‘What is the difference between a taxidermist and a tax collector?’ asked Mark Twain in one of his notebooks. ‘The taxidermist takes only your skin.’1 It was an apt statement upon the oppressive fiscal regime in pre-Progressive America, before Theodore Roosevelt turned his fire on the ‘malefactors of great wealth’, but in Australia the sentiment proved far more enduring. Even in 1984, an antiquated and shambolic tax system saw to it that average workers bore by far the heaviest burden, while the well-to-do submerged their own liabilities at the bottom of Sydney Harbour.
It was a product of the torpor that had crept into the country’s economic thinking. The fact that the last tax reform of substance had been in 1942, when state and federal income taxes were consolidated as part of the wartime imperative to raise more revenue, was a sure sign that a moment of reckoning lay ahead. The Asprey Committee, which in 1975 sought to flesh out what an equitable and efficient tax policy might look like, ultimately did little, while Morgan’s own calls for indexation had been taken up by the Mathews Report, implemented by the Liberal government for a short while, and then quietly swept into the long grass.
Change, however, was hurtling down the tracks. During the 1984 election campaign, Hawke made a commitment to a tax summit that would explore fundamental change to the injustice of the rules – much to the chagrin of Keating, who could imagine nothing more politically inefficient than drawing up tax options in a public forum. But as Labor retained their mandate to govern, pledging both to provide tax relief to lower-income earners and to smash the tax avoidance industry beloved of the super-rich, the die was cast.
To Morgan, there was no task more central to national reconstruction than a daring and lasting overhaul of the tax model. ‘It was shockingly unfair,’ he says. ‘It had benefited the well-to-do, those who had received sophisticated tax advice. For a start, capital gains were entirely tax-free, such that the fat cats had them running out of their ears. Fringe benefits, likewise, were untaxed, so craftier members of the corporate elite could take company cars or low-interest loans as if they were real income. Even entertainment expenses were deductible without limit. All of this was screwing the average person, under a system where a 60 per cent marginal rate of personal income tax cut in at just 1.6 times weekly earnings.’2
Within Treasury, happily, were those with a level of social conscience to make the elimination of such egregious inequality a priority. The triumvirate of Young Turks all understood, to varying degrees, what it meant to scrape by, Morgan having weathered the fallout of his father’s ruin, Ted Evans having read economics by night while fixing Queensland telephone lines by day, and Chris Higgins – who by 1984 had been prised back from Paris to Canberra – having required financial grants just to complete his secondary education. Each was marshalled by Bernie Fraser, who stood out among central-casting Treasury types, a country boy whose father had been a labourer on the Snowy Mountains hydroelectric scheme. As such, they were committed, in Morgan’s words, to forging ‘not just a more economically efficient Australia, but a much fairer Australia’.3
Theirs, emphatically, was not an apolitical department. As Morgan would later contentiously tell the makers of Labor in Power, the Australian Broadcasting Commission’s sumptuous chronicle of the Hawke–Keating period: ‘Treasury has always had its own agenda, always will have. The important thing is that Treasury has the discipline to make that agenda consistent, to the maximum extent practicable, with that of the government.’4
There was a breathtaking audacity about this era, which by the early stages of Labor’s second term had already encompassed the float of the dollar and an approval of the entry of foreign banks, a belated but vital step that would intensify banking competition in Australia and cut costs for consumers. Tax was next on the list for Treasury officers moving up through the gears with their ears pinned back.
Keating, who in 1984 had become the first Australian to win Euromoney magazine’s finance minister of the year award – an accolade of which he was immensely proud – was a passionate proselytiser for the philosophy behind such change. To this day, in his elegant office in Sydney’s Potts Point, furnished with French clocks and candelabras, he has meticulously curated an archive of every document and newspaper report pertinent to the times, so as to safeguard his reputation as a ‘big picture’ treasurer.
