NEARLY 40 years after governor-general John Kerr dismissed the
Whitlam government, Graham Freudenberg -- Gough Whitlam's speechwriter,
adviser and confidant -- is still angry.
But now his anger is tempered by regret and quelled by the
revelations in Kerr's papers confirming the dismissal was conceived in
deceit and executed by ambush. "It is my great regret,"
Freudenberg tells me for this column, "that in all the speeches and
statements I drafted for Gough during the crisis, I didn't write
something about the governor-general's role in our system of government.
If I had, it may have influenced the way Kerr acted."
Smith, the governor-general's official secretary, who read the
proclamation dissolving parliament on the steps of Parliament House,
drawing the crisis to a close, confirms via correspondence that he
remains steadfast in his view that Kerr acted correctly in discharging
Last week's three-part series on the Kerr papers -- unpublished
handwritten notes, typed memos, correspondence and a secret journal
co-written with Paul Kelly and published in The Australian -- has
generated a strong response from several important figures involved in
Australia's greatest political crisis. Kerr feared being replaced
by a compliant governor-general who would follow the prime minister's
wishes. He believed this was Whitlam's "strategy".
Buckingham Palace of this fear. However, he was counselled that the
Queen would follow Whitlam's advice. He used this knowledge to keep his
thoughts and plans secret from Whitlam. Kerr told the palace that
Whitlam was an inflexible and unreasonable man. He canvassed dismissal
before November 11. Later, he justified his actions by arguing Whitlam
was planning to remove him.
He also told opposition leader Malcolm
Fraser that he feared recall and that he would consider using the
reserve power of dismissal. For Fraser, whose strategy was based on Kerr
acting to resolve the crisis, this was valuable information. Fraser
denies being told this. But after this discussion with Kerr, he argued
publicly that Kerr had an independent role to play and he would accept
Kerr's decision if he intervened. "The prospect of recalling Kerr
was never on our mind," Freudenberg says. "We never canvassed recall
because we never calculated that Kerr would act deceitfully."
Whitlam maintains that if he had recalled Kerr, he would be as vilified as the governor-general later was.
reveals -- a fact not disclosed until this column -- that it was Fraser
who urged him to read a legal opinion written by Liberal MP Bob
Ellicott. That opinion argued Kerr should use the reserve power to
dismiss Whitlam. Fraser organised for Kerr to get a copy of the
Freudenberg regrets that Whitlam never strongly
countered the Ellicott view, which was being advocated by Fraser to
Kerr, with a different interpretation of the governor-general's powers. "In
speeches, I avoided the argument about an independent role for the
governor-general because Kerr had never indicated to Whitlam that he
thought there was an independent role," he says.
Arguments on the
reserve powers prepared by solicitor-general Maurice Byers were largely
left out of the prime minister's speeches. Attorney-general Kep
Enderby delivered to Kerr what was supposed to be a joint opinion
between him and Byers urging caution in exercising the reserve powers.
But when he presented it to Kerr, he did not sign it, scrawled "draft"
across the top and crossed out Byers's signature. "There was no joint opinion," Smith insists, "and in reality there was no opinion at all given to the governor-general."
who had firm views about the reserve powers, sought advice and
assurance elsewhere. He describes an influential "arch of advice". High
Court judge Anthony Mason was the "keystone", who counselled Kerr
extensively in secret. The arch included Ellicott and chief justice
Garfield Barwick, who gave Kerr formal advice on the reserve powers.
papers implicate another High Court judge, Ninian Stephen, as a party
to the dismissal. Kerr writes that Stephen knew of the dismissal in
advance and sighted Barwick's advice. Stephen denies this."If
these judges were convinced of the integrity and propriety of their
actions, then why didn't they reveal their role at the time?"
Freudenberg asks. Given many of Kerr's confidants, like himself
and Whitlam, came from the Sydney Bar, Freudenberg says: "The Sydney Bar
did over one of their own."
The Kerr papers reveal a second
crisis in the afternoon of November 11, which threatened to unravel the
dismissal. Before Kerr dissolved parliament for an election, Clarence
Harders, the secretary of the Attorney-General's Department, questioned
Kerr's exercise of the reserve powers given that the house had voted
no-confidence in Fraser. A week later, Harders eyeballed Kerr and told
him the dismissal was unjustified.
"Harders the private person and
Labor supporter may not have approved of the dismissal," Smith says,
"but in the afternoon of November 11, Harders the law officer advised
that what the governor-general was doing in dissolving parliament and
ordering an election was lawful. Harders changed his mind between
November 11 and November 17, but never said why."
