The 1976 Cabinet Papers: a reply to John Stone.

JOHN STONE'S RESPONSE (Quadrant, July-August) to my remarks on the release of the 1976 Cabinet Papers does not provide any evidence to contradict my account of some of the significant events of the year, and contains a number of misinterpretations and inaccuracies. It also contains some information of historical interest.

To go straight to the matter which is the main substantive point of contention--the "strike" of advisers from the Treasury and the Department of the Prime Minister and Cabinet following the 17.5 per cent devaluation of November 1976--Stone has nothing to contribute, other than to say that he does not believe it ever happened. He was overseas at the time and therefore has no personal knowledge of the event. Strangely, he cites the absence of supporting evidence in his files as one of the reasons for his disbelief. Logic tells one that if Treasury failed to provide advice to the government, there would be nothing in the files. Of course, evidence that Treasury did provide advice and the production of that advice would be good supporting evidence for his disbelief, but his files are empty. Nor will such evidence be found in anyone else's files.

The simple fact is that he was not involved in this event and I was. The refusal of Treasury and PM&C to produce substantial input for this statement when requested was a specific problem with which I had to deal. On Monday December 6, 1976, the Prime Minister asked his department for a draft speech for his statement to the parliament on December 9. At the Question Time briefing on December 8 he asked his senior advisers how the draft was going. He was told that no work had been done on it. He demanded a draft by 2 p.m., insisting that Treasury be involved. He then directed me to commence drafting a statement within the office.

Carmody, the new Secretary of Prime Minister and Cabinet at the time, was clearly concerned at the failure to produce a draft and spoke to his officers about it. During the afternoon a brief and inadequate draft appeared with no attempt to present an argument for the devaluation. It transpired that there had been no Treasury involvement at that point. The PM&C draft however had been sent to Treasury asking for input, and later in the day a half-page note of minor grammatical comments was received from Treasury, without any substantive comment. I forwarded the PM&C draft to Cabinet.

When Fraser emerged from Cabinet there was a meeting in his office. Lynch was there and I handed the Treasury's non contribution to him. Carmody was summoned and Fraser said to him: "Your blokes haven't produced," and showed him the draft. Carmody asked: "What do you want me to do?" I said: "We can't write without some. material." Carmody said: "I had better get them over here to talk to you." I said: "It would be better if they could provide some basic material. We need something to work off." Carmody said: "I'll get it." Nothing arrived. Two Treasury officers were summoned, but this led to no further useful contribution.

Fraser took things into his own hands, and a meeting around 6 p.m. with Fraser, his staff, Lynch, Sinclair and Carmody sketched out the basic outlines of the response Fraser wanted. The office first draft was delivered by 9.30 p.m. and the Prime Minister went through it carefully. A full re-draft was available by 5 a.m. the next day. The Prime Minister's speech was delivered to the parliament on December 9 without significant assistance from his own department or from the Treasury.

The failure over several days of the two central departments to provide adequate input to the Prime Minister for his statement was not simply a matter of disagreement over what should be said. It was specifically an unwillingness of the departments to draft any justification for the government's decision. In my view it is appropriate to call this failure a strike, but in any case it would have left the government in an impossible position had it not been for the existence of the private office. Within the office we referred to it as a strike, and it left a lasting impact on my views at the time, which were later reflected in reforms to the private office structure which were implemented when I became Director of the Prime Minister's Office in 1981. John Edwards of the National Times proffered an interpretation that the Prime Minister was now alone, cut adrift from official advice. This was overly dramatic. Once the matter of the devaluation had been dealt with, relations with the departments returned more or less to the state in which they had been before.

Stone is disingenuous in suggesting that "no public servant of that day would have denied the right of elected leaders to have their own private staff". The concept of private staff was then very new, essentially having been initiated (very unsatisfactorily) by the Whitlam government. The place of private staff in the system of government and in dealing with departments was still a contested matter as late as 1981. To say that a minister's "right" to private staff was not contested is only to concede the ultimate authority of the minister (or prime minister) in our system of government. To say that the distinct role of private staff as political advisers to the minister was readily accepted would not be accurate.

STONE CRITICISES ME for using what he terms "third-hand scuttlebutt". He cites two instances of this alleged scuttlebutt. One is an incident in which the Governor of the Reserve Bank, Harry Knight, provided a response to questions from the Prime Minister to Treasury to type up, and when he came to present the document in the cabinet room found that not all his response had been included. I said that "Knight was overheard to speak sharply to Wheeler about the incident". Stone says that this amounts to an accusation that Wheeler had perpetrated "low grade dishonesty". It is nothing of the kind. Wheeler was the Treasury Secretary. If Knight was dissatisfied with the service he received from Treasury, Wheeler was the appropriate person to complain to. The exchange was conducted in the presence of a senior member of the Prime Minister's office, as the two officials emerged from the cabinet room. I was informed at the time and made a note of it.

The second accusation of "scuttlebutt" concerns my statement that on May 19, 1976, I was told that Treasury "did not understand the government's wages policy and could not draft the relevant sections of the Treasurer's speech". Stone regards this as a "third-hand" report, and demands to know "Who told Kemp this?" though he does not deny that Treasury did not understand the government's wages policy "because it did not have one". The strange thing about Stone's treatment of this matter is that his point depends entirely upon a misquotation of my paper. I am quite clear in the text about who told me, and this can be easily checked by anyone who cares to consult the reference to the paper on the internet. My paper says: "Stone told me ..."

