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The year of living dangerously

The 1975 Cabinet papers released by the National Archives on January 1 shed new light on the tumultuous final year of the Whitlam Government, illuminating above all the struggle of a government to implement reform in a hostile political and economic environment. These papers together with the previous releases illustrate the inner workings of the Whitlam Cabinets.

Comprised of Cabinet submissions, decisions and supporting departmental files, they reveal several constant themes: the determination to implement reform against the backdrop of a weak economy and an intractable political environment, a poisonous and distrustful relationship with the public service, a dysfunctional administrative style, a strong-willed prime minister, an ill-disciplined Cabinet dogged by scandal and crisis, and the warning signs that, had they been heeded, might have avoided the dismissal of the government.

In examining the totality of the government’s records through the Cabinet papers, the most remarkable aspect is that they show how, despite enormous obstacles, a visionary and far-reaching policy agenda was implemented, forever changing the face of Australia.

Few areas of society were left untouched by the Whitlam program. While much of it was welcomed, the frenzied pace of reform and the economic impact meant that the government faced much opposition.
The 1975 papers reveal an active and determined government. In July Medibank was finally up and running, the Gurindji people were given title to part of their traditional lands at Wattie Creek, the Racial Discrimination Act was passed, Elizabeth Evatt was appointed Chief Judge of the new Family Court, the Law Reform Commission and the Consumer Affairs Commission were established, legislation set up the National Gallery and the Great Barrier Reef Marine Park, new welfare payments were made to support mothers and the homeless, the Film Commission and the Australia Council were created, and the new Australian honours system was introduced.

Internationally, Papua New Guinea became independent, the Vietnam War ended, and Whitlam and Indonesian President Suharto jointly supported the principle of self-determination for the former Portuguese colony of East Timor. In October, five Australian-based journalists covering the Indonesian incursion in East Timor were killed. It has been alleged that the government may have been informed of a pending attack. Yet, there is nothing new in these files; records relating to East Timor were released in 2000.

Right from the beginning it was a style of administration that foreshadowed later problems. Within days Gough Whitlam and his deputy, Lance Barnard, were sworn in as the first Cabinet, holding all of the portfolios between them. In 14 days, the duumvirate made about 40 decisions through media releases and the Executive Council.

With all ministers in Cabinet, decision-making was laboured. There was no Cabinet solidarity: ministers were free to return to caucus and fight battles lost in Cabinet. Paul Keating, a minister in the final weeks of the government, said the meetings ‘were mayhem … much of it entirely undisciplined’. There was little strategic leadership, planning or oversight by senior ministers. It was not until 1975 that an Expenditure Review Committee was established, a belated attempt to impose the fiscal discipline the government needed to govern effectively.

The economy is another key theme. After 23 years of conservative rule, ministers were eager to implement their reform agenda, much of which involved large-scale spending. However, the economy deteriorated due to rising unemployment, inflation and wages. Oil prices abroad increased rapidly. At home, commodity prices and profits fell, and the balance of payments was an ongoing concern.

In July 1974, Treasurer Frank Crean, running the Treasury line, argued to Cabinet that the outlook was ‘grim’ and that the country faced ‘an inflationary crisis’. He advocated reducing expenditure, increasing taxes, and other monetary measures. Neither Crean nor Whitlam was able to convince Cabinet. Jim Cairns replaced Crean as Treasurer in December 1974.

In late 1974, the Governor of the Reserve Bank told the Treasurer he was ‘concerned and apprehensive’ about the economy and feared that rising unemployment and inflation ‘could become much worse and the potential damage could be very severe’.

In 1975, Cabinet was divided over economic strategy. There were the economic troglodytes who failed to understand the changing economy and were wedded to their policy ambitions; Crean, who had argued for the adoption of Treasury’s deflationary approach; Cairns, who was unsure how to respond and also racked with personal struggles and marred by political scandal; Whitlam, who did not offer strong leadership in Cabinet; and Bill Hayden, who recognised the need for expenditure reductions and a mix of other measures, and who would become the third Treasurer in less than three years. In fact it is Hayden who emerges from the Cabinet records as the most clear-eyed and prescient political analyst of all the figures of the era.

The key issue was reducing expenditure. In 1973–74 expenditures had increased by 20 per cent—the largest increase in two decades. In 1974, Crean had argued to Cabinet that the proposed 32 per cent increase in expenditures for 1974–75 was ‘economically irresponsible’ and would lead to ‘the worst of all worlds’. In February 1975 Cairns warned Cabinet that budget expenditure would now likely increase by 42 per cent. He said the deficit would be ‘several times’ the estimated $570 million.

