By Dr Jim Stokes, National Archives historical consultant
The years 1986–87 cover the last 18 months of Prime Minister Bob Hawke's second ministry and the early months of his third ministry, following the re-election of the Australian Labor Party (ALP) government on 11 July 1987. The election was a double dissolution, justified by the Senate's rejection of the Australia Card legislation, but the government abandoned the legislation two months later. The election increased the government's majority in the House of Representatives from 16 to 24 seats, but the Australian Democrats retained the balance of power in the Senate. The result was a good one for Hawke, given that there had been a swing against the government and that there was a margin of less than 2 per cent in the two-party preferred vote.
The election campaign was centred on taxation. Opposition leader John Howard offered tax cuts and other benefits totalling $7.3 billion, with a top personal tax rate of 38 per cent (to which the company tax rate would also be gradually reduced), an $800 child care allowance, abolition of the capital gains tax, and the restoration of negative gearing for investment properties. Howard also foreshadowed spending cuts of up to $10 billion, although he gave only broad indications of how the cuts might be achieved. Hawke undertook that there would be no new taxes and that tax revenue would not increase as a percentage of Gross Domestic Product (GDP).
Opposition disunity contributed to Hawke's victory. Howard had replaced Andrew Peacock as leader in 1985, but he found it difficult to establish an authoritative leadership in a party deeply divided between economic and social 'wets' and 'dries' and between Howard and Peacock supporters. In addition, Howard was challenged by the free-market disciples of the New Right and by Sir Joh Bjelke-Petersen's high profile and combative National Party government in Queensland. Many of the policies in areas such as tax, economic and industrial relations reform that Howard sought to develop would be adopted in the future, but despite the economic problems confronting the Hawke government, the Opposition struggled to market a coherent alternative. This left a vacuum into which the 'Joh for Canberra' crusade sought to ride headlong.
During the first half of 1987 the Opposition was in disarray as the 'Joh team' campaigned to install Sir Joh as Prime Minister to lead a 25 per cent flat tax government dominated by the National Party. In March Peacock was dismissed from shadow Cabinet following publication of a car phone conversation with Victorian Liberal leader Jeff Kennett; Peacock had been seen by the 'Joh team' as a possible Liberal leader in a Joh government. In addition, Liberal 'wets' Senator Peter Baume and Ian Macphee respectively resigned and were dismissed from shadow Cabinet over policy differences. In late March a Morgan poll suggested that an Opposition led by Sir Joh and Peacock would win an election decisively. On 28 April National Party leader Ian Sinclair took his party out of the federal coalition to avoid a split between Queensland National MPs and their colleagues from other states. However, the 'Joh team' failed to develop into a stable and effective political force. On 27 May Hawke announced an early election and on 3 June Sir Joh decided not to run for a federal seat.
After the election Howard defeated Peacock for the Liberal Party leadership 41 votes to 28, with Peacock taking the deputy leadership.
Economic policy in the mid-1980s was dominated by a balance of payments crisis. This intensified a collapse in the value of the Australian dollar, which had fallen from approximate parity with the US dollar in 1983 to values around US 60 cents by the second half of 1986. In a radio interview on 14 May 1986, Treasurer Paul Keating said that if the government could not manage the economy sensibly Australia was basically 'done for' and would become 'a banana republic'. On 28 May Keating warned Cabinet that import prices were increasing faster than export prices and the 1985–86 current account deficit was likely to be around 5.8 per cent of GDP, compared with Australia's historic average of between 2 and 3 per cent of GDP. Imports were expected to fall as domestic demand slowed and the value of the dollar fell, but this would be offset by weak export prices and the cost of financing the existing current account deficit.
The balance of payments crisis was precipitated by a collapse in Australia's terms of trade, with prices for agricultural and mineral exports falling sharply in relation to prices for manufactured imports. As journalist and historian Paul Kelly has noted in his 1992 book The End of Certainty: 'This was more than just bad luck…It revealed the contradiction between Australia's first world living standards and its third world export structure.' The problem was compounded by the community's increasing appetite for imported goods as the domestic economy improved. In consequence foreign debt rose substantially and the dollar fell as speculators lost faith in the currency. This left the government to find a strategy that would bring the economy under control without creating a recession that would lose it the next election. In Paul Kelly's words: 'The story of 1986 for the Labor Party was the smashing of its icons. Labor embraced an economic rationalist agenda not by choice but by compulsion. It was driven throughout by a mounting currency crisis. Labor's policy was reshaped against a backdrop of falling electoral support, internal disputes, fear of recession and a growing undercurrent of Hawke–Keating tensions.'
In July 1986 Keating told Cabinet that tax reform and other measures had already added massively to business costs. If Australians were to face up to living within their means, further revenue measures would have to fall largely on household incomes and public and private consumption. Cabinet agreed on a range of new revenue measures, including deferring personal income tax cuts for three months, increasing the bank accounts debit tax and the sales tax on luxury motor vehicles, advancing company tax payments, increasing the Medicare levy by 0.25 per cent, and increasing the sales tax on alcoholic wine and cider from 10 to 20 per cent.
Cabinet also agreed to defer pension adjustments by two months, defer the introduction of 'poverty trap' measures until 1 July 1987, tighten the administration of unemployment benefits, income test family allowances for 17 and 18-year-olds, reform the Pharmaceutical Benefits Scheme, increase the Medicare rebate ceiling, reduce the private hospital bed-day subsidy, substantially reduce foreign aid, remove the ban on uranium export to France, and introduce a $250 administration charge for tertiary students.
