Background to the 1978 Cabinet records: The historical context and issues of interest

The following paper has been prepared by Dr Jim Stokes, National Archives historical consultant.

‘If things keep going as they have gone so far, Liberal Party historians of the future may yet label 1978 as the year of disasters.’ Alan Reid, The Bulletin, 26 September 1978

The political environment

Prime Minister Malcolm Fraser, 1978.
Prime Minister Malcolm Fraser, 1978. (A6180, 6/1/78/2)

The election of 10 December 1977 gave the Fraser government another decisive victory, with the Liberal Party winning 67 seats in the House of Representatives, the National Country Party, 19 seats, and the Australian Labor Party (ALP), 38 seats. The government retained control of the Senate, but the first Australian Democrat Senators (Don Chipp and Colin Mason) were elected and took their seats on 1 July 1978. After the election, Bill Hayden and Lionel Bowen replaced Gough Whitlam and Tom Uren in the ALP leadership.

Cabinet membership was largely unchanged. John Howard (Treasury) and Eric Robinson (Finance) did their best to restrain their colleagues’ enthusiasm for spending money. The senior National Party ministers (Doug Anthony in Trade and Resources, Ian Sinclair in Primary Industry, and Peter Nixon in Transport) remained a formidable caucus for the industries they represented. Phillip Lynch held Industry and Commerce, while Tony Street in Employment and Industrial Relations had to tread a difficult path between the unions and arbitration system on one hand, and the desire of some of his colleagues to make a more vigorous stand against wage increases and union power on the other.

Senators Margaret Guilfoyle (Social Security) and John Carrick (Education) had big-spending portfolios that were often in the sights of Treasury and Finance. Ian Viner (Aboriginal Affairs) had a busy year with a major conflict with Queensland over the future of the Aurukun and Mornington Island communities, and with initiatives on Indigenous employment and community development. Andrew Peacock and Jim Killen presided over Foreign Affairs and Defence respectively. The Attorney-General, Senator Peter Durack, joined Cabinet on 25 August. On 5 December Street’s portfolio was split, with Viner taking over Employment. Aboriginal Affairs was taken over by Senator Fred Chaney, but ceased to be a Cabinet portfolio.

Despite his large majority in the Parliament, Fraser’s political life was not without difficulties, some of them within his own party. Queensland Member of the House of Representatives and Deputy Government Whip Don Cameron campaigned for an inquiry into the role of ministers in the proposed renaming of House of Representatives seats in the Gold Coast area. Fraser considered asking the Commonwealth Police to investigate this matter, but then terminated Cameron’s appointment as Deputy Whip and established a royal commission instead. In the light of the royal commission’s report, Fraser dismissed Senator Reg Withers (the minister responsible for the Electoral Commission) on 7 August, a move that caused further unhappiness in the party. The growing power of Fraser’s own department and its tendency to ‘shadow’ the work of other major departments could also be an irritant to ministers and their senior public servants. Fraser’s managerial style, seen by some of those who worked with him as autocratic and at times insensitive, also caused tensions.

Later in the year the business affairs of both Ian Sinclair and Phillip Lynch attracted some public attention. In November a Morgan-Gallup poll showed the ALP with 51 per cent of the intended vote for the House of Representatives. The government parties had 41 per cent and the Democrats 5 per cent. Fraser had an approval rating of only 34 per cent, compared with 43 per cent for Hayden.

The Economy and the Budget

The National Gallery and High Court buildings under construction in Canberra, 1978, from across Lake Burley Griffin.
The National Gallery and High Court buildings under construction in Canberra, 1978, from across Lake Burley Griffin. (A6180, 17/11/78/9)

The government’s policy options were constrained by three factors. First, there was the budget deficit, which was consistently large and always threatening to break out to unmanageable levels. Second, there was the subdued state of the economy. Unemployment had risen from 1.6 per cent in February 1974 to almost 7 per cent by February 1978, while the ratio of people unemployed to job vacancies had risen from 1 to 1 to almost 20 to 1. Inflation was gradually coming down from the alarming levels of the mid-1970s, but it was still running at an annual rate of more than 7 per cent. Third, there was industrial relations. Despite the high level of unemployment, the major unions remained powerful in key sectors of the economy, preventing the government from attacking wage increases as vigorously as it would have liked.