‘It had no equal in Australian history, or in that of any OECD member state,’ Keating says. ‘No one country ever conducted changes on this scale. The policy was the internationalisation of the economy: the rollback of protectionism, the fiscal accommodation of Australia’s then emerging current account deficit. We were trying to get blood to the muscles of the economy through the sinews of the financial system, by making it more open and supple. On tax, the challenge was to be able to allocate resources more efficiently than the old system had managed. Operating a policy on that wide a front, and with such direction, meant that Treasury all of a sudden had something to work with and towards. Formerly it had been a policy department in a country without policy. Now there was a policy and, more to the point, there was a government articulating an even grander one than the old Treasury would have done itself.’5 The Young Turks deserved credit, too, for hatching many of the policy ideas themselves. Asked by Kerry O’Brien whether he had a fully-fledged set of economic reforms in his head when he started, Keating replied: ‘No I didn’t, but … I knew how to put electricity in the cables.’6
Morgan had reason to believe that his life at this juncture was surging like a flood tide. For all that he doted upon Jessica unconditionally, he had let slip that he would still love to have a son. After a game of doubles tennis at the Lodge with Hawke, one guest in the lounge room pressed him as to his preference. ‘I don’t care,’ he began – intending to add, ‘as long as it’s a healthy’ – only for Hawke to interject, to much mirth, ‘as long as it’s a boy’. One lunchtime, Kelly invited him to Canberra’s Nineteenth Hole restaurant, ordered a glass of champagne, and announced: ‘Well, you are going to have your full-forward.’7 Both of them wept with happiness.
Allied to the joyous flush of fatherhood was Morgan’s success in becoming one of Treasury’s youngest first assistant secretaries at thirty-six. He had discovered in Keating the same enthusiasm that he harboured for pushing the envelope of reform. Just as Keating was outraged by elements of his inheritance from John Howard, not least the top personal tax rate of 60 per cent – so steep that it was avoided en masse – or the fact that dividends were taxed twice, Morgan saw that the feeble tax policy branch set up by Stone, comprising a mere third of one of Treasury’s six divisions, was unfit for purpose. ‘It was a scandal,’ he says. ‘How could you have such a tiny amount of resources dedicated to tax?’8
Ken Henry, whose long and highly regarded career at the department began in 1984, explains: ‘Stone would say that the best tax system is a bad one. A bad system will raise less revenue than a good one. Why is that important? It’s the only constraint on government spending that we have. It was such a narrow perspective that I could only conclude he failed to understand the part tax played in how economies and societies functioned.’9
To remedy these ills, the new tax division, created and headed by Morgan, was substantially augmented and filled with some of the nimblest intellects available. Henry, who had also been agonising over a job offer from PM&C, would find himself among the first recruits. ‘Fresh off my PhD, I chose Treasury wholly because of David,’ he says. ‘He was keen, and he knew Richard Manning, my honours work supervisor, having been taught briefly by him at La Trobe. So, he called Manning up. I understand the message was something to the effect of, “Why don’t you tell that young colleague of yours to wake up to himself?”’10
Viewed from the outside, the rapid if under-the-radar alignment in one place of so much nascent economic talent – including Larry Kamener, who would subsequently lead Boston Consulting Group’s global public sector practice, and Martin Parkinson, secretary to the Treasury after Henry and later secretary of the Department of Prime Minister and Cabinet under Malcolm Turnbull and Scott Morrison – was a giveaway that great upheavals were afoot. Sure enough, the story leaked, published by Max Walsh in The Bulletin as a cover feature under the headline ‘Labor’s Secret Tax Plan’.
Reading this with a sinking feeling, Morgan telephoned Walsh, an eminent voice and one of Keating’s earliest educators on economics, in a rage. ‘“Max, why did you write that?” I asked. “This is pretty awkward for me at Treasury.” “They’ve got to expect that, putting a smart guy like you in charge of tax reform,” he shrugged. “They must have big plans.”’11 It was a chastening lesson in the need for circumspection around journalists.