In September 1986 Moody's credit rating agency reduced the Commonwealth government's rating from AAA to AA1, but by February 1987 Keating felt able to tell Cabinet that the government's strategies were producing results: domestic demand had slowed, employment had continued to grow and the current account deficit had shown signs of improvement. But the prospective Budget deficit for 1987–88 was still unsustainably high and the government had to rely more than intended on monetary policy, driving up interest rates. More weight needed to be placed on wage and fiscal policies. Public and private debt to the rest of world had climbed relentlessly and Australia could not continue to borrow at such a rate unless the dollar fell in value or interest rates rose even further. It was essential to reduce public spending because the predicted Budget deficits were $4 billion for 1986–87 (in fact it proved to be only $2.6 billion) and $5.8 billion for 1987–88.
On 13 May 1987 Keating delivered a comprehensive Economic Statement including $4 billion of savings to be achieved through a combination of spending cuts, asset sales, tightening of welfare eligibility and tax increases. The welfare changes included reducing the maximum age at which dependent children qualified a mother for a Class A widow's pension from 24 to 15 (subsequently rescinded), moving 16 and 17-year-olds from unemployment benefits to a job search allowance, suspending unemployment benefits for people who left work voluntarily or through misconduct, and introducing a 'sudden death' rather than tapering assets test for unemployment and sickness benefits. It also curtailed family allowance payments where joint parental income exceeded $50,000.
In addition, the Mark III version of the Prices and Incomes Accord, introduced in March 1987, squeezed wages as far as was considered to be politically possible. It gave a 'first tier' wage rise in March 1987 of around $10 per week for all workers, while a 'second tier' increase of around 3 per cent, to be justified by productivity gains, could be negotiated for specific industries. There would be a further 'first tier' increase of $5 in January 1988. This was expected to give a Consumer Price Index increase of around 6 per cent for 1987–88, which would still be well above the inflation level of Australia's major trading partners.
The 1987 election victory was a welcome relief to the government, but Paul Kelly believed that it brought new dangers because the government succumbed 'to a euphoria which generated a complacency about its ability to manage Australia's economic difficulties. Labor fell victim, in about equal measure, to its own misjudgements and a series of surprise events, of which the most surprising was a consumption and investment boom'. The boom was driven by improved world business conditions and commodity prices, which in turn eased pressure on the current account deficit and the dollar. Even the great stock market crash of October 1987 complicated matters, in that unrealised concerns about a possible recession delayed moves to tighten monetary policy.
In August 1987 Keating told Cabinet that the government's main aim over the past two years had been to reduce the current account deficit and arrest the snowballing growth in external debt. Good progress had been made, but the current account deficit was still at the unsustainable level of around 4 per cent of GDP and external debt was continuing to rise strongly. Inflation was falling, but it was still unacceptably high and business remained wary of undertaking new investment. Since 1983 820,000 additional jobs had been created, but the unemployment rate was still more than 8 per cent. The Commonwealth deficit had been reduced significantly, but state and local government borrowing meant that the overall reduction in public sector borrowing had been less marked.
Cabinet agreed that all new policy spending in the Budget should be offset by savings, with the aim of holding the 1987–88 deficit to $1 billion; in fact 1987–88 ended with a surplus of $2 billion. In December 1987 Finance Minister Senator Peter Walsh warned that there were still areas of rapid growth in government spending. These flowed from an increased number of people qualifying for indexed pensions and benefits, a significant increase in the use of Medicare and the Pharmaceutical Benefits Scheme, increased tertiary student numbers, increased resources directed to poorly targeted child care programs, and real growth in defence spending.
The Commonwealth Public Service was subjected to prolonged scrutiny to find efficiencies and combat industrial action. A 1.25 per cent efficiency dividend was imposed on all agencies, appeals against promotions were streamlined or abolished, and retrenchment, redeployment and compensation procedures were tightened. In July 1986 the Public Service Board warned Cabinet that the unions were likely to use industrial action to frustrate efficiency reforms. Union tactics had become increasingly sophisticated in recent years and the use of selective bans and limitations caused maximum disruption at minimum cost to unionists. Managers were often reluctant to implement efficiencies opposed by unions because they had no immediate response to the threat of bans. Cabinet agreed to strengthen dispute resolution processes, but did not accede to the Board's request for power to suspend staff in areas affected by bans and limitations.
The Ministry appointed after the July 1987 election extended the concept of 'super' ministries, each presided over by a Cabinet minister with one or more supporting ministers. The big new departments included Foreign Affairs and Trade (Bill Hayden), Industry, Technology and Commerce (Senator John Button), Transport and Communications (Senator Gareth Evans) and the all-embracing Arts, Sport, the Environment, Tourism and Territories (Senator Graham Richardson). On 24 July 1987 Cabinet approved guidelines for the operation of the multi-minister departments. Portfolio ministers were responsible for the direction and public presentation of policy and their subordinate ministers were to avoid any public display of separate policy stances. Subordinate ministers, in consultation with their portfolio ministers, had the right to lodge submissions and to be present at Cabinet discussions on their areas of direct responsibility. The Prime Minister wrote to all ministers directing them to personally supervise restructuring and to ensure that there was a firm resolve among public servants to adopt reforms and maximise efficiencies.
Cabinet also surveyed the politically and industrially sensitive issue of the privatisation of Government Business Enterprises (GBEs). In July 1986 the Prime Minister's, Treasury and Finance departments suggested that a task force be set up to consider the sale of Trans Australia Airlines, Qantas, Australian National Line, Housing Loans Insurance Corporation, Commonwealth Serum Laboratories, Pipeline Authority and Australian Industry Development Corporation. The memorandum noted that ministers were opposed to the sale of the Commonwealth Bank, Overseas Telecommunications Commission, Telecom and Australia Post. It also acknowledged that GBEs such as Telecom and Australia Post were natural monopolies that raised more difficult issues than GBEs which competed directly with the private sector, although it would be possible to sell up to 49 per cent even of the natural monopolies.