As always, the drafting of the Budget brought Treasury and Finance into conflict with the big-spending departments. On 17 May Cabinet considered a submission from John Howard pointing out that the forward estimates indicated a ‘totally untenable’ increase in the deficit from $3.18 billion in 1977–78 to $5.4 billion in 1978–79. Howard urged a major assault on Commonwealth expenditure, particularly in areas such as welfare and defence, which had so far been relatively immune. This would require the abandonment or drastic modification of existing commitments, and the government would have to ‘bite the bullet’ on a great many hard options.

Howard was also critical of the states. Fraser’s tax sharing arrangements had increased the proportion of money going to the states as general rather than specific purpose funding, thus reducing the Commonwealth’s capacity to restrain their spending. The states were in relatively good financial shape, most having more or less balanced their budgets in 1977–78. Howard was particularly concerned about the extent of state borrowing for infrastructure projects and he urged that the states be made to bear their fair share of the burden of fighting inflation and reducing the size of the public sector.

On 5 July Cabinet accepted Howard’s recommendation to keep the 1978–79 deficit below $3 billion. Howard argued that this could be achieved by checking the rate of increase in Commonwealth spending, reducing the size of the public sector, and winding back excessive wage levels. The Budget was brought down on 15 August with a predicted deficit of $2.81 billion; by the end of 1978–79 it had blown out to $3.48 billion. It included a 1.5 per cent tax surcharge, which largely negated the effects of the ‘fistful of dollars’ tax cuts promised in the 1977 election campaign.

The Budget created a problem for the government by announcing that children’s income would be means-tested for family allowance purposes. This was intended to capture substantial income received by children from family trusts and other income splitting devices. However, the so-called ‘piggybank tax’ was widely criticised as an attack on pocket money earned from newspaper rounds, babysitting and other casual jobs. Cabinet retreated on 19 September by raising the tax threshold from $340 to $1040 and excluding scholarships, war pensions and some other forms of income from its operation.

Howard also found Cabinet wary of tax reforms. On 9 May he raised the possible introduction of a retail turnover tax or a broad-based indirect tax. The Asprey review of the tax system had recommended the latter, but the Tax Office preferred a retail turnover tax as simpler to manage. Howard noted that the proportion of Commonwealth revenue generated by personal income tax had risen from 35 per cent in 1960 to 57 per cent in 1978 and that Asprey had recommended greater reliance on taxes on goods and services. Cabinet decided on 28 June that the Commissioner of Taxation should begin discussions with industry groups over a retail turnover tax, after which consideration would be given to the possibility of a broad-based indirect tax.

Wages and industrial relations

The government saw wage restraint as crucial to economic recovery and it had serious reservations about the policies of both the unions and the Conciliation and Arbitration Commission. On 17 January 1978 Cabinet decided that at the February National Wage Hearing the government should oppose any wage increase on economic grounds but suggested that if the Commission did grant an increase it should be minimal. The government argued that excessive wage increases had been a major factor in the high level of unemployment, particularly among young people, and that the ACTU was more interested in the welfare of those who had jobs than those who did not.

On 28 February the Commission responded to the December 1977 quarter CPI increase of 2.3 per cent with a 1.5 per cent increase for wages up to $170 per week and a flat $2.60 increase for wages higher than $170. This was the lowest proportion of a CPI increase passed on in a wage increase since wage indexation began. However, the Commission then returned to granting full CPI indexation, with a 1.3 per cent wage increase in June and a 4 per cent increase in the first six-monthly decision in December.