More than this, it was a cause for delay in the reform itself. ‘There was a witch-hunt about who had spoken to Max,’ Morgan recalls. ‘It wasn’t carried out very virulently or forensically, but it was embarrassing, both for me and for the team, because we had to put our pens down until after the ’84 election.’12
A clarity was forming, though, on the reform that Treasury most wanted to haul across the line: namely, the introduction of a huge consumption tax of 12.5 per cent on all goods and services, accompanied by major reforms to both personal income tax and company tax. Ideologically, the broad-based consumption tax was an affront to elements of the Labor caucus, since the lowest earners stood to pay more on their purchases while benefiting relatively little from the tax cut. And yet the patent inadequacy of Australia’s direct taxation structure, which haemorrhaged money by encouraging a culture of rampant avoidance and minimisation, stirred a compelling case for change. There ensued a ‘blood pact’, as Paul Kelly has described: a potent fusion of political energy and bureaucratic expertise, with Keating and his most senior Treasury advisors grasping a once-in-a-generation opportunity to revamp Australia’s ramshackle tax arrangements.13
***
The morning after the 1984 election, when Hawke’s gamble to build on the Labor honeymoon backfired with a reduced majority, the heavy lifting began in earnest. From a standing start, the underpinnings of the Australian tax code essentially had to be reinvented in five months, ready for crystallising in a white paper that would be debated at the tax summit in July 1985. It was a Herculean enterprise, for which Morgan needed to commandeer the ground-floor Treasury training complex, next to the cafeteria, as a war room. ‘The bunker’, those who toiled within its walls dubbed it, with good reason. Seven days and seven nights a week, the place thrummed with industry, as the officers involved ate there, slept there, even brought their children there to rest on mattresses wedged under desks.
For Parkinson, it was a dizzying time. Morgan had cornered him during one Friday-night happy hour to be told, as a fait accompli: ‘You’re on the team.’
‘I’m not interested,’ he said. ‘I know nothing about public finance.’
‘Well,’ Morgan shot back, unmoved, ‘here’s your chance to learn.’14
It was a choice Parkinson would not regret. ‘I would go and fetch my son from day care, and there would be a little camp bed where he could sit around and eat a ton of pizza or charcoal chicken and chips. The effort was titanic, and it would be hard to think of any other time in the past fifty years where such a collection of talent worked together on the same issue. That group generated three secretaries to the Treasury, in Ted Evans, Ken Henry and myself. We cleaned out the area that would have been the bar, and we turned it into one where we survived purely on junk food and adrenalin – as well as coffee you could stand your spoon up in.’15 Parkinson’s work would help earn him a coveted scholarship to Princeton, to pursue his PhD under the instruction of Ben Bernanke, later chairman of the US Federal Reserve.
One factor in Parkinson’s initial hesitancy about plunging into this environment was that he had regarded Morgan, who could still project the machismo of the ex-footballer, as a ‘testosterone-around-the-ankles type’. Bernie Fraser, having been blessed as secretary with a far more equable temperament than his predecessor Stone, would observe the same trait: ‘David was effective at working with those above him on the ladder, but not so much with those below. He was slightly less focused on those people.’16 To Parkinson, a tender twenty-six years old when enlisted into the crack squad on tax and just a couple of years removed from his masters studies, Morgan’s dervish-like energy, coordinating the grunt work behind one of the most consequential reforms in the history of Federation, was overwhelming at times. Whether in philosophical argument or mathematical modelling, he discovered that there was seldom much margin for error.
‘You had to be intellectually and emotionally robust to survive,’ he reflects. ‘There were times when David had a sharp tongue. He had very high standards about how quickly he expected people to think on their feet. If you didn’t meet them, he could be dismissive. He could let the pursuit of the objective override the engagement of the individual.’17
Parkinson glimpsed Morgan’s wired intensity at closer quarters than most – not least when, for one inter-departmental football match, he was given the dubious distinction of umpiring. ‘David was playing against people of nowhere near the standard he had reached, but he was just a yard too slow,’ he says. ‘He infringed on one opponent, so I awarded the other player a free kick. He subjected me to a character assessment and I gave a 50-metre penalty against him. This happened a couple of times – he was raging and ordered me after the game to report to his office. “You’ll never get to Princeton,” he ranted. “I’m going to cancel your scholarship.” There was steam coming out of his ears, because he had that first recognition that he was no longer the person he thought he was.’18
The crucial moderating influence, in Parkinson’s eyes, was Evans. Where Morgan’s uncompromising rigour left him ill disposed to suffer fools gladly, Evans, as deputy secretary, was a softer-edged soul, pensive and strangely imperturbable.19 ‘Ted was strategic, David a little more charge-ahead. Ted tempered David, bringing extra empathy, that vital sense of how others might be feeling. The combination of the two was much better than either of them alone.’20
