Changing Fortunes

A History of the Australian Treasury

Paul Tilley

• Publisher: Melbourne University Press Digital
• Year: 2019
• Print ISBN:
  9780522873887
• eBook ISBN:
  9780522873894
• Topic: History
• Subtopic: Public Finance
• Index: History

Treasury has been at the centre of every major economic policy issue the Australian Government has faced, its role evolving from the government's bookkeeper at Federation in 1901 to the economic policy advising agency it is today.Throughout its history Treasury has been a robust and stable institution with a consistent market-oriented economic framework - but its policy influence has waxed and waned. It has supported reformist Treasurers such as Keating and Costello, and been a voice of caution when political imperatives have pushed governments down economically damaging paths. At times, though, Treasury advice has been ignored and it has been pushed out into the cold. Amidst the political chaos of recent times, Treasury has been dragged closer to government and become a less effective policy adviser. The consequent lack of a consistent government economic reform narrative over the last decade is plain for all to see. Changing Fortunes tracks Treasury's history since Federation, with a focus on the modern era since its 1976 split with Finance.

PART I

THE DEVELOPMENT
OF TREASURY

Federation to the Mid-1970s

CHAPTER 1

BOOKKEEPER OF THE FEDERATION

THE DEPARTMENT OF the Treasury was created at Federation by the authority of the Governor-General, the right honourable John Adrian Louis, Earl of Hopetoun, with a Gazette notice dated 1 January 1901. One of seven departments established at the time, Treasury’s initial purpose was to be the bookkeeper and budget manager for the new Commonwealth Government.

While it has been claimed that Treasury was the only department established by the Constitution itself, this is in fact a misunderstanding. The reference to ‘the Treasury’ in the Constitution is not to the department.¹ Rather, it is a generic reference to the various funds and accounts in which the revenue and other monies of the Commonwealth Government were to be stored.

Treasury started with five staff: George Allen, James Collins, Francis Ros, Charles Cerutty and Angus Bolle.² They were initially located with the government in Melbourne in a building rented from the state government on the corner of Spring and Collins streets, but they subsequently moved into the Commonwealth offices in Treasury Place (Gardens) when they were constructed in 1913.

George Allen was appointed Treasury’s first secretary. He had been in the Victorian Treasury since 1871, when he’d joined as a clerk at the age of nineteen. The son of a bootmaker and without formal qualifications, he had nonetheless risen to the position of accountant by 1895.³

The Gazette notice establishing Treasury

List of Treasury officers in the 1901 budget paper

The Formation of the Federation

The negotiations to agree the Constitution and form a federation had been arduous. The key players were New South Wales Premier Sir George Reid, Victorian Premier Sir George Turner, and Sir Edmund Barton, also from New South Wales and leader of the constitutional conventions; the Victorian Alfred Deakin also played a part. While there was an economic desire to have a free trading area throughout Australia and a natural sentiment for a sense of national identity, there were considerable tensions between the colonies over the balance of powers between them as federated states.

Referendums to endorse a federation in accordance with a draft constitution were held in 1898 in New South Wales, Victoria, South Australia and Tasmania. Each state voted in favour of the proposal, but New South Wales narrowly failed to gain the minimum required affirmative vote of 80 000. As a result, the premiers met in Melbourne from 29 January to 2 February 1899 to renegotiate.

As well as the balance of powers issue, the negotiations included the location of the national capital. Reid insisted that it be in New South Wales, which Turner agreed to on the condition that it be a reasonable distance from Sydney and that Melbourne be the interim capital. The final Constitution dutifully stipulated that the seat of government be within territory belonging to the Commonwealth in the state of New South Wales and not less than 100 miles from Sydney.⁴

A second round of federation referendums was held in 1899 in all states other than Western Australia, with each gaining the required majority—the westernmost state took until July 1900 to gain the necessary support. The Constitution itself is set out in clause 9 of the Commonwealth of Australia Constitution Act 1901 as passed by the UK Parliament. The authority of the Constitution in Australia, however, derives from its acceptance by the Australian people. That is, the

character of the Constitution as the fundamental law of Australia is now seen as resting predominantly, not on its status as an Act of the British Parliament, which no longer has any power over Australia, but on the Australian people’s decision to approve and be bound by the terms of the Constitution.⁵

With the Constitution in place on 1 January 1901, Sir Edmund Barton was appointed Australia’s first Prime Minister. He then invited each of the state premiers to join his first Cabinet, with most accepting. Sir George Turner was appointed Australia’s first Treasurer.

Elections were held on 29–30 March. The Protectionist Party led by Barton won thirty-two seats, the Free Traders led by Reid won twenty-seven seats, and the Labor Party won sixteen seats (with John Watson elected parliamentary leader). Barton was able to form a government with the Labor Party’s support. The first Commonwealth Parliament was officially opened in Melbourne on 9 May by the Duke of York and Cornwall.

