Beginning of the end

The newly released 1974 cabinet papers from the National Archives show the Whitlam Government eager to pursue its visionary and ambitious reforms despite clear signs of an economic downturn, and the beginnings of the so-called ‘loans affair’.

The submissions, decisions and departmental files that make up the 1974 cabinet papers allow us to imagine ourselves pulling back the curtain and listening in on the once secret cabinet meetings. Although detailed minutes, by way of the cabinet notebooks, won’t be released for another 20 years, if we piece together submissions, decisions and the departmental files that go with them, we can gain a valuable insight into those meetings, now so long ago.

As the public grew dissatisfied with the government’s direction, Gough Whitlam and his ministers faced the New Year in a weakened political position. The appointment in March of Democratic Labor Party Senator Vince Gair as Ambassador to Ireland—known as the ‘Gair affair’—prompted the opposition under Billy Snedden to commence deferring the government’s supply bills. That decision ultimately doomed the government.

Whitlam had hoped to win Gair’s seat and thus control of the Senate. With supply denied, Whitlam secured a double dissolution election in May, but failed to win a Senate majority. Despite winning a second term—albeit with the loss of seats—the government languished in the polls for much of the year. Indeed, the Morgan Gallup Poll had rarely shown the government ahead of the opposition since mid-1973.

After the frantic early days of the Whitlam Government in 1972, when it made 40 major decisions in 14 days, and the rapid workload of 1973 which included 823 formal submissions and 221 new acts of legislation, the cabinet business of 1974 was equally gruelling. However, while there were fewer submissions to consider, Cabinet made almost twice as many decisions. In 1974 there were 626 submissions and 1264 decisions.

The latest papers show a similar cabinet style to that of previous years, which was ultimately detrimental to the government’s effectiveness. With all ministers in Cabinet, management was difficult and decision-making laboured. Ministers who lost in Cabinet could return to caucus and try to overturn decisions.

As the government was determined to implement its ‘mandate’ at almost any cost, it struggled to reconcile the implementation of policies with the deteriorating economic environment. Concerns expressed by Treasury over funding, or questions of implementation raised by ministers were given short shrift.

The 1974 cabinet papers show the government determined to introduce a bold and imaginative policy agenda. Funding for hospitals, community health centres, sewerage treatment, and other local and regional initiatives feature prominently. The milestone Medibank legislation was passed at the historic August joint sitting, along with important electoral reforms. The Trade Practices Act came into force, the Family Law Bill was drafted, and legislation was passed establishing the Law Reform Commission. A new national anthem was chosen, 18-year-olds voted for the first time, and the National Parks and Wildlife Service was set up. Significant advances were made in Aboriginal health, housing and education, and also in Aboriginal representation and land rights.

A highlight of the cabinet papers is the response to Cyclone Tracy handled by Deputy Prime Minister Jim Cairns, while Whitlam was on a European sojourn. After visiting Darwin, Cairns submitted to Cabinet proposals providing immediate relief and future plans to meet Darwin’s needs. It was Cairns at his best.

The issue that was discussed most often in Cabinet in 1974 was the economy. Rapidly rising unemployment and inflation, in addition to increasing oil prices abroad, falling commodity prices at home, and a worrying balance of payments, presented the government with a plethora of economic problems. Ministers, caucus members, the union movement and the public service had differing ideas as to how to fix the economy.

The wage demands prompted Treasury to propose fighting inflation by reducing government expenditure, increasing taxes and other monetary measures. However, many wanted to tackle unemployment first, and were not prepared to countenance an increase in unemployment by fighting inflation rigorously. There was no strong leadership in Cabinet by either the Treasurer, Frank Crean, or Whitlam, over economic policy. Ministers eager to implement long-held visionary policy reforms were shadowed by the flagging economy that urged caution and gradualism.

Despite painting a ‘grim’ picture of the country facing ‘an inflationary crisis’ in July, Crean was unable to convince Cabinet to adopt Treasury’s proposals in full. Although Whitlam expressed initial support for Treasury’s general strategy on inflation and expenditure, and also tax increases, he too faced opposition in Cabinet. Some, such as the Aboriginal Affairs Minister, wanted more than a 100 per cent increase in portfolio expenditure, even though not all money allocated in the previous year had been spent.

Cabinet did agree on a strategy to reduce inflation by limiting migration, raising some taxes and reducing some expenditure. Even Whitlam’s promised childcare and pre-school policy was delayed until 1975–76. But none of these measures was enough to repair the economy. Ministers remained too wedded to their policy ideals.

The government believed it was still the driving force of the market, and was sceptical about encouraging private-sector investment. Treasury was scathing of the government’s economic policy, arguing that it would promote ‘a vicious cycle of spiralling inflation and depressed employment and activity’.

It would not be until Bill Hayden’s one and only budget as Treasurer, in 1975, that the government’s economic strategy would be placed on a sound footing. It is worth noting that by mid-1975 Hayden argued that ‘fiscal expenditures’ needed to be ‘pruned heavily’. The government’s policy proposals ‘seem too grand in scale for the present circumstances’, he argued.

By the time of the August budget, Treasury’s views had been largely ignored, and Crean was reduced to theatrics, arguing that the proposed 32 per cent increase in expenditure over the previous year was ‘economically irresponsible’ and would lead to ‘the worst of all worlds’. Expenditure had already increased by 20 per cent in 1973–74—the largest rise in two decades. Crean’s warnings fell on deaf ears.