Over the years, the pair had grown exceptionally close. Evans had been best man at Morgan’s wedding, even pulling up the car on their drive to the ceremony to crack open a beer and ask the groom, ‘Are you sure you want to go through with this?’ On another occasion, Morgan, deeply concerned with the perspectives of others on his character, pressed his friend over a bottle of red wine at the Canberra Hotel on what he truly thought of him. ‘Quite some time later, I finished giving my opinion, and we left the place in silence,’ Evans says. ‘The next afternoon, I was at home working in the garden, and David turned up unannounced with a notebook in his hand, saying, “Do you mind if we go through that again?”’21
A freeing up of Treasury’s rigidly stratified pecking order, one bequeathed by Stone, had bred a lively jostling for prominence among the ‘ginger group’. For all that Morgan, Evans and Higgins were the tightest of trios, almost fraternal, the introduction of a man of Keating’s meritocratic zeal – determined, by his own admission, to dismantle the ‘crusty old boys’ network’ – added an extra layer to the dynamic. ‘They felt, in this new order, somehow out of their comfort stations,’ Keating reflects. ‘Suddenly they could make their way with the treasurer of the day, an option denied to them by the Stone style. The chance was there, but there was a worry. It was edgy.’22
One night, Morgan took Keating into the bunker so that he could see for himself the round-the-clock assiduousness of the tax brigade, complete with all the detritus of prefabricated beds and discarded takeaways. Theirs was more than a purely collegial relationship. Since Keating had moved for family reasons from his Blaxland electorate home to Canberra, he and his wife, Annita, lived just two blocks from the Morgan–Kelly household in Red Hill. The four of them had shared a fortieth birthday dinner in Sydney for Keating, who was also godfather to the newborn Ben. At the Keatings’ home in Beagle Street, the treasurer would hold forth on his obsession with budgerigar breeding while Morgan tested the latest stereo systems they had bought together.
But it was public policy that united them as powerfully as anything extracurricular. In particular, the broad-based consumption tax struck Keating as potentially the glorious centrepiece of Labor’s work. Years of mediocrity and inertia in Australian policy-making could, he and Morgan reasoned, be swept away by a seismic piece of legislation that caught out the tax-avoiders, offered a fair go for the average Joe, and saved the government’s reformist credentials for posterity. As such, they would present the endgame to members of the tax team in the language of a crusade.
‘That’s how we felt, too,’ Henry says. ‘Did we bother to ask ourselves whether it was appropriate for Treasury officials to behave in this way? I didn’t, personally. It was just fantastic to be engaged with something so important, with so much energy, knowing how ineffective the department had been in the past.’23 Henry even kept a record of how ferociously he and his fellow bunker-dwellers were working in the early months of 1985, and it averaged 100 hours per week. ‘We were at a level where we were not rewarded for overtime, but I calculated that if I had been one level lower in the public service, I would have received an amount in excess of my annual salary. We were very conscious of working twice or three times as hard as those elsewhere at Treasury, but it did not cause resentment – quite the opposite. Others were envious of us, which spoke volumes about the quality of the group.’24
Beyond the confines of this bureaucratic lair, it was Morgan’s task to sell the masterplan to a sceptical outside community. The trade unions would not make life easy for the government, demanding as they were an attractive set of numbers for their membership, while Keating drove his ‘tax cart’, as he called it, headlong into some vehement voter opposition. ‘Consumption taxes reinforce inequality’, read one typical protest placard.
In February 1985, as part of the Australian Tax Research Foundation’s ‘Changing the Tax Mix’ conference at Monash University, Morgan delivered a paper designed to assuage the fears. Entitled An Agenda for Tax Reform, it advocated imposing a consumption tax ‘on the broadest possible base’, as well as substantial personal and company tax reform, and argued that ‘in Australia, the difficulty of achieving tax reform is less one of appropriate diagnosis than of implementation’.25 There needed, he suggested, to be a reframing of the terms of debate around tax, to move beyond the ghoulish focus on every way that certain slices of society might suffer short-term setbacks to an awareness of the profound national benefits in the long run. He was careful to clarify that these were personal views, not necessarily supported by the treasurer, but his speech provided, as The Australian Financial Review noted at the time, an ‘indication of the direction that the government’s review is taking’ as well as signalling a ‘renewed attack on tax evasion and avoidance’.26 It had been a kite-flying exercise, designed to test whether Treasury’s preferred tax solution could draw the requisite support, but it had worked.