Earlier, in the
Senate, supply was passed. A note prepared by the Senate liaison officer
outlines how, if Labor did not move that supply be passed, it could
have been delayed until the following day. This would mean Fraser had
failed to fulfil the terms of his commission as caretaker prime
minister. If Whitlam had thought about contingency planning in the
event of dismissal or had acted quickly on November 11 to consider what
actions he could take to thwart Kerr, the dismissal could have
unravelled that afternoon. But Whitlam misjudged the nature of the
crisis. He misread Kerr's psychology. He did not counter Fraser's
political strategy. He undertook no contingency planning. And, when
there may have been an opportunity to undo the dismissal that afternoon,
he did nothing.
"We were like stunned mullets," Freudenberg
concedes. "We were completely useless. We didn't pay any attention to
the Senate. We should have been considering our options." The
crisis was as much about the Constitution and convention as it was about
personalities, politics and power. For the ageing warriors of the
dismissal, the controversy of Remembrance Day 1975 will never fade.
_______________ | ______________
Tony Abbott's mentor, B.A. 'Bob' Santamaria. Source: Supplied
NEWLY discovered letters that Tony Abbott wrote to his
Melbourne-based mentor B.A. "Bob" Santamaria illuminate his inner
struggle to decide which major political party to join.
They show that the person we know as a roguish right-winger during
his university days and now as a highly combative Opposition Leader
could have ended up a Labor MP.
In his 1994 inaugural
parliamentary speech, Abbott described Santamaria as the person who
first sparked his interest in politics. This was in the mid-1970s, when
Abbott's power base in student politics was the Democratic Club at
Sydney University, which was affiliated with Santamaria's National Civic
In 2007, Abbott, then health minister in the Howard
government, visited the State Library of Victoria - where 150 boxes of
Santamaria's records and correspondences are housed - to launch the
second of two books of documents about Santamaria's career. Only part of
the Abbott-Santamaria interaction took the form of letters but those
that survive are precious. This especially applies to some letters
written in 1986 and 1987 - a crucial period in Abbott's life as he moved
from the world of NCC true believers into mainstream party politics.
The first pertinent document - dated March 7, 1986 - was written
when Abbott, then training for the Catholic priesthood, was working at
Our Lady of the Way parish at Emu Plains in Sydney's west. He was
an unhappy trainee who needed to be re-energised by Santamaria's
zealous criticism of modern social and political trends. In this
epistle, he congratulated Santamaria on "a marvellous speech which
stirred and inspired many and impressed even those who are not normally
The next surviving letter - dated April 21,
1987 - was just a month after Abbott had abandoned his plan to join
the priesthood. Written from the home of Abbott's parents in Sydney's
northern St Ives, it indicates that Santamaria had offered him a paid
position as organiser with the Council for the National Interest in
Melbourne. The CNI was a body to promote discussion on defence and
foreign policy that Santamaria recently had helped to set up. He saw it
developing into a national political organisation under Abbott's
Abbott declined Santamaria's offer. Things
would be different if he were still 21 and fresh out of university, or
35 with an established professional reputation. But this was not the
case. He had just dropped out of the priesthood and could no longer
risk "another great gamble". His life to date, Abbott wrote, combined
"much promise but little actual performance". He believed that the time
had come for him to build a career so that he could show a future wife
and employer that he was solid and dependable.
Santamaria that the Bulletin had made him an offer of a job as a
journalist that he could not refuse. He felt he could do more to
advance the values of the NCC by writing for the Bulletin as opposed to
working directly with Santamaria in Melbourne. Although Abbott
quickly gained attention writing for the Bulletin, he soon felt
discontented again. He was still living with his parents at the end of
1987 when he wrote his next surviving letter to Santamaria.
it, Abbott confessed he was sick of the NCC criticising unwelcome
social and political trends from the sidelines. He wanted to change
society by working from within. This meant sharing the fears and
concerns of the "common herd". It was crucial to "make the compromises
that life requires, be wrong, get blood on one's hands - but at least be
For "vigorous, self-starting people" such as himself,
the real issue was to secure a direct parliamentary presence. NCC
people needed to "coalesce around leading individuals in the major
But which of the major parties was the more suitable?
previous 30 years of hostility to Santamaria weighed against it but
Abbott wrote, "our roots and the origins of our political culture are
there". But if the ALP was not "dominated" by Santamaria-style ideas,
it would succumb to "the grip of the Left or of soulless pragmatists".
