jackson, the head of CSR.

Within a month of coming to government, Hawke presided over a national economic summit that brought together leaders in federal and state governments, business, unions, and welfare and community groups. The epitome of Hawke’s consensus approach, it attracted scepticism, including by some within the new government. The opposition portrayed consensus as compromise when what was required was bold decision-making, and characterised the Hawke approach as corporatism — those in positions of power stitching up the game for themselves.

Significantly, the summit was held before the resumption of parliament and the venue was the House of Representatives chamber. The symbolism was clear: Hawke, no fan of parliament, was substituting the quest for agreement for the parliamentary clash that emphasised differences.

Hawke confronted the summit with “the gravest economic crisis in fifty years” and laid out his remedies: a budget with a deficit of $8.5 billion and the Accord between the government and the ACTU. The Accord was a distinctive feature of Labor’s economic policy, designed to subordinate wage increases to the overall demands of economic policy — in other words, to ensure that the kind of wage explosions that had occurred under both the Whitlam and Fraser governments, and for which Hawke carried some responsibility as leader of the trade union movement, would not be repeated. It traded off part of the wage increases that strong unions could achieve and that tended to flow on to the rest of the workforce under a centralised industrial system for the so-called social wage. This included universal health insurance under Medicare, more generous and targeted welfare benefits, and compulsory superannuation.

The government’s economic policy won endorsement from everyone present at the summit, with the sole exception of Queensland National Party premier Joh Bjelke-Petersen. The summit was also a success when it came to public opinion: voters liked the idea of community leaders agreeing on what was best for the country rather than playing politics. In reality, there was plenty of politics involved; it was just that it was being played more subtly than usual. Within months of coming to government, Hawke’s approval rating had shot up to 70 per cent.

The new government had luck on its side. The drought broke, bolstering the economic recovery already under way. Hawke was blessed with an exceptionally strong team of ministers, including Keating as treasurer, Gareth Evans as attorney-general, Hayden as foreign minister, Button as industry minister and Neal Blewett as health minister. Others who made their mark later were Peter Walsh in finance, Kim Beazley in defence, John Dawkins in education and Brian Howe in social security. In cabinet, Hawke was a skilled chairman, letting ministers have their say and striving for consensus. His own working style was methodical and diligent.

Three days after the election, the government had accepted Reserve Bank advice and devalued the dollar by 10 per cent, thought to be large enough to stop the damaging speculation in the currency. But almost immediately the dollar came under more pressure, as did the system under which officials set its value.

In the first week of December, the Reserve Bank spent $1.4 billion on buying foreign exchange to counter the overseas money flooding into the country. The Reserve Bank was advocating a free float of the dollar, as was Hawke’s senior economic adviser Ross Garnaut. But Stone, the formidable Treasury secretary, resisted, concerned about losing control of an instrument of economic policy and fearful that the Australian economy would be at the whim of international speculators. When Hawke concluded the lengthy internal debate by saying the dollar would be floated, Stone told him, “Prime Minister, you’ll regret this; you’ll come to see this as a terrible decision.”

The float became the Hawke government’s most significant economic decision, exposing the economy to the full force of international competition. It was a step that had ramifications for most other aspects of economic policy. No longer could the exchange rate be used to cushion against inflation that was higher than overseas or to protect inefficient industries.

Further steps towards financial deregulation removed the ceiling on interest rates and allowed foreign banks into Australia as a means of increasing competition. The latter was a controversial decision inside the Labor Party, but Keating sold it with the same zeal and political skill that he had used to oppose it when John Howard as treasurer had proposed it under the Fraser government.

The float and further financial deregulation triggered a wild ride during the 1980s, with the dollar crashing in value, a boom in credit, skyrocketing interest rates and big corporate failures culminating in a severe recession. Bob Johnston, the Reserve Bank governor at the time, subsequently told the author Paul Kelly, “It’s just as well they did not foresee all the consequences, otherwise we might not have got the change.”

For a Labor government, deregulation was a particularly bold decision, although one driven by circumstances, given the rapid growth of international currency markets trading in huge amounts of money. In opposition, Labor had opposed the Fraser government’s first moves towards financial deregulation. Effectively subjecting economic policy to the whims of the free market was the very antithesis of Labor dogma. Many on the left of the party accused the government of selling out, seeing its actions as justifying the resistance they had shown to Hawke’s becoming leader.

