The Labor Government of 1983-96 presided over enormous changes to the structure of the Australian economy, as it changed from an inward-looking, closed, and highly regulated economy, to an open and more internationally competitive arena. Paul Keating, as treasurer from 1983-91, and later as Prime Minister, from 1991-1996, was instrumental in these changes taking place. Keating’s leadership style enabled many radical adjustments to take place, swiftly and sweepingly. These changes were, indeed, mirrored in the changes in his own belief structure. However, a culmination of other domestic political circumstances, as well as changes in the global political and economic orthodoxies, made it possible for a progressive government to pursue an economic strategy of dramatic changes. Keating often said that he thought he would have achieved more as Treasurer than he would as Prime Minister. It is on his years as Treasurer this essay will focus.

Paul Keating’s maiden speech to the House of Representatives in March 1970 was a far cry from the reform-oriented leader he would become, both in terms of the characteristic speaking style, and the policies he endorsed. At age 25, Keating was still a young man, and his ideas of what a government should be doing were very different from those he would possess as Treasurer, and after spending half of his life in parliament, as Prime Minister at age 50. We can see that as Keating’s ideas evolved, so too did the policy agenda he set as a leadership figure in Federal Parliament. As a backbencher in the Whitlam Opposition in 1970, Keating was still very much a result of his Catholic upbringing, with conservative family values, and the view that "we are born equally and we die equally, and that no one of us is intrinsically worth more than another", and orthodox economics. Although his beliefs surrounding egalitarianism and family values would stay much the same, as Treasurer his views on the economy changed enormously.

Keating’s maiden speech addressed issues of relevance to the day, namely inflation, the tax system, and family values. Keating in 1970 envisaged the solution to inflation in terms of regulation of prices and wages, with a centralised body assessing the wage level at regular intervals, and setting a wage suitable to the needs of an average Australian, using this mechanism to control the level of prices, and thus inflation. Such regulatory policy stands in stark contrast to the solutions he propounded in government. As Treasurer, Keating’s views became more sophisticated. His solution would involve freeing up the economy. Keating’s main explanation in late 1982 for inflation was too high wages. The introduction in 1984 of medicare would reduce the CPI, and combined with wage restraint in the accord, could produce a sustained decrease in inflation. Later, Monetary policy would become the main instrument of government for remedying inflation (that is, manipulation of interest rates). The Accords would introduce wage restraint and tax cut trade offs, and be a successful inflation control mechanism throughout the 1980’s and into the 1990’s. Although initially sceptical of the efficacy of the accords, Keating could later claim that his policies had lead to ‘one of the highest growth rates in the OECD over the last decade, the highest rate of employment, and one of the lowest rates of inflation.’. His zealot-like adherence to monetary policy in the cause of ‘breaking the back’ of inflation, would, however, also lead to the highest levels of unemployment in Australia since the great depression.

Keating in 1970 was a regulator and remained protectionist. Keating, noted for his thirst for learning from people, haunted the corridors of the press gallery, particularly the Australian Financial Review, then a lone voice calling for lower tariffs and competition. This input, and his experience in the late 70’s, as Shadow spokesman for Minerals and Energy, opened his mind to the policy direction he took up in the 1980’s and early 1990’s. To drastically reform the international competitiveness of Australian industry by removing barriers to trade such as tariff protection, quotas and subsidies. He also noted that, as the Australian dollar was overvalued, exports were too expensive. All this meant that Australia’s flagging economic fortunes up until 1983 were due to an overvalued dollar, uncompetitive and over-protected, and over-regulated industry, which was complacent and inefficient. His solution, once in power, was to deregulate financial markets, float the Australian dollar, reduce tariff protection of industry, The structural effects of these reforms on the Australian economy would be broad ranging, and deep in their impact. Indeed, the economy was immediately transformed, and it would be a long while before the rest of the country could catch up.

Edwards observes that Keating’s ideas in the early years of his parliamentary career, especially his protectionist leanings, were derived from Thomist ideas of a system of economic justice, rather than the Smithian ideas of a self regulating market mechanism, which he would later adopt with such fervour. However, some themes from Keating’s years in leadership did remain constant. Keating first visited Japan in this era, where he began to cultivate friendships he would keep over the years, such as that with Nippon Steel’s then-chairman, Mr Inayama. This started his interest in Asia, which although arguable, was stronger in his years as Prime Minister, when he took an enormous interest in APEC, incorporating Australia into the Asian economic bloc. Keating would later dramatically improve relations with Indonesia’s President Suharto, reviving a long term defence agreement. As Prime Minister, he would advocate APEC as ‘the way forward’, keeping the US involved in East Asia, and taking advantage of investment opportunities the region’s booming economies.