With Whitlam unimpressed by Treasury’s arguments, his own department eventually emerged as the guardian of the government’s economic strategy, preparing detailed submissions and briefing notes. Almost always, a Crean submission was ‘noted … without accepting its conclusions’. By December, he had been replaced by Jim Cairns as Treasurer.

The economic battles remain seared in Whitlam’s memory. He later recalled in his memoirs his ‘great failures’ in not persuading the unions to moderate their wage demands in light of his government’s improved community services, and in not persuading the public of the benefits of government-funded services over those privately funded.

For all of Whitlam’s achievements in reforming the ALP and presiding over a visionary government, the economic legacy remains a sore point. In the late 1970s and early 1980s Whitlam’s successor as party leader understood this. Hayden said his most vital task ‘was to re-establish public trust in [Labor’s] ability to manage the economy soberly’.

With the economy in trouble, a political storm in the Senate, and sliding popularity, another scandal was unfolding in secret. In mid-December, Whitlam, Cairns, Minerals and Energy Minister Rex Connor, and Attorney-General Lionel Murphy, agreed to seek a loan of $4 billion through unconventional sources to fund national resource projects. However, it was done in secret; the Loan Council and the states were bypassed, and Treasury had no role.

The government attempted to borrow $4 billion from Arab investors through a Pakistani money broker named Tirath Khemlani. The subsequent furore over the loan attempt fuelled the opposition’s drive towards parliamentary deadlock, and eventually led to the dismissal of the government. Although largely unknown in 1974, by mid-1975 the loans affair had begun to engulf the government and propel it towards dismissal.

The recently released cabinet papers also include several records and documents from Treasury about the loans affair. While now officially available for the first time, many of these records were leaked as the events unfolded, or revealed in later books and newspaper investigations. Nevertheless, they make fascinating reading.

In September, Cairns and Connor had investigated borrowing money from sources in the Middle East, but did not use Treasury. Around this time, Cairns and Connor were introduced to Khemlani by Minister for Labor and Immigration Clyde Cameron. Discussions commenced, and if Khemlani could source the funds and negotiate a loan, he would earn himself a nice US$100 million commission. But the loan source was to be secret and Treasury would not be involved. In November, Connor’s department authorised Khemlani to investigate a loan.

There were several meetings to discuss the proposed loan involving officials and ministers, including Whitlam, through early December. Treasury frantically tried to scuttle the arrangement and mounted strong arguments against using Khemlani and brokering a deal of this nature. While expressing its professional view, Treasury was not enamoured with the Labor Government and had recently been ignored over budget policy formulation.

Treasury Secretary Frederick Wheeler believed that the loan was through ‘dubious channels’. It was widely regarded in the department as ‘highly suspect’ to use Khemlani’s company; an official made a ‘note for file’ expressing ‘doubts about the legality’ of the loan and believed it was ‘unsound and imprudent’. It was suggested that it might even be an elaborate ‘sting’ operation or ‘a confidence trick of elaborate proportions’. Despite others in the Attorney-General’s department and at the Reserve Bank also expressing concern, the advice was ignored.

On the night of 13 December, an Executive Council meeting held at The Lodge with Whitlam, Murphy, Cairns and Connor—though not Governor-General John Kerr—authorised the loan deal. Kerr signed off in Sydney on 14 December. With neither Kerr nor Executive Council vice-president Frank Stewart present, some argue the meeting was illegal and the authority invalid.

Keen to cover his tracks, Wheeler told his department to ensure that the files concerning the loan were ‘right’ and in ‘apple-pie order’.

It soon became clear that Khemlani could not secure a loan deal. With Khemlani wanting a further Executive Council endorsement to negotiate a different deal, Treasury stepped in, and at a ministerial meeting on 21 December, the deal was off. However, Connor told Khemlani to proceed. The opposition now had its game plan.

As the scandal over the loan-raising attempts unfolded in 1975, Whitlam was forced to dismiss Cairns and Connor after they misled parliament. The opposition continued to delay supply bills.

While documenting the historic achievements of the Whitlam era, the cabinet papers of 1972–74 also illustrate underlying factors in the government’s slide in the polls and its eventual defeat. These include: Cabinet’s ineffective style, the sharp disagreements among ministers, and the poisonous relationship with the public service.

But most revealingly, the papers illuminate the struggle of a reformist government trying to implement an ambitious mandate in a worsening economic climate. The real tragedy of the Whitlam years is that the warning signs were there, albeit ignored. They are now but distant voices in historical documents.

Now all that is left are the cabinet papers for the final year: 1975. These may reveal new information about Malcolm Fraser’s tactics, Kerr’s ambush, and Whitlam’s final, fateful days and hours as prime minister.

With the 1975 dismissal approaching its 30th anniversary this November, and summoning in its wake all the associated Whitlam nostalgia, it would be a mistake to breathe a sigh of relief at the end of the year. The 1975 papers, to be released on 1 January 2006, may well tell the final secrets of the historic Whitlam years.  

Troy Bramston is co-editor of The Hawke Government: A critical retrospective (Pluto Press, 2003), works for a Labor Senator, and holds a master’s degree in politics and international relations from UNSW.



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