In December 1987 Cabinet approved the preparation for Caucus of papers canvassing the possible privatisation of 17 organisations, including all those mentioned above, together with Australian National Railways, Snowy Mountains hydro-electric and engineering enterprises, AUSSAT, ACT Electricity Authority and Health Insurance Commission. Issues to be examined included the current relevance of the purpose for which the organisation had been established; the advantages, disadvantages and cost of continued public ownership; and alternatives to full privatisation.
In addition to reviewing the government's own businesses Cabinet commissioned reviews of general factors constraining economic growth, investment and exports. In June 1986 the Prime Minister asked all ministers to identify policies that might form barriers to trade. In September 1986 Cabinet agreed to review areas such as export finance and insurance, international and coastal shipping, shore-based shipping costs, international aviation and the export of education services. In December 1986 Cabinet considered but rejected the possibility of a general reduction in import tariffs because it might undermine industry restructuring and revive memories of the Whitlam government's 25 per cent general tariff cut. Cabinet did agree to the Industries Assistance Commission reviewing some of the remaining pockets of highly protected industries, although review of the metals and machinery industries was deferred because of sensitivities within the Amalgamated Metal Workers Union.
During the 1987 election campaign the Prime Minister spoke in broad terms of the government's intention to consider reform in many areas of the economy. In August 1987 Cabinet endorsed a work program for the Committee on Structural Adjustment, which was made up of officials from the Prime Minister's, Treasury and Industry departments. The committee's objectives included ensuring that education and training met the needs of a productive culture, industry assistance measures did not favour inefficient domestically oriented industries, statutory authorities became more efficient, national infrastructure was reformed, and industrial relations attitudes and structures improved. Some of the initial targets included airline policy, union bans on the use of foreign ships, work practices at Australian ports, strategies for international trade negotiations, regulation of communications, the possibility of general reductions in tariffs, and factors determining investment decisions. In September 1987 the Minister for Primary Industry and Energy was asked to undertake a comprehensive review of assistance to the resources, energy, agriculture, fisheries and forestry sectors.
By the end of 1987 Cabinet had received, but had not made final decisions on, a range of papers. The paper on telecommunications argued that policy had been driven by the objective of providing universal access to services at affordable prices rather than by considerations of efficiency. Telecom was a monopoly organisation with massive but poorly understood cross-subsidisation between profitable and unprofitable services. The paper offered three options for reform: deregulation of value-added services and the sale of equipment to customers, deregulation of all services other than basic network services, and deregulation of the entire system.
The paper on business investment found that investment was too weak, particularly since the recent stock market crash, to create internationally competitive industries vital to the restructuring of the Australian economy. The many constraints on investment included tariffs that diverted investment to uncompetitive industries, the Telecom monopoly over communications, the ban on foreign shipping on coastal routes, state railway monopolies on grain and mineral transport, and over-manning and poor management on the waterfront.
Among other reforms, Cabinet agreed to establish the Australian Securities Commission to replace the cumbersome joint Commonwealth–state system. The Commonwealth Bank was permitted to offer the same range of financial services as the private banks. Foreign investment proposals were to be approved automatically unless they were considered contrary to the national interest, the 50 per cent Australian equity rule for new real estate developments was removed, and foreign takeovers of businesses worth less than $5 million and rural properties worth less than $3 million were no longer to be scrutinised. Cabinet also agreed to replace the $2 note with a coin, but not to abolish one and two cent coins.
As always, industry reform was easier in theory than in practice. In November 1986 Cabinet considered an Industries Assistance Commission recommendation to reduce protection for the textile, clothing and footwear industries to a tariff level of 50 per cent by 1996; even this would be three or four times the average level of protection for Australian manufacturers. This raised both social and political problems, since the industry employed many older and migrant workers with limited prospects of finding alternative employment. The most vulnerable areas were suburban Melbourne; Victorian regional cities; Hunter Valley, Illawarra and Lithgow areas in New South Wales; and north-western Tasmania. The unions and industry argued for a 75 per cent tariff, but Cabinet agreed on a phased reduction to 60 per cent for clothing and 50 per cent for footwear.
The maritime industries, with their powerful unions deep in the ALP's heartland, also proved difficult to reform. A memorandum prepared in February 1986 outlined a litany of problems. Less than 4 per cent of Australia's overseas trade was handled by Australian-crewed ships. Australian pay and conditions were generous by international standards, crewing rates were high and productivity poor. The Australian shipping industry needed to become much more efficient and the unions more responsive to the national interest. The ship repair industry was also in decline, despite a long-running union campaign to force more repair work to be undertaken in Australia. In the stevedoring industry union resistance to reform had resulted in terminals being over-manned by up to 50 per cent and there was little incentive for the workforce to perform efficiently. A ship could be turned round in Singapore in eight hours, whereas in Australia it took three or four days.
In December 1986 Cabinet considered the report of an interdepartmental committee, the majority of whose members favoured allowing foreign ships to handle some of Australia's coastal trade. The suggestion was opposed by Transport Minister Peter Morris, who said that coastal shipping had been regarded as a domestic industry for more than 60 years. Change would be resisted strongly by the unions and would prejudice reforms already agreed between unions and the industry. Cabinet supported Morris, although it was agreed that foreign ships might carry small amounts of coastal cargo on their normal voyages.