John Howard took up the issue of the government’s ‘limited success’ in urging the Commission to severely restrain or halt wage increases. The Conciliation and Arbitration Act 1904 was amended in 1976 to require the Commission to take account of economic conditions in making decisions, but Howard argued that this could have ‘no substantive effect’ while the Commission remained its own master. He therefore suggested that the government set a firm target for growth in the volume of money. If the Commission granted excessive wage increases, the constraint on money supply would increase interest rates, reduce lending and hence restrain employment – an outcome for which the Commission would be held responsible.

Foreign affairs and trade

Delegates attending the Commonwealth Heads of Government Regional Meeting board a RAAF Chinook helicopter to return to Sydney from the NSW town of Bowral.
Delegates attending the Commonwealth Heads of Government Regional Meeting board a RAAF Chinook helicopter to return to Sydney from the NSW town of Bowral. (A6180, 21/2/78/163)

The first Commonwealth Heads of Government Regional Meeting was held at the Hilton Hotel in Sydney in February, attended by leaders of Commonwealth countries from India to the western Pacific. Fraser told Cabinet that Australia must appear positive, thoughtful and regional in outlook and that the meeting should not be seen as a bloc discriminating against the legitimate interests of non-Commonwealth countries in the region. Australia would work for further trade liberalisation, particularly in commodities, but realised that there might be some criticism of Australian tariffs and quotas on the importation of manufactured goods from the region. The meeting was overshadowed by the explosion of a bomb outside the hotel in the early hours of 13 February, which killed three people. Nevertheless, the meeting was seen as a success and a step towards trade liberalisation and greater cooperation in addressing regional problems.

On 22 March Cabinet reviewed relations with the United States as a prelude to a visit by Vice President Walter Mondale. President Jimmy Carter was seen as an ‘enigmatic figure’ whose accomplishments up to that time were ‘fairly thin’. The Carter administration had listened to Australia’s views, but they had had little lasting impact on US decisions, and Australia needed to do more to influence US opinion. Australia approved of US progress in strategic arms limitation and nuclear non-proliferation and safeguards, but wanted reassurance that there should be ‘a determined and committed’ US presence in the Asia–Pacific region.

The Prime Minister met President Carter in Washington on 2 January 1979. Fraser told Cabinet that he intended to stress the depth and community of interest of the bilateral relationship and the contribution that Australia could make to international economic discussions such as the Tokyo Round of Multilateral Trade Negotiations (MTN). He would also draw the President’s attention to rapid political and economic progress in Asia and the need to ensure that this was not disrupted by the activities of the Soviet Union.

In December Andrew Peacock reported to Cabinet on a meeting of Australian diplomats in Southeast Asia. The meeting found that there had been some decline in Australia’s standing and relevance in the ASEAN region, particularly in Indonesia and Malaysia. ASEAN countries were also concerned about Australian protective tariffs and import restrictions. The concessions offered by Australia at the MTN were considered disappointing. Mutual security concerns were no longer the central point of relationships and there was a feeling in some ASEAN quarters that Australia was selfish and introverted. The Australian media were an irritant, particularly in Indonesia, and some national leaders were reluctant to visit Australia for fear of a hostile reception.

Cabinet gave considerable attention to the Tokyo Round of the MTN, which had begun in 1975 but made little progress until 1977 when the United States bowed to European and Japanese pressure to deal with agricultural products separately. This concession was not welcomed by Australia, whose main concern was to obtain better access for its agricultural exports. Australia was particularly concerned at the growth of non-tariff barriers in agricultural trade, including restrictions on volumes, levies and the massive export subsidies provided by the European Economic Community (EEC). On 4 July Australia tabled an offer on industrial tariffs somewhat below the 40 per cent target originally aimed for in the MTN.

Australia continued to press the EEC to respond to proposals on trade liberalisation put in October 1977. The government was concerned with both the size of Australia’s trade deficit with the EEC and the EEC’s apparent intransigence and stalling tactics in negotiations. In April Cabinet considered ways in which Australia might retaliate against EEC interests in areas such as import controls, uranium exports, government purchasing and access to the new Australian 200-mile fishing zone.