This was intolerable.
However, the Liberal Party was just as
problematic. It was "without soul, direction or inspiring leadership",
while its members were divided between "surviving trendies and the more
or less simple-minded advocates of the free market".
Liberal Party's mixture of "hand-wringing indecision or inappropriate
economic Ramboism and perhaps their lack of political professionalism"
struck Abbott as a fatal combination. The choice on offer was
bleak. "To join either existing party involves holding one's nose," he
wrote. "Either way would upset some. But to do nothing dooms us to
extinction." For a while, the choice for Abbott seemed to be the ALP.
The NSW Labor government led by right-wing stalwart Barrie Unsworth was
due to fight an election in March 1988 and this was surely "a window
of opportunity" to be exploited.
In a careful but forceful reply,
Santamaria rejected the suggestion of the NCC "going back to our Labor
origins in an organised way, as our central strategy". Santamaria
noted that Catholics had largely run the NSW ALP since the 1950s but
that the only result of Catholic influence in Labor governments, both
in NSW and federally, had been "jobs for the boys".
Santamaria also was dismissive of "the reptilian Liberals", who lacked the capacity to win or wield power.
perhaps Abbott was not so wrong after all. Santamaria did not doubt
that, in the person of young Tony, there was an opportunity for "a real
apostolate in Labor ranks". Significantly, as a result of the 1987 correspondence, Abbott felt free to embrace mainstream party politics.
is already known that Abbott voted for the ALP in the 1988 NSW
election and that Bob Carr and Johnno Johnson tried to recruit him as a
member of their NSW Right faction. Yet, at this stage, the two major
parties seemed equally unlovely in his estimation. This meant that it
wasn't difficult to switch from one to the other. In 1990, Abbott became
press secretary to Liberal leader John Hewson, even though Hewson
surely embodied the "economic Ramboism" Abbott had so recently
Hewson's defeat in the unlosable election of 1993 did not force Abbott to reorder his priorities. As
demonstrated by his correspondence, Abbott was already wary of
puritanical zeal. Forced to choose between Santamaria-like zealotry and
actual political power, Abbott was going to opt for power. Compromise
had ceased to be a dirty word.
From 1987 onwards, Abbott, with
Santamaria's reluctant blessing, embraced pragmatism. Provided that it
was not "soulless", pragmatism and political accommodation were
absolutely OK. It will be in the same pragmatic, yet forceful,
spirit that Abbott, as leader of the Liberal Party, will fight and most
likely win the next federal election. But how different things could
The authors wish to acknowledge the assistance of Geoffrey Browne. Ross Fitzgerald and Stephen Holt are co-authors of Alan "The Red Fox" Reid, published by The University of NSW Press __________________ | _______________________
Lionel Bowen Born December 28, 1922; Died April 1, 2012
Man of character ... Lionel Brown with then Prime Minister Bob Hawke in Newcastle, 1989.
Lionel Bowen was the most invisible of Australia's major politicians.
He was a senior minister in the Whitlam and Hawke governments. He went
close to becoming Labor leader and was the very model of a loyal deputy
Yet the man was so personally modest and self-effacing he was scarcely known outside politics and the Randwick racecourse.
Lionel Bowen served as attorney-general and deputy prime minister. Photo: Robert Pearce Within politics, however, he was highly respected for his loyalty, shrewdness, longevity and humour.
Lionel Frost Bowen, who died yesterday aged 89, was born in the inner Sydney suburb of Ultimo on December 28, 1922. It was a difficult upbringing. His father left when he was 10 and his
mother also had to look after her invalid brother and elderly mother
while working as a cleaner.
They lived in rented houses in Redfern and Kensington, the latter only a
walk from Randwick racecourse. Later he bought the Kensington house
and, with his wife Claire, lived in it throughout his career. It was
extended as their family grew to five sons and three daughters but
remained so modest a Commonwealth driver couldn't believe the deputy PM
Bowen left school at 14 but later matriculated at night school and
completed a law degree at Sydney University. While a solicitor, he had
several terms as mayor of Randwick and in 1962 entered the NSW
Parliament. Seven years later he enter federal politics as the member
for Kingsford Smith, which remained his seat until he retired in 1990.
He was a member of the powerful NSW Right but was never a big factional
player. On some issues, particularly protection, he was closer to the
left, yet on social issues he was conservative. Some regarded him as
essentially a loner. However, when Labor came to power in 1972 under Gough Whitlam, he had
the numbers and respect to be elected by caucus to the ministry.