Keating had seen and heard enough to be convinced of the righteousness of the cause. He would spend the next few weeks hammering at Hawke’s door, twisting his arm repeatedly in a desperate attempt to win prime ministerial approval. A line of fracture was starting to appear, not just between the consensus-loving Hawke and his bull-headed treasurer, but between the departments that worked for them. Where Morgan and the rest of Treasury’s top brass were positively evangelical about the consumption tax, Bob Hogg, Hawke’s senior advisor, was counselling him to drop the idea. Neville Wran also spoke for many in the party he chaired by arguing that a tax on bread, meat, fruit and vegetables was anathema to everything for which Labor should stand.
Come the evening of 7 March, though, it appeared as if Hawke had been won over. A memorandum written by Morgan, after a lively day’s talks at the Lodge, recorded the prime minister’s view that tax reform had to be substantial and that a ‘broad-based consumption tax was therefore necessary – subject to the ability to ensure that low-income groups were not worse off’.27
Soon after, Hawke rowed back on such certainty, in what would become an endless pattern of prevarication. Morgan likened it to playing a grand final, thinking you had won, only to be told you had to do it all again the following Saturday. In this time, Keating, contemptuous of such vacillating, was believed to have coined the caustic nickname for Hawke of ‘Old Jellyback’. He would deny it, insisting that Hawke’s ‘Manichean court’ had fitted him up and that Peter Walsh, Labor’s take-no-prisoners finance minister, had first used it.
There are theories, kept alive to this day, for why Hawke’s mind was not fully engaged in the task at hand. For a start, he was embroiled in his first crisis on the foreign policy front, after it emerged he had kept quiet about an American ballistic missile test program that involved rockets landing just 225 kilometres off the Tasmanian coast. The intensity of public backlash to this revelation – one that ‘cast doubt’, according to an editorial in The Age, ‘on the political strength and stability of the Hawke government’ – encouraged Keating to present tax reform as a perfect way for an embattled administration to show it could still act decisively.28 But another, far more personal trauma was at play.
Back in August 1984, Hawke had discovered, to his horror, that his daughter Rosslyn was addicted to heroin. The news shattered him to the extent that he broke down in tears in front of the Malaysian prime minister. Hawke would maintain that the anguish did not prevent him from making appropriate judgments on the country’s behalf, although Keating suspected otherwise, claiming in conversations with Kerry O’Brien that depression had engulfed him for years afterwards. He cited as support a 1985 article in The Sydney Morning Herald by writer Blanche d’Alpuget, who later married Hawke after they had conducted a relationship for almost twenty years.29 ‘My overwhelming impression was of a lack of vitality, that he was vanishing,’ d’Alpuget said. ‘Going to talk to him for the first time in three years, I expected the old zing and was taken aback by its absence – one that seemed both poignant and shocking.’30 Morgan, who saw glimpses of these tensions, reflects: ‘Hawke was knocked around. Paul used to claim to me that he never recovered from it, that he never got his mojo back.’31
As an autumnal gloom gathered over Canberra, prospects of a tax revolution looked precarious. Hawke was alternating between cautious support and anxious backsliding, the Business Council of Australia did not like the notion of losing a free pass on tax-deductible four-hour lunches, while the ACTU pressed hard for substantial tax relief to present a more palatable package to blue-collar workers. Keating seemed increasingly besieged.
‘I said to Paul at one stage, “Mate, I’ll understand if this is all getting too hard,”’ Morgan recalls. ‘“Is Treasury still behind it?” he asked. I reassured him that it was. “Well, that’s the thing that keeps me running with it.”’32 It was a potent demonstration of his conviction, as expressed in one of the more famous Keating lines, that good policy was good politics.