One of the more imaginative ways of avoiding EEC trade barriers was a suggestion from the Italian government that Australia accept 2000 Alfa-Romeo cars in exchange for 7000 tons of Australian beef and offal, which would be served in Alfa-Romeo staff canteens. However, this would have complicated the allocation of import quotas to other foreign car manufacturers and Cabinet deferred the suggestion for further consideration.

Security and law enforcement

Armed troops patrol the streets of Bowral during the Commonwealth Heads of Government Regional Meeting, February 1978.
Armed troops patrol the streets of Bowral during the Commonwealth Heads of Government Regional Meeting, February 1978. (A6180, 2/7/79/70)

Cabinet gave considerable attention to the security threat posed by some members of the Ananda Marga religious sect, which had been linked to attacks on Indian officials in Australia during 1977. On 13 January the Immigration Minister, Michael Mackellar, announced that members of the sect would be refused entry to Australia unless they were Australian citizens or established residents who had not been involved in acts of violence. In November the Minister for Administrative Services, Senator Fred Chaney, told Cabinet that the sect had been involved in more publicised acts of violence and harassment in Australia than in any other country except India. Chaney did not favour banning the sect, which would cause both legal and political problems, but noted that the Attorney-General would consider legislation to deal with violence by Ananda Marga and similar organisations. Migration and funding restraints on the sect would be continued and security surveillance increased.

In October Cabinet considered an urgent request from the Speaker of the House of Representatives for legislation to ensure public order in the Parliament. This followed incidents involving Ananda Marga, including the dropping of pamphlets from the public gallery. It was considered ‘heavy handed’ to deal with the offenders under privilege procedures and the existing laws on offensive behaviour were not applicable because the Parliament was not a ‘public place’. A Bill on security and offences in Parliament House was drafted, but the Presiding Officers were opposed to the Bill including ‘minor offences’ because it would transfer power over such offences from the Parliament to the courts. The Bill was deferred for further consideration, but physical security at the entrance to Parliament House was improved.

Following the Hilton bombing, the government invited Sir Robert Mark, a retired Commissioner of the London Metropolitan Police, to advise on Commonwealth policing, protective security and counter-terrorism. Cabinet agreed on 10 July to merge the Commonwealth and ACT police forces into the Australian Federal Police, which would be responsible for ACT policing, Commonwealth law enforcement, counter-terrorism and Special Branch duties and VIP security. In September Cabinet agreed to a ‘hard line’ policy for dealing with any terrorist incident in Australia. The police and, where appropriate, elements of the defence force, would take firm action to obtain the surrender of terrorists, including the use of force if tactical negotiations failed. Concessions to terrorists would only be considered if all other options had failed.


Vietnamese refugee camp, Pulau Bidong island, Malaysia, 1978.
Vietnamese refugee camp, Pulau Bidong island, Malaysia, 1978. (A12111, 2/1978/46A/10)

As the year progressed the scale of the Indo-Chinese refugee crisis became more apparent. On 3 May Immigration Minister Michael MacKellar advised Cabinet that there were already more than 100,000 refugees in Thailand and that at least 20,000 people were expected to leave Vietnam annually. Boats carrying 1254 refugees had already reached Darwin and more were expected. The refugees were not only significantly changing the racial profile of Australian migration, but were also imposing substantial welfare costs. It was not practicable to turn refugee boats away from Australia or to compel refugees to return to Southeast Asia. The only possible options were to encourage Southeast Asian governments to stop boats in transit or to establish a minimum facility reception centre in a remote area of Australia, from which refugees could be resettled in Australia or elsewhere. Cabinet decided to urge the governments of Malaysia, Thailand and Indonesia to hold refugee boats in their countries and to urge the United States to speed up the movement of refugees that it had accepted for resettlement.

In November MacKellar told Cabinet that there were now more than 140,000 refugees in Southeast Asia. The Vietnamese Government appeared to be deliberately encouraging the departure of ethnic Chinese, and the number of refugees far exceeded resettlement offers. South-East Asian countries were likely to start refusing entry to refugee boats, which would then continue to Australia. Cabinet agreed to increase the annual intake of Indo-Chinese refugees from 9000 to 10,500.