But it was soon clear that Cairns was anything but clear about what to do about the economy. In early 1975, Cairns warned Cabinet that ‘the economic situation is very bad’, yet argued there were ‘no quick solutions’. While acknowledging the need to reduce expenditure, he argued that the implementation of the government’s policies must be paramount. In a rambling 20-page submission in May he argued that controlling inflation should be the primary goal, and advocated using wages policy, monetary measures and reducing the deficit. However, he urged his colleagues not to ‘surrender any significant part of our major social programs and cultural advances’, saying that ‘it is far better to be defeated while attempting to implement Labor policies than to be defeated after surrendering them’.

In his memoirs, Whitlam said Cairns was ‘undergoing an agonising reappraisal of long-held personal and economic beliefs’ and espoused ‘the economics of love’. Whitlam said Cairns failed to support his own submissions in Cabinet. He was sacked over the ‘loans affair’ mid-year. Cairns was also dogged by media speculation about his relationship with his assistant Junie Morosi, for whom he had declared ‘a kind of love’.

When Hayden became Treasurer in June 1975, he was already well versed on what action needed to be taken. In mid-1974 Hayden argued to Cabinet that ‘fiscal expenditures’ needed to be ‘pruned heavily’. The spending proposals, he said, ‘seem too grand in scale for the present circumstances’. Now Treasurer, he argued the ‘economic malaise’ was due to ‘rapid inflation’, but acknowledged ‘a significant contributing factor has been our attempt to push ahead a little too quickly with our social and economic goals. He said the deficit was heading to ‘about’ $4.8 billion, and would cause ‘pervasive psychological shock’ in the community. Cutting expenditure was the only way forward; the ‘simple Keynesian world’ many ministers were accustomed to was long gone, he said.

Further, Hayden argued to Cabinet that if drastic measures were not taken now:

Our drive for social and economic reform through redistribution will be discredited for a decade or more. Our record as a government will be jeered at and our capacity to manage the basic affairs of the country ridiculed. If we don’t courageously and responsibly handle the present economic problems successfully, we will be seen to have wasted our chance to fulfil these promises we held out and talked about so articulately for so long.

By June, $2 billion in savings had been identified. Tom Uren said in a letter to Whitlam that the cuts to his programs were ‘totally unacceptable’. Hayden wanted to go further, and proposed to Cabinet that the totemic abolition of university and college fees could be reversed, the pharmaceutical benefits scheme could be restricted and the child endowment abolished. These ideas were rejected. Other cuts were found. Despite Hayden’s goal of a $2.5 billion deficit for 1975–76, it was projected to be $2.8 billion. It later expanded to $3.5 billion.

Inexorably linked with the economic debates was the so-called ‘loans affair’. It was this scandal that led directly to the dismissal of the government. Fraser said the ‘loans affair’ provided the ‘reprehensible circumstances’ it needed to delay passage of the supply bills, unless the government called an election for the House of Representatives.

The scandal began in 1974, when the Minister for Minerals and Energy, Rex Connor, secured approval for a US$4 billion dollar loan to fund national resource projects. Cairns had also made inquiries about substantial loan raisings. Connor’s loan would be negotiated by a Pakistani money trader named Tirath Khemlani, who would source the funds from Arab investors. The decision to attempt to secure the funds was done without Loan Council approval and outside of Treasury’s normal channels. Khemlani would earn a US$100 million commission if he secured the loan.

Treasury argued forcefully against the loan, saying Khemlani was ‘highly suspect’, and made a ‘note for file’ expressing ‘doubts about the legality’ of the loan, arguing it was perhaps a ‘sting’ operation or ‘a confidence trick of elaborate proportions’. Concerns were also raised by the Attorney-General’s Department and the Reserve Bank, but this advice was ignored. An Executive Council meeting in mid-December 1974, with Governor-General Sir John Kerr absent, authorised the loan arrangements.

However, Khemlani could not secure the funds. Connor’s loan authority was revoked in January 1975. But he later won approval for a US$2 billion loan. Details soon leaked of the government’s plans, and when no funds were secured, the authority was revoked on 20 May. In October, the press revealed that Connor had continued to negotiate with Khemlani after the authority was revoked. Connor was forced to resign.

Meanwhile, Cairns had also sought to raise overseas loans and had offered Melbourne businessman George Harris a 2.5 per cent brokerage fee. Yet Cairns denied the existence of any letters confirming these arrangements. But letters did exist, and when it was realised he had misled Parliament, he was sacked from the ministry.

The Cabinet papers illuminate all of these events, particularly the associated departmental files held in the Attorney-General’s Department, Treasury and the Prime Minister’s Department.