It is easily forgotten how vehement these complaints were. In the early years of the government, Labor’s national Left, a broader grouping than the parliamentary party but with caucus members playing a prominent part, periodically held news conferences to criticise government decisions, particularly on economic policy. Stewart West, the only left-wing member of the first Hawke cabinet, resigned after eight months because he could not support a cabinet decision on uranium mining. Brian Howe, a left-wing minister outside cabinet in the first term, accused the government on one occasion of having a “deficit fetish” and on another of policies that he compared to a mule — like the animal that cannot reproduce, they had no future.

The Left also took its grievances to Labor’s national conferences which, in theory, were the supreme decision-making bodies of the party. The debates were robust and the votes close, with the government relying on the Right and Centre-Left factions carrying the day.

But Hawke and Keating were dominant in cabinet and were strongly backed on economic decisions by employment minister Ralph Willis and by finance minister Dawkins and the fellow Western Australian who succeeded him, Peter Walsh. This meant their authority was rarely challenged successfully by the full ministry or caucus, even though caucus had the final say on decisions. On one occasion after an economic policy announcement following a meeting of the full ministry, science minister Barry Jones asked communications minister Michael Duffy, “How did that happen?” “It’s purely a matter of numbers,” Duffy replied. “There’s four of them and only twenty-three of us.”

The government had another advantage: on the hardest economic decisions, such as the float, financial deregulation more broadly and, in subsequent years, tariff cuts, privatisation and labour market deregulation, it had the support of the opposition, and particularly John Howard, first as shadow treasurer and from 1985 as leader. All these Labor decisions were in line with the philosophy of the Liberal Party, or at least that of its conservative wing led by Howard, who had tried unsuccessfully to persuade the Fraser government to adopt some of the same measures.

The way for these decisions was smoothed by one of Hawke’s underrated achievements: the skill he brought to decision-making, particularly on contentious issues. He would come to cabinet meetings well briefed but would first listen patiently to his ministers, making them feel their contributions were valued. Then he would sum up the debate and conjure up a solution to what sometimes seemed intractable issues — one that satisfied most of the concerns or, if not, that his colleagues felt they could live with.

Enjoying an extended honeymoon in the opinion polls and wanting to avoid separate elections for the House and Senate, Hawke decided to go to the people in December 1984, only twenty-one months after the 1983 victory. Labor strategists were counting on a repeat of Neville Wran’s success for Labor as NSW premier, when he followed up his narrow victory in 1976 with “Wranslides” in 1978 and 1981, setting the party up for long-term government.

But Hawke was overconfident. He opted for an unusually long campaign of seven-and-a-half weeks in the expectation that he could destroy his opponent, Andrew Peacock. Instead, he gave the Liberal leader a platform as alternative prime minister. As well, Hawke campaigned poorly. He broke down in tears at a news conference over the heroin addiction of his daughter. Wracked with guilt over the neglect of his parental duties, “I was within minutes of resigning from office at that time,” he said later.

Peacock proved to be an effective campaigner, hammering away day after day to get a plain message across to voters: that, “as certain as night follows day,” a re-elected government would bring in new taxes. Peacock based his claim on reforms introduced in Labor’s first term — an assets test on the age pension and a 30 per cent tax on lump sum superannuation, both of which he promised a Liberal government would repeal.

Labor’s defence was muddied by Hawke’s off-the-cuff commitment during a radio interview to hold a tax summit after the election. It meant Labor could deflect questions about the specifics of tax changes until after the election, but at the same time it added ammunition to the Liberals’ scare campaign. But Hawke emphasised another commitment: that under a second-term Labor government there would be no overall increase in taxation as a proportion of national income, and the same would apply to government expenditure and the budget deficit.

This “trilogy” became a means of enforcing harsh discipline in future budgets. But in the election campaign voters were more inclined to believe their taxes would be going up than that Labor would keep its promise.

Not for the first time, the result of the 1984 election defied predictions of a thumping victory for Labor. Instead of a swing to Labor, the opposition gained 1.46 percentage points after preferences, cutting Labor’s majority from twenty-five seats to sixteen. With 51.8 per cent of the vote after preferences, it was a solid win for Labor but, given expectations of a landslide, it was the Liberals who were celebrating — except for Howard, who had expected to become opposition leader after the election loss. As for Hawke, the political messiah had been reduced to a mere mortal. •

This is an edited extract from Bob Hawke by Mike Steketee, part of the Australian Biographical Monographs series published by Connor Court.