In May and June Cabinet considered proposals by MacKellar for major changes to migration policy, amid concern that Australia’s fertility level was now below the long-term replacement level. Migrant selection was still based on restrictions introduced in 1974 in the face of rising unemployment. The system severely restricted the entry of non-immediate relatives and excluded many well-qualified applicants. MacKellar did not advocate a return to the pre-1974 broad family reunion policy, which had brought large numbers of unskilled and semi-skilled migrants. However, he did seek some relaxation of policy on relatives and people who would clearly be a gain to Australia, even if they were ineligible on purely occupational grounds. He also sought a new points-based assessment system. Cabinet endorsed the new criteria and the development of the new assessment scheme.

Setting specific targets proved more difficult. MacKellar recommended that the annual target increase from 90,000 in 1978–79 to 115,000 in 1980–81. However, this was opposed by Employment and Industrial Relations, which argued that there was no justification even for the present level of migration, and by Finance and Treasury on cost-benefit grounds. The Prime Minister’s Department also opposed specific targets. Cabinet decided that targets should be set to maintain the 1977–78 net migration gain.

Cabinet also considered the problems of some 3000 descendants of the South Sea Islanders brought to work in the Queensland sugar industry between 1863 and 1904. The Whitlam Government had established an interdepartmental committee on the issue, which eventually reported in 1978. The committee found that the islanders mainly lived in small coastal communities in NSW and Queensland and were disadvantaged in terms of both education and employment. They did not receive any special assistance as a group, although some did so by having married into the Aboriginal and Torres Strait Islander communities. Cabinet agreed to allocate a social worker to the communities and to seek the views of the relevant state governments.


By 1976–77 health expenditure had reached $6.2 billion, which represented 7.7 per cent of GDP and a near trebling of costs since 1972–73. The government had made an election commitment not to raise health insurance rates before the middle of 1979, but planning for financially inevitable changes proceeded. On 17 April Cabinet considered a submission from the Health Minister, Ralph Hunt, which recommended that patients should pay a higher proportion of their health care costs in order to curb demand for services, reduce Commonwealth outlays and slow the increase in insurance costs. Hunt noted, however, that draconian measures such as full hospital cost recovery or confining insurance to ‘catastrophic’ expenses would be politically unacceptable. Cabinet decided to increase hospital bed charges by one third, allow private health funds to offer their clients the option of paying lower contributions in return for lower benefits, and confine bulk-billing to pensioners. The decision to abolish bulk-billing had to be revisited in June and July to make special arrangements for practices that served predominantly Indigenous, ethnic, itinerant or otherwise disadvantaged patients.

As finally introduced on 1 November, the new scheme abolished the health insurance levy and compulsory health insurance and provided free basic hospital treatment. The government would pay 40 per cent of the scheduled fee for medical services (subject to a maximum patient contribution of $20 per service), but patients had the option of taking additional cover by private insurance. Bulk-billing would pay doctors 75 per cent of the scheduled fee for treating the poor and 85 per cent for pensioners, but doctors could not ask patients to make up the difference.

Indigenous affairs

Celebrations to mark the start of self-government for the Northern Territory, Government House, Darwin, 8 September 1978. Left to right: Sir Zelman Cowen, Governor-General; Galarrwuy Yunupingu, Chair of the Northern Land Council; and Lady Anna Cowen.
Celebrations to mark the start of self-government for the Northern Territory, Government House, Darwin, 8 September 1978.
Left to right: Sir Zelman Cowen, Governor-General; Galarrwuy Yunupingu, Chair of the Northern Land Council; and Lady Anna Cowen. (A6180, 13/9/78/3)

There was a major conflict between the Commonwealth and Queensland governments over the management of the Aurukun and Mornington Island communities on the Gulf of Carpentaria. The communities had been managed for many years by the Uniting Church, but following the conclusion of an agreement to mine bauxite at Aurukun in December 1975 the Queensland Government decided that the Queensland Department of Aboriginal and Islander Advancement (DAIA) should take over the communities. The communities successfully challenged this decision in the Queensland Supreme Court, but lost a subsequent appeal to the Privy Council. The situation was complicated by differences within the Queensland Government, with the Premier, Sir Joh Bjelke-Petersen, and the Minister for Aboriginal and Islander Advancement, Charles Porter, supporting the takeover, while the Minister for Local Government, Russ Hinze, tended to take a more conciliatory approach.