Civil aviation proved more amenable to reform. In June 1987 the government announced that it would give the requisite three years' notice of its intention to terminate the Two Airlines Agreement. The agreement had given Ansett and Australian Airlines (formerly Trans Australia Airlines) a virtual monopoly on major domestic routes for 35 years. More recently it had been challenged by East–West Airlines, both in the courts and by running services between major cities via an intermediate airport. However, East–West Airlines was taken over by Ansett in 1987. In October 1987 Cabinet decided to end controls over aircraft imports, seat capacity and the approval of routes and fares. In addition, Australian Airlines was to be established as a wholly Commonwealth-owned public company. Qantas and Australian Airlines would not be merged because this would encourage Ansett to press for international rights. Qantas would regain its right to carry passengers of other international airlines within Australia, but would not be permitted to carry general domestic traffic. Cabinet rejected a proposal to sell the international terminals at major airports, noting that private owners might choose to maximise their profits by minimising investment in new facilities. Cabinet did agree to ban smoking on domestic flights. This decision was opposed by the Business Regulation Review Unit, which argued that the benefits of the ban for non-smokers would be more than offset by the inconvenience it would cause to smokers.
Some reform measures had to be abandoned. Cabinet had agreed in 1985 to introduce an Australia Card to identify all citizens and permanent residents, with the primary objective of combatting tax and welfare fraud. The proposal attracted vocal opposition, which Cabinet sought to calm in January 1986 by agreeing to establish a Data Protection Agency to deal with appeals on privacy issues. In June 1986 Cabinet rejected the recommendation of a joint select committee that fraud should be combatted by an upgraded tax file number system rather than by the Australia Card. Legislation for the Australia Card was reintroduced after the 1987 election, but in September 1987 Cabinet decided to withdraw it and pursue alternative measures through the tax file number system and the establishment of a national register of birth, deaths and marriages.
Cabinet also decided to postpone legislation requiring the reporting of cash transactions of more than $10,000, pending discussions with the banks about alternative measures such as stricter verification of new accounts and voluntary reporting of suspicious transactions. Another casualty was the Bill of Rights Bill, which Cabinet decided to withdraw in August 1986. The Bill had passed the House of Representatives, but was opposed, for differing reasons, by both the Opposition and the Democrats in the Senate.
In 1985 a committee, made up of economist Professor Keith Hancock, industry representative George Polites and union representative Charlie Fitzgibbbon, reported on the federal industrial relations system. Their report generally endorsed the existing system and rejected arguments for moving towards a less regulated labour market. However, employers were concerned that the report recommended the abolition of monetary or 'penal' sanctions for union defiance of industrial relations decisions, which would leave deregistration of the union involved as the ultimate sanction. In May 1986 Cabinet accepted Hancock's central recommendation that the existing Conciliation and Arbitration Commission and the Industrial Division of the Federal Court should be replaced by a new Australian Industrial Relations Commission and an Australian Labour Court.
This left the sensitive issue of sanctions to be resolved. Hancock had recommended that strikes and lockouts should not be offences subject to fines or imprisonment. The Conciliation and Arbitration Act relied primarily on the insertion of 'bans' clauses in awards to combat industrial misconduct, with the ultimate option of imposing monetary penalties on unions that defied the Commission's rulings. The Act also provided for the cancellation of awards, reallocation of work coverage and deregistration of unions. However, bans clause procedures had been little used since the early 1970s because employers regarded them as ineffective. Deregistration had also proved impracticable, except in the case of the Builders Labourers' Federation, where special legislation had been enacted by the Commonwealth and state governments. Disenchantment with sanctions within the industrial relations system had encouraged employers to use common law actions and the secondary boycott provisions of the Trade Practices Act in recent disputes such as those at Dollar Sweets in Melbourne and Mudginberri abattoir in Arnhem Land.
Industrial Relations Minister Ralph Willis told Cabinet in November 1986 that a sanctions system based only on non-monetary penalties would be inadequate, particularly if employers were to be discouraged from seeking alternative statutory or common law remedies. Cabinet agreed to allow a presidential member of the Commission to make an order prohibiting a particular industrial action. Any party could then seek to have the order enforced by applying for an injunction to the Labour Court. Failure to obey an injunction could lead to the imposition of monetary penalties. Cabinet also agreed that the Labour Court should have the power to deal with breaches of the secondary boycott provisions (sections 45D and 45E) of the Trade Practices Act, but only after the Industrial Relations Commission had certified that a dispute could not be resolved or a boycott ended. The unions were strongly opposed to sections 45D and 45E, but an attempt to repeal them in 1984 had been defeated in the Senate.
The government's industrial relations reforms were submitted to Parliament in the Industrial Relations Bill 1987, but lapsed with the 1987 election. The 1987 Bill prohibited access to injunctions under common law to combat industrial action and gave the proposed Labour Court the power, if conciliation had failed, to deal with trade union contraventions of sections 45D and 45E of the Trade Practices Act. These provisions were opposed by employers, and they and the proposed Labour Court were omitted from the Industrial Relations Act passed in 1988.
During the mid-1980s there was substantial media interest in the question of whether Nazi war criminals had migrated to Australia after World War II. In June 1986 Cabinet appointed Andrew Menzies, formerly deputy secretary of the Attorney-General's Department, to investigate these allegations. Menzies presented his report in November 1986 and, with the exception of a small confidential annexe, it was tabled in the Senate. Menzies also gave Special Minister of State Mick Young a sealed envelope with details of 70 persons he believed should be subject to further investigation.