The most significant event of 1975 was the dismissal of the government. The sequence of events is well known. The opposition was continuing to delay passage of the government’s supply bills. Fraser called for a House of Representatives election. Whitlam phoned Kerr on the morning of 11 November and said he intended to advise a half-senate election in person later in the day. Kerr, according to new accounts, spoke to Fraser and essentially outlined his plans before telling Whitlam. At about 1pm, Kerr, armed with the supporting advice of the Chief Justice of the High Court, Sir Garfield Barwick, dismissed Whitlam and installed Fraser as ‘caretaker’ Prime Minister. (This advice was also supported by judges Sir Anthony Mason and Sir Ninian Stephen—although not known at the time.) Supply was secured. A no-confidence motion in Fraser was passed by the House of Representatives. Kerr dissolved both houses of Parliament on the basis of 21 other bills being rejected. The Queen was kept in the dark and later refused to intervene. At the election held on 13 December, Labor was routed; its vote fell by 6.5 per cent and 30 seats are lost.

The papers show that the strategy to ‘not call an election in the House of Representatives’ was endorsed by Cabinet. A special ‘ad hoc’ committee was also established to deal with the crisis. Cabinet authorised ‘expenditure control measures’ as supply was drying up and began planning for payment of salaries through private trading banks. Treasury advised that salary payments could be met up to 30 November. Whitlam said at the embargoed release of the papers that the Loan Council would have been used to authorise expenditure. In any event, the banks were wary. A front-page report in The Australian on 11 November said that the banks were ‘preparing to reject’ the proposal.

At the embargoed release of the papers Whitlam also presented a letter sent to him by the nephew of the then NSW Governor, Sir Roden Cutler. It argues that Cutler had advised Kerr against dismissing the government. Whitlam also argued that Kerr’s claim—that had he discussed with Whitlam his plans, Whitlam would have contacted the Queen to have him sacked—was nonsense. Whitlam produced papers appointing and withdrawing Queensland Governor Colin Hannah’s dormant commission, which enabled him to act as governor-general in Kerr’s absence. They show that an appointment cannot be terminated, but can only come to an end when another is appointed, and that these steps took time. He also presented former governor-general Paul Hasluck’s personal notes showing his candid discussions with Whitlam, and questioned why Kerr could not take him into his confidence.

Following the dismissal, Fraser agreed not to initiate any new policies, or hold any inquiries into the previous government, until after the forthcoming election. The Cabinet papers show that ‘certain complaints’ had been made to Kerr and that he referred these to Fraser for ‘advice’. A request by new Treasurer Phillip Lynch for information on the previous government’s expenditures was rejected by ‘certain officers’ in the department, and they petitioned the Governor-General for advice on the ‘caretaker guidelines’. Labor members John Wheeldon and Doug McClelland wrote to the Governor-General about similar incidents. Fraser responded that his government would ‘strictly and scrupulously’ adhere to the guidelines.

While the latest release of Cabinet papers may provide a few new clues to the coup, that is not their primary significance. What is significant is that the warning signs for the government were there from the beginning; indeed, many of the later problems which culminated in the dismissal, perhaps, could have been avoided. This is the real tragedy of the Whitlam years.

The drive to implement far-reaching reform, almost regardless of the economic consequences, or consideration of the need for gradualism in implementing this agenda, was a central factor in the government’s poor showing in opinion polls throughout much of the period. The public service and some ministers urged alternative courses of action.

The scandal of the ‘loans affair’ set in train the events that led to the dismissal. It is what prompted Fraser to delay supply. Better oversight of ministers and the heeding of advice not to proceed with the loan might have avoided the scandal.

Yet, the denial of the legitimacy of the government should also not be forgotten. Within months of coming to office, Opposition Leader Billy Snedden and Senate Leader Reg Withers had embarked upon a strategy to delay passage of supply in order to force the government to an election, which it achieved in 1974.
Then there are Kerr’s secret negotiations with Fraser, his deception of the Prime Minister, his collusion with the Chief Justice against the Prime Minister’s wishes, his ambush, and failure to let Parliament resolve what was a parliamentary deadlock.

Fraser also better understood Kerr’s psyche. Fraser used his meetings and phone calls with Kerr—sanctioned by Whitlam—to apply political pressure on Kerr, saying that if he didn’t intervene, the opposition would say the Governor-General had ‘failed his duty’.

Perhaps the real legacy of the dismissal is that a precedent now exists for a government elected by the people to be dismissed by a governor-general elected by no one.

No period in Australia’s history has had so much attention as the Whitlam Government. The scale and breadth of its achievements, led by a remarkable leader, yet spoiled by scandals and surrounded by high drama, and ultimately dismissed in controversial circumstances, have provided much fodder for journalists, commentators and scholars.

Despite the scandals, the frenetic style of government and the dismissal, this government now warrants a more detailed and considered analysis. But centre stage should be the legacy of the entire government, not least the substantial policy achievements, now with additional insight thanks to these Cabinet papers. 

Troy Bramston is a policy adviser in the private sector. He has written articles for Eureka Street on the 1971, 1972, 1973 and 1974 Cabinet papers. He is co-editor of The Hawke Government: A Critical Retrospective (Pluto Press, 2003), and editor of a collection of essays on the Wran Government to be published this year by Federation Press.


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