Commonwealth and Queensland ministers agreed on 29 March that the two communities could be jointly managed by Queensland and the Uniting Church, provided that this was acceptable to the communities and the church. However, statements by Bjelke-Petersen the same evening were considered to have breached the agreement and, in any case, the communities and the Uniting Church opposed joint management. Cabinet therefore proceeded immediately with legislation to free Indigenous people from discriminatory legal restrictions on self-management contained in Queensland legislation. Queensland counter-attacked on 3 April by revoking the reserves and terminating Uniting Church management. In the Commonwealth’s view this meant that the communities had lost any legal right to their traditional lands.

Commonwealth and Queensland ministers reached a further agreement on 11 April which was considered to have secured self-management for the two communities. However, the Commonwealth became increasingly concerned that Queensland legislation drafted to implement the agreement did not accurately reflect its terms. In particular, it did not unequivocally secure traditional rights to the land and it allowed too much control over the communities by Queensland Government authorities. In early July Hinze established local councils for the two communities, but it became apparent that they were in effect being run by DAIA, which then served eviction notices on Uniting Church and Commonwealth officials at Aurukun. After further discussions, Queensland agreed on 25 July that Hinze’s department and not DAIA should fund local government in the two communities, and the eviction notices were withdrawn. However, Bjelke-Petersen was incensed by his unenthusiastic reception when he visited the communities, and Queensland threatened to dismiss the councils and appoint an administrator. Cabinet decided to attempt further mediation at both ministerial and official level.

In October Cabinet restated its basic approach to Indigenous affairs. Aboriginal people should have the same access to government services as other Australians, but in view of their extreme poverty and past dispossession they should have some additional benefits and services. Aboriginal self-management and self-sufficiency, with appropriate training, was endorsed as an objective. Commonwealth departments were to do more to employ and train Aboriginal staff. Community Development Employment projects were to continue, but alternatives such as the bulk payment of social security benefits to communities and the development of Aboriginal pastoral and commercial enterprises and home ownership were to be considered. Cabinet also approved guidelines for the development of outstations in remote areas.

On 7 November Cabinet approved a campaign to increase Aboriginal employment opportunities, which would be aimed at senior management in major companies and at a local level in areas of significant Aboriginal population. The campaign would emphasise the extent and resulting social problems of Aboriginal unemployment, report positive experiences of employing Aboriginal people, and provide information on government assistance programs.


Uranium took up a lot of Cabinet’s time in 1978. The government had approved in principle mining in the Alligator Rivers region of the Northern Territory on 23 August 1977, with the Peko/EZ Ranger mine to proceed immediately and decisions on the Jabiluka, Nabarlek and Koongarra deposits to be made as environmental and native title issues were addressed. However, much remained to be done before work could actually begin. In March 1978 the Trade and Resources Minister, Doug Anthony, told Cabinet that he was concerned about the slow progress in completing Commonwealth legislative and administrative requirements and the prospect of protracted negotiations with the Northern Land Council (NLC) over the terms on which mining could be undertaken. Anthony was concerned that delays would encourage the opponents of uranium mining and harm Australia’s reputation as a reliable supplier. Cabinet established a ministerial committee to keep up the pressure on departments.

After several months of negotiation, Commonwealth and NLC negotiators initialled an agreement on Ranger on 25 August. However, the agreement was opposed by some members of the Council and on 11 October a meeting at Oenpelli rejected it. It was also apparent that the NLC opposed the Jabiluka mine. This left Ranger in a difficult situation, since even if construction began in the 1979 dry season the mine would not be in production until 1982, while the government stockpile at Lucas Heights, which was currently meeting Peko/EZ’s delivery contracts, would be exhausted in 1980. After further negotiations, the Ranger agreement was finally signed by NLC Chair Galarrwuy Yunupingu in November.