Menzies found that it was more likely than not that a significant number of serious war criminals had entered Australia and that some of those people were still living in the country. He said that there had been serious limitations in Australian immigration checking procedures, particularly in the early years after World War II and in relation to refugees from eastern Europe. There was no evidence that Australian officials had knowingly allowed war criminals to migrate to Australia, although in some cases the Australian Security Intelligence Organisation had later had contact with people subject to war crimes allegations. Menzies said that some of the allegations were so serious that the government should state clearly that, contrary to a statement by the then Attorney-General Sir Garfield Barwick in 1961, Australia did not regard 'the chapter as closed' in relation to the prosecution of war crimes. He said that the allegations related to participation in police or 'security' units that deported, ill treated or murdered people on racial or political grounds, guards or administrators in concentration camps, and executive-level participation in national or local Nazi puppet regimes directly involved in deportation, ill treatment or murder. Cabinet agreed to the establishment of a small Special Investigations Unit to pursue the prosecution of suspects resident in Australia and to amend the War Crimes Act 1945 to extend its coverage to crimes committed in the Baltic States and eastern Europe.
On 14 May 1987 a military coup led by Lieutenant Colonel Sitiveni Rabuka deposed Fiji's recently elected coalition government led by Timoci Bavadra. Cabinet considered the situation on 21 May and agreed to press either for the reinstatement of the Bavadra government or for the holding of a new election under the existing constitution. However, Australia's actions would not prejudice a possible readjustment of policy if a less favourable scenario eventuated. Australia would publicly express its strong support for its preferred options and would lobby the Commonwealth Secretariat and other countries in support of them. In the meantime, defence cooperation and new aid projects would be suspended and the Royal Australian Navy (RAN) would prepare for the possible evacuation of Australians from Fiji, emphasising that there would be no RAN involvement in any military action. Trade sanctions would not be imposed, especially in view of the strongly negative effect of the existing de facto tourist boycotts.
In September 1987 the Governor-General of Fiji negotiated an accord providing for the establishment of a government of national unity. However, on 28 September Rabuka staged a second coup and on 7 October Fiji was proclaimed to be a republic. Cabinet considered developments on 28 and 29 September, noting that the second coup, unlike the first, had been well planned and executed and that Rabuka appeared to have the support, or at least the acquiescence, of many Fijians. It was unlikely that Australia, or anyone else, could remove Rabuka, but pressure might moderate his plans. There was little evidence of widespread international outrage so far and if Australia took a hard line other countries, such as France, would probably usurp our influence and perhaps our commerce. Cabinet agreed to maintain Australia's condemnation of the coup, to refuse recognition of the Rabuka regime and to suggest to the maritime unions that, in light of the release of Fijian union leaders, they should lift their bans on Fiji. All remaining Australian aid to Fiji would be suspended, apart from support for Fijian students already in Australia.
In December 1986 Cabinet reviewed the relationship with Japan. Bill Hayden told Cabinet that the low-key international role that Japan had adopted since 1945 was coming to an end. Time had blurred Japan's war guilt, its military strength was now substantial and it was one of the world's dominant economic powers. Australia's 'special relationship' with Japan was diminishing as Japan diversified its sources of resource and agricultural commodities. In Southeast Asia Australia's standing and influence had declined, while Japan had become the region's largest trading partner and aid donor. Japan was eager to become more involved in the South Pacific, partly to counter Soviet expansion, and it was concerned that Australia appeared to be somewhat complacent and isolationist about the region. Japan was particularly concerned about the unravelling of the ANZUS Alliance.
Cabinet endorsed a series of principles for the relationship with Japan, noting that relations would have to be based on mutual self-interest and that Australia's bargaining position was relatively weak compared with those of the United States, the European Economic Community and China. However, Japan now saw Australia as being of greater importance in the strategic underpinning of the western alliance in the South Pacific and Southeast Asia. Strategies for managing the relationship included emphasising that it would be contrary to Japanese interests to take economic actions that impaired Australia's ability to pursue security interests in the region. Australia would also need to convince Japan that it was addressing its own economic problems, especially in relation to industry restructuring and industrial relations. More Australians would need to become expert in Japanese language and affairs, and Australia would need to be selective in the issues that it chose to pursue vigorously with Japan.
In 1987 the Japanese government proposed the construction in Australia of a 'City of the Future', to be known as the Multifunction Polis (MFP). Australia suggested that the MFP concept should be revised to create a truly international city, involving not just Australia and Japan, but also Europe and all Pacific rim countries. The MFP might be located on more than one site and would have an advanced urban infrastructure and host 'leading edge' industries such as education, research, information and tourism. Cabinet agreed to contribute to a feasibility study, which was to emphasise scientific and technological excellence and the development of international competitiveness and export-oriented industries. The MFP should be developed not as an enclave, but as an entity linked with the remainder of the Australian economy and the choice of site should assume integration with remainder of Australian society.
Cabinet reviewed relations with Indonesia in October 1987. Hayden reported that Indonesia faced a number of economic and political uncertainties, with underlying ethnic and socio-economic tensions and growing community pressure for civil and political rights. However, President Soerharto was in good health and likely to serve another five-year term from 1988. The armed forces remained united in support of Soerharto and any successor government was likely to resemble Soerharto's. Some difficulties remained in the relationship with Australia. Strains over issues such as media reporting, East Timor, Irian Jaya and human rights were fuelled by suspicion and negative attitudes on both sides, while the Indonesian armed forces continued to exercise an independent role in the relationship, often to the detriment of Australia.
Cabinet agreed that Australia should seek a sound working relationship with Indonesia at all levels, with a businesslike and non-inflammatory approach. However, Australia should avoid making such a disproportionate effort that Indonesia came to assume that the onus for successful management of the relationship rested on Australia. Nor should the government lay itself open to criticism that it was too eager to make allowances for Indonesia, especially in cases where Indonesian actions cut across our own interests. The government would also emphasise to Australians that our capacity to influence Indonesia was limited and that Indonesian standards, values and perceptions differed in important respects from our own.