Stone's account of the internal discussions of the government in the lead-up to the May economic statement illustrates the problem that was already arising. The Prime Minister and the Treasury had different assessments of the state of the economy and of the likelihood of an upsurge of inflation. It was also a power struggle over how the economy was to be managed. Fraser was acutely conscious of the social consequences of the failure of economic policy under the Whitlam government and determined to provide additional assistance to families through a new family allowance system which (unlike a tax cut) was expressed on the expenditure side of the Budget. While he acknowledged the need for expenditure cuts (and had already taken substantial action in this regard), he was yet unpersuaded by Treasury arguments on the nature of the linkage between the deficit and the money supply. He was unimpressed by heated rhetoric on the matter and wanted to see these claims better supported. The more emotional the Treasury's assertions, the more sceptical he became. Stone's claims about the "socialism" of family allowances did not help.

At the end of a densely packed week in the middle of May the Prime Minister went to his property, Nareen, to weigh up the policy issues at the centre of the May economic statement. He had asked Ian Castles and me to come to Nareen. On our arrival the Prime Minister showed us the long emotional letter from Lynch. Its authorship by Stone was obvious in its phraseology. Fraser noted this at the time, and Stone confirms his authorship. Fraser did not take the letter lightly. He went through the various arguments it made himself and asked Castles to prepare notes and comments on the main issues and criticisms made in it. He concluded as a result of this consideration that most of the criticisms did not stand up to scrutiny.

The rhetoric of the letter did not assist its persuasiveness. Its claim that the proposed package would "go a long way to destroying our credibility as a government" was not believable. Who was correct? The obvious fact is that the May economic statement did not destroy the government's credibility. The package was well received. The family allowance policy was described in the editorial in the Age next day as "one of the most important advances in social welfare since Federation". It remained a cornerstone of family policy for many years. Despite Stone's claim that the real story is about how "a headstrong Prime Minister, utterly determined to have his own way, and prepared to override objections to the contrary however reasonable, began the process of losing office", Fraser won two more national elections.

RUNNING THROUGH Stone's response is the theme that I was responsible, as Minister Assisting the Prime Minister for the Public Service, for legislation (the Public Service Act 1999) that had the effect "of largely destroying the apolitical nature of Australia's public service". Towards the end of his paper he notes that "the once-respected role of Commonwealth public servants" has been transformed to that of "mere servants".

The role and nature of the Australian public service has undoubtedly been transformed from what it was in Stone's day, and it has been transformed as a result of legislation which had bipartisan support (not that that will reassure Stone). The day when departmental secretaries could claim to be the government's sole official advisers, and to be "permanent" in their positions, and when the public service operated under a uniform and highly bureaucratic regulatory structure, has gone. Department secretaries now hold their positions for limited terms and receive performance pay according, in part, to their contribution towards implementing government policy.

My judgment is that overall the quality of Australia's senior public servants remains high. As a minister in the Howard government I was fortunate to work with many distinguished public servants, including Peter Shergold, Steve Sedgwick, Roger Beale, Helen Williams and David Borthwick--to mention only those at Secretary level. I experienced no case when I believed that my departmental secretaries were not offering "frank and fearless" advice. I do not believe that the courage to offer such advice is a function of permanence. It is rather a function of character and ethics. On many occasions I have heard present-day public servants offer unwelcome advice because they believed it was the right thing to do. Equally, I recall "permanent" public servants in the Stone era explaining to me privately why they had "pulled their punches" in offering advice. I am not suggesting that John Stone ever did so. While Stone is quick to personalise and characterise as "offensive" any criticism of the advisory process of his time, he is equally quick to characterise the public servants of the present time in terms that are derogatory. He is wrong to do so.

Stone's suggestion that it was my estimation that the Prime Minister was "the only man in step on the economic policies needed" is without foundation, and I do not believe can be properly inferred from my paper. My aim has been to put on the public record what I consider to be some facts about the historically significant internal economic policy debate of 1976. My own role in this debate is described accurately in the paper: "I sought to ensure that the key issues in dispute were fully considered, so that policy decisions would be based on the best analysis possible." This often put me in the position of drawing the Treasury view to the Prime Minister's attention.

I nevertheless consider that it is important to note that the dire predictions of economic disaster that senior officials made in the latter half of 1976 in response to the policy decisions championed by the Prime Minister were not borne out in practice, and that the events surrounding the devaluation of November showed that a properly analytical approach to policy advice had been temporarily replaced by a group culture that had lost its grip on reality. Inflated rhetoric is not necessarily persuasive in the rational considerations of government. As a result, some of the government's official advisers, including Stone, surrendered influence they might otherwise have had.

Dr David Kemp held several ministerial portfolios in the Commonwealth government between 1996 and his retirement from parliament in 2004. The address by Dr Kemp referred to in this article is available at http://www.naa.gov.au/the_collection/cabinet/1976_cabinet/ advisers-decisions.html.