Union bans were a further complication. On 15 December 1977 the ACTU asked union members not to handle uranium from the two existing mines (Mary Kathleen and Peko/EZ) until a poll of ACTU-affiliated unions was held. This left Mary Kathleen in a perilous financial situation and on 17 January the government agreed to join with Conzinc Rio Tinto to purchase Mary Kathleen’s output, even though it could not be moved. On 10 February 1978 the unions decided to allow existing contracts to be honoured, but to maintain the ban on new mines. On 5 March the ACTU President, Bob Hawke, announced that the bans included any new mine opened to meet existing contracts and that it was for Aboriginal people to decide on uranium mining.

In November Cabinet agreed to lend up to $1.4 million to save Australia’s only remaining asbestos mine at Woodsreef in northern NSW. The company hoped to avoid closure by selling 90,000 tons of asbestos in Southeast Asia. Meanwhile, the Western Australian Government announced plans to abandon the town of Wittenoom, where there had already been some 50 asbestos-related deaths.

Civil aviation

On 7 June Cabinet considered a review of Australia’s international civil aviation policy. The Transport Minister, Peter Nixon, accepted that change was needed to encourage lower fares, but he recommended that Qantas remain the sole Australian international airline until at least 1981 and opposed the entry of cheap charter flight operators. Critics branded the proposal as an attempt to export the Two Airline Policy to the rest of the world and questioned how a system intended to restrict the number of seats could lead to lower fares. Cabinet agreed to commence the renegotiation of Australia’s aviation agreements with other countries, notably the United Kingdom.

The issue returned to Cabinet on 10 October, following the receipt of in-principle support from the United Kingdom. For Europe, Australia’s objective was to renegotiate existing air service agreements to share ‘true origin and destination’ traffic exclusively between Qantas and the national airline of the relevant country. Cheaper fares would be obtained by concentrating traffic to continental Europe on three ‘gateway’ countries, Germany, Italy and Greece. In Asia, Qantas would cease flights to Malaysia, Thailand and India. The big loser in Asia would be Singapore Airlines, because of the Australia–Europe traffic that it had secured by offering stopovers in Singapore. The Department of Foreign Affairs was concerned at the effects of Singapore’s ‘likely outrage’, but Transport felt that the government could cope with it by cutting Singapore’s capacity rights in Australia as soon as possible. It would also be difficult to reach an agreement with the United States, given that the latter’s dominant position in international aviation inclined it towards unrestricted competition. In November Australia was forced to give a second US airline (Continental) landing rights in Australia.

Cabinet also considered the findings of a review of the domestic Two Airline Policy, established in 1952. The committee found that the market could still not support a third major operator, but that Ansett and TAA would benefit from greater competition in some areas. For example, air freight might be deregulated and the requirement that air mail be shared equally relaxed. The airlines should also be subject to increases in navigation charges of up to 15 per cent per annum. Treasury and Finance also suggested that Qantas be permitted to carry domestic passengers.

Cabinet initially decided to impose a 15 per cent increase in navigation charges for domestic operators and a 60 cent fee for each passenger boarding or leaving a plane. This was later modified to scrap the passenger fee and instead move towards full navigation cost recovery on trunk domestic routes. The airlines opposed this move because they were already facing large fuel cost increases. Finance said that it was not surprising that the airlines would complain about the end of a long period of domestic subsidisation, but that this did not justify a visible retreat from the budget strategy. However, Cabinet was more sympathetic and agreed to defer navigation charge increases beyond the initial 15 per cent.