The treasurer conveyed to Cabinet a view that he had carried with him since his election as an MP sixteen years earlier: namely, that a 50 per cent marginal tax rate for the majority of wage-earners was unsustainable. With this in mind, he argued, tax reform was not simply optional, but mandatory. Unveiling to them a white paper 414 pages long, he said: ‘The Prime Minister and I have taken this more seriously, put more time into it, had more discussions over it than any other issue. And that includes economic policy in ’83, the float, or anything else. What you have before you is the most comprehensive, conscientious effort we are capable of presenting. We’ve worn ourselves out over it.’33 Equally frazzled were Morgan and his team, who after burning the midnight oil in the bunker had produced three bullets for Keating to fire: options A, B and C.
The political equation was that A would prove unacceptable to business, as it did little to slash the top rate of tax, and that B would be rejected by the unions due to its regressive impact. This left option C, a label that seeped deep into the lexicon of the era – as shorthand for the most ambitious, least adulterated consumption tax – as the one choice for which the government could plausibly mobilise agreement.
The lines drawn, Keating extolled the virtues of the favoured option C with astounding vigour. For two-and-a-half bruising days, he assailed Cabinet members with statistics, theatrics, charm, rage, intellect, impatience, and the full artillery of his splenetic language. ‘It was,’ says Morgan, ‘the most remarkable Cabinet room performance I have ever seen.’34
Keating smiles at the memory. ‘Oh, I had the big skates on,’ he says. ‘I had swords everywhere. It was like a scene from Ben Hur. There was so much vehement opposition, and I was so persuasive but so aggressive at the same time. You need to manage the power in those situations. Australia will probably never see a scene like it again. I’m not sure its kind has been evident in an OECD Cabinet in the postwar years. No country, not Britain, not Germany, has taken on a reform program like it, done with such gusto and élan. To be part of that was to be part of something truly special.’35
At his right arm were Morgan, Evans, Greg Smith, a key advisor specialising in company tax changes, and Chris Higgins, by common consent the finest macro-economic mind that Treasury possessed. High stakes evidently warranted high-grade input. The progress from the absolutism of Stone’s day, when the unequivocal Treasury position was the secretary’s alone, could be measured in light years.
‘Treasury officials were brought to the centre of power in a way they had never been before,’ Keating explains. ‘Plus, the prize was on the table. It wasn’t some prize that might be grasped in twenty years’ time, or that was a glint in someone’s eye – it was there in front of them. They were engaged in the political process. They were part of the weaponry.’36
All day and all night the debate raged, as Keating, who had his ducks in a row, shot down any objections with a measured, disdainful flourish. In one charged exchange, Peter Walsh pressed him on why he had nominated 49 per cent as the top rate of income tax. Keating, using unconventional logic for a Labor minister, answered that it was to make a philosophical point that the state received less than half your income. ‘I believe in rendering to Caesar the things that are Caesar’s,’ he said. ‘But if you let Caesar confiscate the revenue of the country in his dictate, then you’ll always have an economy limping along.’37 At every turn, Keating remained mindful of how each grandee-led inquiry into taxation in Australia, from Asprey to Mathews, had eventually just dissolved into the ether. This chapter, he declared, would have a different ending.
At around 1.30 am on Monday – the sparring had started on a Saturday – Gareth Evans, minister for resources and energy, rested his glasses wearily on the table and said: ‘I’ve been listening to this argument for two days, waiting for the hole to be punched in it, and none of you has been able to.’38 Taking this cue, Keating gathered up his reams of paper to leave. Stewart West, a prominent voice on Labor’s left, told him that there was still no majority in the package’s favour. ‘But Stewart,’ he shot back, ‘do you think you have a majority to stop me walking out of the door with a decision?’39 With that, he bolted into the night, his Treasury adjutants in tow.