At Federation, it is likely the states didn’t anticipate how dominant the Commonwealth Government would become. It was perhaps only subsequently, when the Commonwealth used its constitutional powers to levy additional taxes, that the extent of its ambitions and the states’ financial dependence became apparent:

This dependence would have surprised many of those involved in drafting the Constitution. As we have seen, they intended to create a coordinated federal system with the Commonwealth and the States acting independently of each other, and with each level of government having access to tax revenue under its own control sufficient to fund its allotted sphere of activities.⁶

In reality, the Constitution conferred the key economic powers on the Commonwealth Government, powers that would be increasingly utilised as Treasury’s role and influence increased. It is worth noting, though, that the High Court has never fully countenanced the Commonwealth’s reliance on its general economic powers; for example, in the Pape case.⁷

In its first few years, when the focus of the new Commonwealth Government was on establishing its institutional infrastructure, the combination of Barton as Prime Minister and Turner as Treasurer provided much-needed political stability. They were able to bring down three budgets and put in place key governance institutions.

An essential step in establishing these governance arrangements was the formation of the Commonwealth Public Service (CPS).⁸ Initially, staff were largely drawn from the state governments, a process contemplated by section 69 of the Constitution and regulated and facilitated by the original Public Service Act 1902. As the Public Service Board wrote in its 1924 annual report: ‘Provision was made for recruiting the Commonwealth Service by transfer from State Services, and this was largely availed of in the early years of Federation, particularly in the staffing of the newly-established departments’.⁹

Treasury’s Early Role

At the beginning of the twentieth century, Treasury took on the role that the state treasuries had performed at the end of the nineteenth century. This role, which in turn largely reflected that of the UK Treasury, involved maintaining the budget accounts, raising the necessary revenues, and apportioning financial resources between competing demands. The department’s initial staff of five was supported by the state treasuries—the first Heads of Treasuries (HoTs) meeting took place on 22–23 January 1901, chaired by Treasurer Turner.

Treasury’s first task was to establish a set of budget accounts consistent with the constitutional powers conferred on the new Commonwealth Government. Initially, most of the revenue came from customs and excise (collected by the Customs Department) and expenditures were mainly in Defence and the Postmaster-General’s Department. Giving customs and excise—the single biggest tax base at Federation—exclusively to the Commonwealth meant that interstate duties were removed and a uniform rate applied across the nation,¹⁰ but also that an immediate fiscal imbalance with the states was created. As part of the negotiations over the form of the Constitution, it had been agreed that for the first ten years of Federation, three-quarters of customs and excise revenue would be returned to the states—the ‘Braddon’ clause, named after the Tasmanian Premier who proposed it, with the Constitution also providing that the Commonwealth may distribute ‘surplus revenue’ to the states.¹¹

The first Commonwealth Budget was delivered by Turner on 8 October 1901. Total revenue for 1901/02 was estimated at £10 339 750 and total expenditure at £3 777 207, with the balance to be returned to the states. In his first budget speech, the Treasurer addressed some of the difficulties experienced in compiling the 1901 Budget:

When you are dealing with one State, you can obtain your information with some ease; but when you come to deal with six States, some of them far away from the seat of Government, it is very hard, indeed, to get the information you require to place financial proposals before a committee in such a form that they will be clearly understood, and the position of the Treasury, and also that of the State Treasurers, fully disclosed.¹²

In these early years, the budget papers consisted of fairly rudimentary tables of accounts, with any descriptive material in the treasurer’s budget speech. Over time, as the new Commonwealth Government institutions and public service were established, Treasury would seek to present the budget papers in a more structured way.

Teething Issues

The year 1904 was a tumultuous one for the Commonwealth Government. Barton had been appointed to the High Court in September 1903 and succeeded by Deakin as leader of the Protectionist Party and Prime Minister. At the election of December 1903, the Deakin government was returned with the most seats of the three parties, but its coalition with the Labor Party did not prove stable. Unable to get Labor Party support for his Conciliation and Arbitration Bill, Deakin resigned in April 1904.

The Labor Party then formed government, with John Watson as Prime Minister—the world’s first national Labor government. Watson also took on the role of Treasurer. The Labor Party, however, could not get support for its own proposed changes to the Conciliation and Arbitration Bill, and Watson resigned in August 1904. The Free Trade Party then took its turn to form government, with George Reid as Prime Minister. However, it had to govern under an unlikely coalition with the Protectionist Party, with the inevitable instability that brought. Turner returned as Treasurer in this coalition to present the 1904 Budget.

In 1905, Deakin successfully moved a no-confidence motion in Reid as Prime Minister and the Protectionist Party again formed government with the support of the Labor Party. Turner did not choose to stay on as Treasurer though, and he was replaced by Sir John Forrest, who, as well as being a noted explorer, had been a Western Australian Premier and had joined Barton’s initial Cabinet in 1901. Forrest presented the 1905 and 1906 budgets.

Deakin’s Protectionist Party was returned at the December 1906 election, but Forrest found it difficult working in a coalition with the Labor Party ...

Table of contents

• Cover
• Title Page
• Copyright Page
• Contents
• Foreword
• Preface
• Introduction
• Part I The Development of Treasury—Federation to the Mid-1970s
• Part II The Modern Treasury—the Mid-1970s to the Mid-2000s
• Part III Treasury in Uncertain Times—from the Mid-2000s
• A The Development of the Treasury Portfolio
• B Treasury Secretaries
• C Overlap of Treasury Secretaries with Treasurers and Prime Ministers
• D Departmental Executive and Structure Changes
• E Incoming Government Briefs
• F Overseas Posts History
• G Tracking Treasury’s Mission Statement
• H Changes in the Presentation of Budget Papers
• I Acronyms and Technical Terms
• Bibliography
• Notes
• Index