Toohey notes that Keating’s attitudes towards women were less than desirable. In his maiden speech, Keating argued for the need to get the ‘working wife back in her home’.

This set of family values persisted into the period of his leadership, although they did not prevent him supporting such female figures in politics as Carmen Lawrence and Ros Kelly, to his profound electoral disadvantage.

Keating’s interest in taxation reform was also a constant until his policy’s defeat in 1985. Keating’s maiden speech criticised the taxation system of the day because it caught workers in higher tax brackets. Later, he would attempt to introduce a Broad Based Consumption tax, he would reduce tax rates for the highest marginal income bracket from 60 per cent to 49 percent and later, to 39 per cent. The motivation for such tax cuts was as much electoral as economic, it is worthy to note.

In one other area, Keating was constant. This was his attitude towards government. Perhaps because his first experience in government was with the reformist and progressive Whitlam government, or perhaps because of his cultural background, or personality, Keating was always a progressive, or, in Maddox’s terminology, an initiator. Keating referred to it as "using up the mandate", or "using up the political space", or a favourite of his, the metaphor of winning an election being like being handed a lemon, and that the job of a Prime Minister was to squeeze this lemon dry, and if defeated, his responsibility was to hand the victor a lemon squeezed dry. However, Carew makes the point that zealot and reformer, Keating may be, but he was also willing to do deals to achieve the ends he had in mind. Therefore, Keating was not so much a blind idealist, as a pragmatic agent of change, using his years of political experience to implement those dramatic changes he saw as urgent and vital to the running of Australia as a modern society in a modern and changing world.

Indeed, the world changed drastically over this time period. Edwards describes the eighties as a time of ‘exceptional transformation’. Many of these changes were unrelated to the decisions of the Australian government. The cold war ended, and the USSR collapsed, Germany reunified, China adopted a market economy, and Global trade swelled as the heady whirlwind of world financial flows accelerated. As a result, the fixed and regulated system of dollar valuation was becoming obsolete, and economic orthodoxies changed, worldwide. Margaret Thatcher, author of the ‘Conservative Manifesto’ and proponent of ‘economic rationalism’, came into power in one of Australia’s, and the world’s, most influential countries, the UK, in 1979. In 1981, Ronald Reagan, the Conservative republican candidate, was elected president of the dominant economic power of the West, the United States. Reagan also adopted a type of economic rationalism known sometimes as ‘Reaganomics’. ‘Economic Rationalism’ involved analysis of the economy on a firm-to-firm scale- that is, it was interested in microeconomics. The rational economists believed in small government, deregulation, privatisation of publicly run monopolies, that is, minimal intervention in the economy by the state.

Keating and Hawke came into power when these ideas were in the economic mainstream. As Treasurer in 1983, Keating had little idea of economics and the way the world worked. He

The first important decision he made as Treasurer was to keep John Stone (surprisingly to many observers) as head of Treasury. Largely pragmatic, Keating’s decision was based on the fact that he needed to learn about how the system worked, and Stone had a great deal of knowledge and experience already. For his first year, as Keating came to grips with his portfolio, he was seen as a dummy figurehead with the real power exercised by Stone. Treasury was often considered the solitary refuge for economic rationalism in the years leading up to the election of the Labor government, and those who hated Stone would say that Treasury took advantage of Keating’s insecurity at his new post, and the result was a triumph of this ‘economic rationalism’. Stone’s impact on Keating’s formative years as Treasurer cannot be underestimated, but Keating was not as impressionable as some make out. Stone opposed the single biggest market reform proposed by government, the dismantling of tariff protection of Australian industry.

Stone was also hesitant about floating the dollar, discouraging Keating from implementing excessive change. But Keating would not adhere to a policy simply because Treasury preferred it, or because Stone warned him against change. Moreover, many times Keating differed with Stone, and instigated changes over Stone’s head. Keating said he had to appoint the Martin Committee to freshen up the Campbell Committee’s inquiry into financial deregulation even after Stone’s discouragement. The Campbell committee’s report found that Australian banks were crippled by over-regulation, and that Australia risked becoming a closed backwater in a global financial market. Moreover, it found that most developed countries were moving in the direction of deregulation.

By late 1984, Keating had a close knit circle of advice. With Stone as Treasury head, and Bob Johnston as chair of the Reserve Bank, and Bill Kelty as leader of the ACTU, as well as his personal advisers, and for at least a while, the media, Keating had developed an efficient circle of power running the economy .