Bleary-eyed but euphoric, Morgan, Evans and Bernie Fraser headed back to the treasurer’s office to pop the champagne. They felt that they had just borne witness to a pivotal moment in the economic history of the nation. Even the normally deadpan Evans avowed that it had been the toughest, tensest political duel he could recall.40 All the doubters had apparently been thwarted by the blend of Treasury’s bureaucratic heft and Keating’s coup de théâtre. While the looming summit was a reminder that any changes were still far from being legislated, there was a tangible joy at having moved a ‘monster proposal’, to use Keating’s term, past Cabinet. ‘It showed that it was not all for nought,’ Morgan says. ‘It proved that if you put in enough intellectual muscle, and enough eye-wateringly hard work, anything was possible.’41
***
It took only one day of the summit for the mood to come crashing back to earth. The spectacle of 30,000 aggrieved farmers outside the House of Representatives, bearing posters with such salty messages as ‘The drover’s dog is a big bitch’, encapsulated the trials that lay ahead. Steering the tax cart through Cabinet was one thing, but manoeuvring it beyond a plethora of sectional interests was quite another. Extensive polling had already illustrated that it was electoral kryptonite for Labor. The mutinous atmosphere on the Parliament House lawns, flooded with the largest demonstration Canberra had seen, was mirrored inside the chamber, where for six long, spirit-sapping hours delegates thundered against perceived flaws in the consumption tax. A typically extreme Sir Joh Bjelke-Petersen – ‘demented’, according to Hawke – denounced it as the ‘dead hand of socialism’.42 Keating shrugged off the detractors, saying that they were merely trying to ‘get the dirty water off their chests’.43 The drama was splashed over newspaper front pages across the land, as fierce political combat emphasised the real-life urgency of the issues for all Australians.
To succeed, Keating needed the backing of both business and the unions. Neither, it turned out, was prepared to make the leap. Bob White, president of the Business Council, declared that his body did not endorse approaches A, B or C. Bill Kelty, Morgan’s former rival for top student honours at La Trobe and one of the country’s chief powerbrokers as secretary of the ACTU, said the union movement would have no truck with a consumption tax until it had digested its own commissioned study on the likely fallout. That research, when published two days later, would prove a damp squib, concluding that the government’s preferred shift from direct to indirect taxes could take place ‘without any undue or adverse macro-economic effects’.44
It was Keating’s instinct to hold firm against the naysayers, but Hawke was becoming unsettled. From the unbroken chorus of hostility, he inferred a message that Labor was perhaps grievously harming its chances at the next election. With that thought he decided, in an astonishing piece of late-night backroom dealing, to pull the rug from underneath his treasurer’s feet.
Kelty was staying at the Canberra International Hotel, having endured a third straight day of gruelling summitry, when Hawke showed up at the door. ‘What’s happening?’ Simon Crean, the ACTU president, asked. ‘Where’s Paul?’
‘I’ll be talking to him later,’ Hawke said, evasively. ‘I just want to know what your position is.’
‘Bob, you know what it is,’ Kelty replied. ‘We can’t accept option C.’45
Soon after, Morgan, sitting down for a meal at around 10 pm, received a call at home from John Short, a reporter for The Sydney Morning Herald. Short informed him Geoff Walsh, Hawke’s press secretary, was briefing the gallery that a deal had been struck, that the consumption tax was dead in the water, and that the government would instead press ahead – as the ACTU had wanted all along – with a limited extension of the existing tax base. It was enough to make Morgan catch his breath. ‘I told Short that he had to be mistaken, that I had been with the treasurer just forty-five minutes earlier and he would be sure to have heard of it. I was incredulous.’46
Daylight brought the sinking realisation that it was true. Hawke jettisoned option C, on the justification that it lacked a sufficient cross-section of support, while behind closed doors Keating gnashed his teeth at the prime minister’s ‘ratting’.47 In public, he strived to keep up a united front, thanking Hawke at a post-summit press conference out of a sense of political duty, while ruefully acknowledging that his tax cart had ‘crossed the line – but with one wheel off’.48 Keating could be forgiven for feeling let down. For months he had soaked up the theoretical and practical subtleties of tax reform, criss-crossing Australia to convince nervous constituencies of the merits of great change, and at a stroke this colossal endeavour was unstitched.
Kelty, at least, found a seam of dark humour in it all. During the summit, Keating had cautioned the assembled leaders that there would be no ‘magic pudding’ to satisfy everyone. At its culmination, Kelty could think of no more fitting gift for the beaten treasurer than a copy of Norman Lindsay’s The Magic Pudding, signed by each member of the ACTU executive.49
It was testament to Keating’s irrepressible nature that his reaction to so scalding a setback was not despairing, but sanguine. He viewed the consumption tax, on which he had all but staked his political reputation, less as a gutted shell than as a noble project that could yet be salvaged. For all that he felt betrayed and abandoned by Hawke, he saw how tax reform was a cause with inexorable momentum.