Prime Minister Malcolm Fraser greeting players of the Victorian cricket team at the Sir Robert Menzies Memorial Match, Melbourne Cricket Ground, 10 November 1978.
Prime Minister Malcolm Fraser greeting players of the Victorian cricket team at the Sir Robert Menzies Memorial Match, Melbourne Cricket Ground, 10 November 1978. (A6180, 16/11/78/19)

Australia did not have a good year in international sport. The gold medal tally at the Edmonton Commonwealth Games was well below those of the two previous Games, and Australia came third behind Canada and England. This followed the meagre tally of one silver and four bronze medals at the 1976 Montreal Olympics. The Australian cricket team suffered from defections to the rival World Series competition. Australia defeated India at home in 1977–78, but then lost a series in the West Indies and lost to England 5–1 at home in 1978–79.

On 28 November Sports Minister Ray Groom told Cabinet that Australia’s declining performance at the Olympic and Commonwealth Games had caused ‘wide-spread community concern’, because ‘failure in international competition damages our self-image and national pride.’ Australia had been left behind by countries that were putting significant resources into sports development. Groom urged Cabinet to allocate $1.1 million to train and transport the team for the 1980 Moscow Olympics. He also recommended a national sports program, possibly funded by a lottery or the Sir Robert Menzies Memorial Trust. Finance, however, saw ‘strong reasons of principle’ why funding for international sport should not be increased and it also opposed paying travel costs for the Olympic team. Cabinet deferred the issue for consideration in conjunction with the Prime Minister’s launch of the Olympic Appeal in February 1979.

The territories

Prime Minister Malcolm Fraser and Paul Everingham, the first Chief Minister and Attorney-General of the Northern Territory, sign documents giving self-government to the Northern Territory.
Prime Minister Malcolm Fraser and Paul Everingham, the first Chief Minister and Attorney-General of the Northern Territory, sign documents giving self-government to the Northern Territory. (A6180, 29/6/78/44)

1978 was a year of change for the Commonwealth territories. Canberra residents had not responded with great enthusiasm to the 1977 proposal to delegate most municipal and state-like functions to the territory. However, Cabinet decided that a referendum would be held in the ACT in November 1978, followed by an election for the Legislative Assembly in the first half of 1979. Cabinet also decided that after a five-year transition Canberra residents would not receive a higher level of Commonwealth assistance for services unrelated to the national capital function than the states. The Northern Territory achieved self-government on 1 July 1978, with Cabinet agreeing that the territory would have the right to seek additional assistance from the Grants Commission once the transition had been completed.

Cabinet had decided in 1976 that Norfolk Island would continue to be maintained as a Commonwealth Territory. However, the islanders had strongly opposed recommendations that they be subject to Australian laws, particularly in relation to tax and welfare, and included in the federal electorate of Canberra. On 1 May 1978 Cabinet decided that Norfolk Island would not be subject to the Australian tax and welfare regimes and that it would continue to be exempt from sales tax. However, revenue for additional expenditure required for the island should be raised locally as far as practicable. The Norfolk Island Council was to be replaced by a Legislative Assembly with executive powers. The future of Cocos Island was also resolved when John Clunies Ross agreed to sell the whole of the island other than his own residence to the Commonwealth for $6.25 million.

1978 in retrospect

1978 began well, in the wake of a decisive electoral victory for the Fraser Government. However, it proved to be a year of many challenges and some bad moments for the government. The challenges flowed almost inevitably from the difficult economic situation and the need to attack inflation and the budget deficit without further increasing unemployment or seriously upsetting the electorate. The situation was complicated by the cost of some of the more ambitious election commitments and by the risk that the more powerful unions would break out of the wage indexation system. At times the government seemed to contribute to its own difficulties, such as the appointment of Sir John Kerr as Ambassador to UNESCO, the dismissal of Senator Reg Withers and the introduction of the so-called ‘piggybank tax’ on children’s earnings. Above all, it was a year of formidably hard work for ministers and officials. Cabinet considered nearly 1000 submissions and more than 600 papers and it made nearly 3000 decisions. These totals substantially exceeded those for 1977 and they reflected Fraser’s absolute determination to drive the government’s agenda forward.


Material on this page included a statement that three members of the Ananda Marga sect were imprisoned for their involvement in the 1978 Hilton Hotel bombing. The statement was incorrect and has been deleted.

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