The Commonwealth Accord on Southern Africa adopted at Nassau in October 1985 provided for a graduated response if South Africa did not proceed towards genuine reform. The Eminent Persons Group established under the Accord had concluded that the South African government was not prepared to negotiate fundamental change and Prime Minister Hawke met six other Commonwealth heads of government in early August 1986 to consider further measures. In June 1986 Hayden told Cabinet that it was doubtful whether South Africa's major trading partners would agree to sanctions that would harm their own economic interests, while UK Prime Minister Margaret Thatcher was unlikely to agree to anything more than token action. Hayden acknowledged that Australia's capacity to influence South Africa was limited and that the measures adopted in 1985 had hurt Australia more than South Africa. He nevertheless urged that Australia should remain at the leading edge of Western opinion on reform in South Africa. After Hawke had reported on the outcomes of the heads of government meeting, Cabinet agreed on 11 August 1986 to introduce a further range of measures against South Africa, including bans on air links, investment and bank loans, the import of agricultural products and minerals, and the promotion of trade and tourism.
In February 1987 Cabinet approved a White Paper on Australian defence that outlined Australia's responsibility to maintain a self-reliant capability to meet the most likely contingencies within our area of direct military interest. It also emphasised Australia's membership of the Western strategic community and the importance of continued cooperation with the United States by hosting joint facilities and supporting US naval deployments in the Indian Ocean and training flights by KC-135 fuel tankers and B-52 bombers.
The paper found that there was no direct military threat to Australia, apart from the remote possibility of global war. It emphasised the need to handle credible military situations without direct US combat assistance and suggested that military strategy be based on the 'defence in depth' concept. The defence force would be prepared for the direct defence of Australia and its interests, but it would also be able to contribute to the security of the south-west Pacific and Southeast Asia. Many elements of the force would be available for cooperation with allies further afield if the government so desired.
A proposed $25 billion defence force development program included up to three new Jindalee Over-the-Horizon radar stations and eight new surface combat ships to join the nine destroyers and frigates already in service or under construction. A major portion of the RAN surface and submarine fleet would be based in Western Australia. The Royal Australian Air Force (RAAF) would have a long-range strike force of F-111 long-range bombers, F/A-18 multi-role fighters and P3-Orions. The Army Operational Deployment Force based in Townsville would use Blackhawk helicopters to deploy rapidly across northern Australia, while a cavalry regiment, eventually to be upgraded to a brigade, would be based in Darwin. During 1987 Cabinet approved the purchase of an additional 25 Blackhawk helicopters and committed nearly $4 billion to the construction of six Kockums Type 271 submarines, with the Australian construction facility to be located at Port Adelaide.
In February 1987 Defence Minister Kim Beazley briefed Cabinet on the South Pacific. He said that until recently there had been no major strategic issues in the area, due to the absence of major power interest and the tendency for the island states to regard the ANZUS Alliance as providing indirect security support. But the situation was now more complex, with the rise of a non-traditional opposition movement in Fiji and the Soviet Union showing an increased interest in the region. The Soviet Union had signed a fisheries agreement with Kiribati and was negotiating with Vanuatu for onshore facilities. Vanuatu had also established links with Vietnam, Cuba and Libya. In contrast, the suspension of New Zealand from ANZUS, the operations of the United States' tuna fleet and US reluctance to commit to the South Pacific Nuclear Free Zone had caused a decline of confidence in the United States. French intransigence over nuclear tests and New Caledonian independence were also problems.
Beazley said that these developments did not directly threaten Australia's security, but that Australia needed a more active involvement to ensure that the island countries' predominant defence relationship remained with Australia. Also, Australia should continue to support police and para-military units, since in many countries they carried national security responsibilities in the absence of a defence force. Cabinet endorsed the general policy and also specific measures such as the Pacific patrol boat project, increased RAN ship deployments and RAAF maritime patrols, and the provision of specialist and technical training and assistance.
In March 1986 Housing Minister Stewart West told Cabinet that high interest rates were squeezing the housing industry, with new home starts expected to fall from 152,000 in 1984–85 to 125,000 in 1986–87. The government's 13.5 per cent interest rate ceiling on savings bank loans for owner occupiers was diverting funds from housing to more lucrative investments. Building societies were offering rates of between 14.5 and 16 per cent, but these were too high for many prospective borrowers. Cabinet decided to subsidise the savings banks for one year by up to $120 million to make more funds available for housing loans and to remove the 13.5 per cent interest ceiling for new borrowers. In March 1987 Cabinet agreed to end the subsidy, but to retain the 13.5 per cent ceiling on loans approved prior to April 1986.
Also in March 1986 Cabinet agreed on general principles for child support arrangements. These principles included non-custodial parents being required to share the cost of child support, adequate support for children not living with both parents, limiting Commonwealth expenditure to the minimum necessary and removing disincentives for parents to participate in the labour force. In March 1987 Cabinet agreed to the establishment of a Child Support Agency within the Australian Taxation Office, but the resolution of issues such as identifying non-cash asset transfers between parents and requiring custodial parents receiving Commonwealth benefits to enforce maintenance orders delayed introduction of the scheme until 1988.
During 1987 Social Security Minister Brian Howe briefed Cabinet extensively on the need to provide more adequate assistance for low income families, arguing that tax changes had shifted relative tax burdens to families with children. The Hawke government had increased payments for children in low income families by 70 per cent, but such families were still worse off than they had been in the mid-1970s and there had been a marked increase in child poverty. In April 1987 Cabinet agreed in principle to a three-tiered family support system based on a child credit for general family assistance, an additional child credit for low income families and family tax rebates to rationalise tax protection. During the 1987 election campaign the government announced a new family assistance program called the Family Allowance Supplement, which would aim to deliver the Prime Minister's pledge that no Australian child need live in poverty by 1990. In September 1987 Cabinet agreed to a package of family assistance measures to cost nearly $500 million by 1988–89.