Sure enough, on 20 September 1985, after excruciating recalculations at the Treasury coalface, a thinned-out but still hugely significant raft of changes to the Australian tax architecture won Cabinet’s blessing: a fringe benefits tax, a capital gains tax, elimination of deductions for entertainment, taxation of gold mining, a foreign tax credit system, not to mention full dividend imputation, thus creating the revenue capacity for Keating’s longed-for slashing of the top marginal rate from 60 to 49 per cent.
The sense of triumph was tempered by a nadir in relations between prime minister and treasurer. Keating deeply resented Hawke’s absence from the crucial Cabinet talks to attend a state celebration in Papua New Guinea, and let him know as much with some choice invective. ‘We had implemented the decisions broadly agreed at the tax summit, but there was then another battle,’ Morgan says. ‘Hawke went missing for that final four-day debate in Cabinet, and Keating thought he had been left to get rolled.’50
As Keating wrote in a livid note on his newspaper clippings: ‘The envious little bastard did everything to destroy it.’ Hawke, for his part, has dismissed such accusations as a ‘pathetic rewriting of history’.51
Few who had experienced the convulsions and power plays that defined 1985 would forget them in a hurry. When Morgan looked back at his year, he realised that there were only four days of 365 that he had not worked.
The balancing act required in his family life was elaborate, not least because Kelly was in a critical phase of her own career. She would recoil from presumptuous headlines in Australian women’s magazines that pigeonholed her as a parent first and a politician second. Nine days after giving birth to Ben, she had taken him with her to Sydney Opera House for Labor’s campaign launch. Throughout the next exhausting year, Ben and Jessica spent no shortage of time at Parliament House as the first children born to a serving MP. Occasionally, Kelly would receive letters from women who alleged she could not sympathise with their concerns, when she had her mother helping out with childcare, as well as a cavalcade of nannies. She struck back in The Canberra Times, saying: ‘I know what it is to subsist on minimum sleep for eight months, to race a child into casualty on Sunday afternoon, to try to fit everything into the day.’52
Both she and Morgan knew what it meant to run hard for what they wanted. In many ways, this restless striving was the spirit of the age in the nation’s capital. Keating, in particular, would function according to what he termed the ‘Road Runner principle – run fast enough for a great change, you will get it. Look over your shoulder once, and you’re dead meat.’53 It was a feeling that underpinned his impatience with Hawke, whose leadership struck him as far too ponderous and deferential, and the passage of over thirty years has done nothing to dilute it. ‘If all people are led, if the governing party has direction, then this provides energy to the bureaucratic process,’ Keating says, forcefully. ‘You pick up adherents.’54
Morgan, unashamedly, was one of those adherents, whose come-rain-or-shine absorption in the tax exercise was a product of their attachment to the minister’s cult of personality. At the IMF, Morgan had enjoyed limited success in his quest to strengthen the economies of struggling nations, with the exception of South Korea. In his home country, by contrast, where Keating had restored Treasury not just to relevance, but to a pre-eminent role in the crafting of policy, Morgan and his associates were thrust to the heart of the game. As Bill Kelty puts it: ‘Keating was the great peacetime treasurer of Australia, without a doubt. He did what Labor hadn’t always done, in that he won over Treasury. Once Stone went, he got the intellect of the department on side and he harnessed it. He did smart things, of which David was a very significant part.’55
History is likely to judge their work kindly. The sweep of reforms unleashed by the end of 1985, which justified Treasury’s gargantuan labours despite the roadblock of the summit, changed the behaviour of the country’s taxpayers irrevocably. Gone was the patchwork quilt of a system that enabled the super-rich to regard tax as a matter of personal discretion, and in its place was one that went a long way to treating all forms of income equally, compelling even business magnates to honour the same rules that bound the vast majority of Australians. Alarmism spread that swathes of Sydney restaurants would shut down, now that their pinstriped clientele had to declare a liquid lunch not as a legitimate company expense but as a taxable fringe benefit, and yet trade held firm. Keating goes as far as to argue that the present-day design of Australian taxation is essentially the same as he bequeathed, with John Howard’s turn-of-the-millennium goods and services tax bolted on.56 For him and his loyal Treasury henchmen, it would stand as a stirring accomplishment. The more immediate question, though, was what on earth they intended to do as an encore.