Keating actively participated in all the meetings, read all the documents associated with change, and gathered all the advice possible in making decisions regarding the economy. As a source of advice, Johnston, after a stint with the IMF (having observed Nixon float the US dollar, and Thatcher at work) was convinced that the way of the world was financial deregulation and the market. Edwards acknowledges that Johnston helped create an economic revolution in Australia that brought Australia into the modern economic world.

Keating would later say that the achievement he was most proud of was internationalising the Australian economy. It is important to note that, although he had a large impetus into the direction of policy, this impetus was shaped by the minds that shaped his- his circle of advice. This circle of advice represented the economic orthodoxy of the period- economic rationalism- in the form of Treasury boss, John Stone, and more importantly, Reserve Governor, Bob Johnston. It could be argued that Keating’s own sense of ‘economic justice’ tempered the harsh results of such policies in Australia, observed in the UK and US, while the nation was still taken seriously by the rest of the world at that time, because of Keating’s adherence to the basic tenets of the ‘rationalist’ agenda.

Keating’s long-held interest in tax reform was expressed whilst in power. He wanted to tackle the issue which had been too difficult for the Fraser government before him: Tax reform. The taxation summit of 1985 was instigated by Bob Hawke, overriding Keating’s own preference for pushing a consumption tax through the cabinet. It was widely acknowledged that the tax system was in need of reform. The tax base was too narrow, and it was too easy for high income earners to tax evade. Typical of Hawke’s consensus style of government, the ACTU had the final veto on embarking on a Broad Based Consumption tax (BBCT). The tax summit produced three options, one of which included a BBCT. However, Hawke changed his mind, and without consulting Keating, used the ACTU’s option to renege, preferring instead to take a less contentious avenue of base broadening via such avenues as Capital Gains Tax and Fringe Benefits Tax. In one way or another, Edwards argues, a sales tax was not a new idea in Australia. Indeed, a similar Value Added Tax had already been implemented in the UK.

Keating is often criticised for being a left wing leader and propounding the economic orthodoxy of the far right. Edwards does not put much stead in this argument, as it is difficult to find agreement on any policy agenda, and thus the mainstream economic agenda for reform is quite limited. Conversely, Toohey argued that he ‘faithfully pursued policies that favour the rich’. This criticism is a little extreme. The changes Keating implemented were certainly radical, and perhaps unexpected, but if anything, they stemmed less from an economic rationalist’s agenda, and more from a desire to keep up with our trading partners in the OECD.

This ‘OECD agenda’ of economic reform was certainly implemented by a government that had won the election preaching the opposite policies of a higher deficit and real wage maintenance to those subsequently implemented. Although unexpected of a labor government, Keating’s changes were in the mould of Maddox’s initiator, or progressive leadership model. During his period as treasurer, Keating also implemented a superannuation scheme which might one day take over from pensions, eliminated double tax on equity incomes, and brought marginal income tax rates down through tax reform- policies probably unlikely to have been considered by a left wing government. However, convincingly, Edwards points out that in some instances, the Labor government was able to move further and faster than successive Republican administrations in the US, and the former Thatcher government in the UK in increasing the profit share by containing wages, cutting government, and increasing public saving until the 1990/91 recession.

Thus, although the ‘OECD agenda’ was important, it was not the sole origin of his program of changes. Keating often spoke of the need to satisfy the ‘pointy heads’, who would in turn make the media take the government seriously, and eventually the people. Perhaps, then, the program he had implemented was that which would satisfy the ‘pointy heads’, presumably the economic orthodoxy of the time, in hope of credibility, first by the media, and later by the electorate. This was, after all, Keating’s leadership style- a top-down approach to electoral approval- in his Big-Picture attitude towards government. Therefore, although Keating’s direction of the Policy agenda was vital in the subsequent implementation of reformist economic policies, his direction was influenced by the need to be re-elected (as are all governments), and the influence of a changing world economic orthodoxy, via his advisers and the media.

In Conclusion, Keating’s leadership style was necessarily a part of the dramatic and myriad changes that took place in the Australian economy over the period of 1983-96. However, the agenda he chose to pursue over this time period was influenced by an amalgam of the ‘Economic rationalist’ views of the economic orthodoxy, the changing global economic circumstances, shifting towards these economic rationalist views, and the sources of advice Keating depended upon during his time as treasurer- in the formative years of his economic ‘education’. The reform agenda could also be seen to be a part of his electoral strategy, satisfying the ‘pointy-heads’, and in a top-down approach, later, the press and finally the electorate. It follows thus, that although a leader does have influence over the speed and extent of policies implemented, that leader’s freedom is necessarily influenced by prevailing professional opinion, and electoral considerations.