In November 1987 Employment and Education Minister John Dawkins submitted a discussion paper on the future of higher education funding. The paper argued that graduations might increase from 88,000 to 125,000 annually by 2001 and significant reform would be required to avoid a commensurate increase in Commonwealth expenditure. In 1986 the Commonwealth had funded 85 per cent of higher education costs, the remainder coming from state governments, investments and overseas students. Dawkins recommended that the existing system of funding universities and colleges of advanced education separately should be replaced by a unified system under which institutions would seek funding on the basis of the areas in which they proposed to teach and research. Institutions would have to consider options for more flexible funding and for amalgamation or cooperation with other institutions. Cabinet agreed to release the paper for comment, emphasising that the government had not made firm decisions on its proposals.
The government continued to grapple with the sensitive issue of Indigenous land rights. In March 1986 Aboriginal Affairs Minister Clyde Holding told Cabinet that New South Wales, Queensland and South Australia had enacted legislation and Victoria was preparing to do so, but that Tasmania and Western Australia rejected the concept of land rights legislation in principle. Cabinet again endorsed its 1985 Preferred National Land Rights Model, but agreed to negotiate with Western Australia on non-legislative measures such as community funding and the granting of long leases to Aboriginal reserves.
The Tasmanian and Victorian governments presented the Commonwealth with conflicting challenges. In December 1986 Holding told Cabinet that Tasmania refused to recognise that Aboriginal people had any legitimate claim to land. A study had identified 10 priority areas for claims, most of them small and remote. The Oyster Cove settlement south of Hobart and Wybalenna on Flinders Island were the most significant, but Holding had little hope that Tasmania would agree to a land swap to secure them. In December 1987 Cabinet decided that if discussions with Tasmania failed, the Commonwealth would move to compulsorily acquire Oyster Cove and Wybalenna.
In Victoria the Legislative Council, in which John Cain's ALP government did not hold a majority, refused to support the grant of inalienable (as opposed to freehold) title for the Lake Condah and Framlingham communities and opposed Aboriginal cultural heritage legislation. In February 1987 Holding told Cabinet that aspects of the proposed Victorian legislation went further than the preferred Commonwealth model, but this was not a reason to reject it. Cabinet agreed to legislate on behalf of Victoria and during 1987 the Commonwealth Parliament approved the transfer of Lake Condah and Framlingham to the relevant Aboriginal corporations. In December 1987 Cabinet considered but rejected a proposal by Gerry Hand, who had succeeded Holding in the Aboriginal Affairs portfolio, for legislation to provide that, where land rights were removed or diminished by state or territory action, Aboriginal and Torres Strait Islander people would be guaranteed at least equivalent rights under Commonwealth law.
The government was concerned that the parlous state of the Aboriginal community might become an issue of moral and political embarrassment during the 1988 bicentennial celebrations. In July 1986 Cabinet considered the Miller report on Aboriginal employment and education. Miller found that the employment situation was 'appalling': a third of working-age Aboriginal people were unemployed and even those who did have work were usually in lower paid, casual or seasonal jobs. With 80 per cent of the Aboriginal population in small towns, communities and outstations unemployed and also the collapse of rural employment in the face of structural and technological change, their prospects were bleak. Cabinet accepted Miller's recommendation that money paid in unemployment benefits should be redirected to the Community Development Employment Program for work on community and municipal projects. Cabinet approved a range of employment, training, community development and small business funding initiatives.
In December 1987 Cabinet endorsed the recommendations of a House of Representatives committee for the establishment of small decentralised communities of close kinship groups on land of social, cultural and economic significance to them. However, the naming of these communities raised difficulties: Cabinet rejected the original title of 'homelands' because of its apartheid connotations and moved firstly to 'original lands centres' and then to 'outstations'.
The government also established the Muirhead royal commission to investigate the deaths of Aboriginal and Torres Strait Islander people in police or prison custody. Planning and consultation for the Aboriginal and Torres Strait Islander Commission proceeded, the establishment of which had been announced by the Prime Minister on 14 July 1987.
During 1986 Cabinet considered the report of the McClelland royal commission on British nuclear tests in Australia. McClelland had recommended that the Maralinga and Emu test sites should be decontaminated to a standard suitable for unrestricted habitation by the traditional owners, but a technical assessment group found that even the expenditure of hundreds of millions of dollars would not achieve complete decontamination. Resources and Energy Minister Senator Gareth Evans recommended that Cabinet consider the lesser option of decontamination sufficient to allow casual access to a larger area than was currently permissible; this option might cost between $20 and $30 million, which would be closer to the sum the UK government would be likely to contribute. Cabinet also decided that compensation claims for diseases that might have been caused by radiation would be resisted if the Commonwealth did not believe that a liability existed.
Cabinet considered McClelland's recommendation that compensation, in the form of technology and services, should be paid to the Aboriginal people (and their descendants) displaced from the test sites. Clyde Holding told Cabinet that the action of previous governments in 'shepherding' traditional owners off their lands was both immoral and appallingly executed, and the disruption to Aboriginal life had been catastrophic. Traditional owners had been dispersed to Yalata and the Pitjantjatjara lands in South Australia and to Coonana in Western Australia. Cabinet allocated an initial $500,000 for projects of lasting and general community benefit.
Cabinet had decided in November 1985 not to merge the Australian Broadcasting Corporation (ABC) and the Special Broadcasting Service (SBS), but this decision was reversed in July 1986. The proposal was resisted strongly by ethnic communities and the government abandoned it again in 1987. In July 1986 Cabinet considered but rejected the possibility of permitting SBS to carry advertising, on the grounds that it was unlikely to be viable and would be strongly opposed by commercial television channels. Cabinet also noted in July 1986 that corporate sponsorship for the ABC would produce only 'insignificant' savings and would be the 'thin end of the wedge' towards commercialisation and interference with editorial standards. In March 1987 Finance and Treasury unsuccessfully proposed that ABC and SBS should be permitted to accept corporate sponsorship (retaining 50 per cent of the revenue therefrom) and carry blocks of advertising for around five minutes of each hour.
In August 1986 Cabinet agreed to defer the introduction of pay television for four years because it would compete with existing commercial broadcasters and would be unlikely to fund new Australian productions. In November 1986 Cabinet agreed to relax the 'two station rule' governing regional commercial television stations. The Australian Broadcasting Tribunal believed that Melbourne and Sydney licensees dominated the market, making it difficult for smaller groups to influence programming decisions. Cabinet decided that a person could hold any number of commercial television licences as long as the combined population of the areas they served did not exceed 75 per cent of the Australian population. Communications Minister Michael Duffy had recommended that the population limit be set at 43 per cent to equate to the combined population of Sydney and Melbourne. In October 1987 Cabinet approved a range of restrictions on commercial radio ownership. These included prohibiting an owner from holding both a radio licence and a relevant associated newspaper where there was at least a 50 per cent overlap in the areas they served, or from holding both a radio licence and a television licence where there was a 30 per cent population overlap.
Environmental issues were dominated by controversies over forests in north Queensland and Tasmania. In June 1986 Cabinet endorsed in principle a Commonwealth rainforest conservation policy, to be implemented and funded as far as possible in cooperation with relevant states. The Commonwealth would generally nominate sites for World Heritage listing only with the agreement of the relevant state, but Cabinet would examine any cases in which the attitude of a state might cause Australia to breach its World Heritage obligations. Commonwealth–state relations were soon put to the test. In June 1987 Environment Minister Barry Cohen told Cabinet that the Queensland government would oppose any major restriction on logging in north Queensland rain forests and recommended that the Commonwealth proceed with an application for World Heritage listing.
In December 1987 Senator Graham Richardson, who had succeeded Cohen in the Environment portfolio, told Cabinet that Queensland was vociferously opposed to World Heritage listing and had mounted an intense media campaign against it. Businesses, local authorities and Aboriginal communities had been pressured to join this opposition. Richardson had visited the area four times and in his view local opinion was slowly turning in favour of the Commonwealth's position. However, 'safety net' assistance would be needed for some 500 workers displaced from the timber industry in an area that already had a significant surplus of unskilled and low-skilled labour. Cabinet decided to proceed immediately with a World Heritage nomination and the promulgation of a regulation to stop logging.
In Tasmania, forest preservation succeeded the Franklin dam as a source of conflict with Premier Robin Gray's state government. In December 1986 Cabinet considered the future of logging in the Lemonthyme and Jackeys Marsh National Estate forests. Primary Industry Minister John Kerin wanted logging to continue, arguing that the exclusion of National Estate forests from logging would threaten woodchip exports, which were an integral part of Tasmania's second largest industry. However, Cabinet supported Cohen's recommendation that logging should be halted pending further consideration of National Estate values. Attempts to negotiate with the Tasmanian government were unsuccessful and in February 1987 Cabinet agreed to introduce legislation under the external affairs power to review the World Heritage values of the Lemonthyme and forests in the Huon and Derwent river catchments in southern Tasmania. In April 1987 Cabinet appointed the Hon Michael Helsham, formerly a judge of the NSW Supreme Court, to conduct an inquiry into the issue.
In May 1987 Kerin and Industry Minister Senator John Button asked for $10 million per annum to accelerate the planting of hardwoods on previously cleared farmland. They argued that 'extreme conservationists' wanted to end logging in native forests, threatening the future viability of the forest industry. They endorsed the industry's view that some forests should be preserved as 'samples', other forests should be managed sustainably and plantations should be increased. They also claimed that the Commonwealth had increased the industry's uncertainty by only involving itself on the conservation side of issues. In December 1987 Kerin told Cabinet that there was no recognisable process for assessing the economic, social and environmental costs of land use decisions in sensitive areas. Decisions were characterised by 'eleventh hour' ad hoc responses and parties seeking a 'winner take all' outcome. Kerin and Richardson were asked to develop an equitable framework for balancing conservation and development demands.
In retrospect the years 1986 and 1987 fall within the middle period of one of the longest-running and more highly regarded governments in Commonwealth political history. However, observers at the time would have been unlikely to predict with confidence that the Hawke–Keating government would remain in power in Australia until 1996. Indeed if the Liberal–National Party opposition had not self-destructed in the lead-up to the 1987 election the political history of the next decade might have been very different.
Facing external financial pressures, both sides of politics in the mid-1980s were struggling with the gradual breakdown of the old Australia of highly protected industries, rigidly centralised wages and industrial relations systems, and direct government ownership or control of many areas of the economy. However, the nation's views on this challenge were complex. At either end of the debate there were vocal advocates either for swift and radical change or for a determined preservation of the old order. Between these extremes, the bulk of the population worried about inflation, high interest rates, declining real wages, the threat of unemployment, and, more generally, a diminution of the old certainties of life. The electorate looked to its politicians for guidance, but it made the delivery of realistic guidance more difficult by its deeply ingrained suspicion of politicians. This in turn made politicians cautious of suggesting radical reforms and encouraged them to play short-term adversarial politics with issues that might have been better resolved by seeking constructive consensus.
Hawke won a comfortable majority at the 1987 election through his personal popularity and the electorate's view that he led the more united and competent team. This gave his government the confidence to pursue some of the many reforms that it had initiated or contemplated during its previous term, although it remained very aware of electoral and trade union sensitivities. By the time of the 1990 election Hawke would be facing new challenges both within and outside his own party.