Whitlam was not an early admirer, judging from Bowen's description of
his meeting with the new prime minister and his deputy Lance Barnard
over the portfolio he would be given.
Whitlam: ''Well, Bowen, you made it.''
Bowen: ''Not bloody thanks to you.''
Whitlam: ''What do you want?''
Whitlam: ''You can't have housing. You can have Papua New Guinea.''
Bowen: ''I don't want Papua New Guinea.''
Whitlam: ''Well, there's nothing else.''
Barnard: ''Well, you can have the post office.''
Bowen: ''Well, give us the bloody post office.''
Whitlam would change
his view, however, and Bowen went on to become special minister of state
and manufacturing industry minister. But one of his finest moments
came by accident when he stood in for the ill education minister, Kim
Beazley senior, to manage the passage of legislation providing funding
for non-government schools.
Bowen took over as the opposition moved amendments in the Senate that would have destroyed the bill.
He went on the attack, threatening an election and bluffing the Country Party into crossing the floor.
Whitlam told him, ''Comrade, this is terrific, perhaps you can be my successor.''
He tried twice. After the 1975 slaughter, he ran against Whitlam to
stake his claim and lost heavily. After Whitlam was again beaten in
1977, he and Bill Hayden contested the leadership. Hayden won 36-28. Bowen was elected deputy. He'd have liked to have been leader, been PM. But he was philosophical about it. ''That's the way the game turns out,'' he once said. ''I would have liked the top job but the numbers weren't there.''
While Bowen didn't think highly of Hayden, he said nothing publicly or
privately against his leader as Bob Hawke started his push for the top
job. Nor was he impressed by the flashiness of Labor's new star, saying,
''If we want a film star as leader, why don't we go all the way and
import Jane Fonda?''
Finally, however, he accepted that Labor's prospects were better under
Hawke and it was he who, with Hawke and John Button, had the final
emotional meeting with Hayden in which a succession deal was hammered
out. Bowen was a loser from this as he coveted foreign affairs and as deputy could normally have claimed it. But getting the portfolio was part of Hayden's price for going quietly, and Bowen finally conceded.
When Hawke won government Bowen remained deputy, first taking trade and then becoming attorney-general. At that stage he was planning to retire at the end of 1987, to be
replaced in Kingsford Smith by Bob Carr. However NSW premier Barrie
Unsworth wanted Carr in his team for another term. Hawke also wanted
Bowen to stay as a buffer against the thrusting Paul Keating. So Bowen stayed for another term.
He finally retired in 1990 and was replaced by Keating replaced as deputy. His specific achievements over such a long period may have been
relatively thin. But he provided the glue of decency, stability and good
humour in a cauldron of egos and ambitions.
Hawke said he was the ideal deputy, whose loyalty was absolute. ''An affable, active, shrewd man, with a delightful, self-effacing
humour and an uncanny capacity for accurately judging character,'' Hawke
wrote in his memoir. Hawke's only public criticism was Bowen's record of tipping race
winners. Hawke, who was less than modest about his own ability to judge
horses, may have been unfair. Bowen did okay.
Fellow minister Michael Duffy said of his great mate, ''If all
politicians, particularly ministers, had such a lack of pretension and
conducted themselves as well as Lionel, politicians would be thought a
lot more of in the community.'' AAP _______________ | _____________
ON the eve of the 1975 constitutional crisis, Buckingham Palace
signalled that the Queen would remove governor-general John Kerr if
prime minister Gough Whitlam asked her to.
This advice was given by the Queen's private secretary, Martin
Charteris, in a letter to the governor-general in early October 1975,
five weeks before the November 11 dismissal. It made clear that the Queen would follow the advice of her prime minister. This meant sacrificing Sir John if required.
governor-general wrote in his journal that he was not surprised to hear
the Queen's position, but Sir Martin's letter reinforced his
predetermined decision to make any dismissal of Mr Whitlam a secret
The Kerr papers, recently released from the National
Archives, reveal Sir John's main obsession: his determination to prevent
Mr Whitlam saving himself by the appointment of a more compliant
governor-general, unwilling to exercise the dismissal power. The new documents contain extracts of Sir John's letters to Buckingham Palace keeping the Queen informed of the crisis.
an October 17 letter, the day after the budget was blocked, he tells
the Queen that at a dinner the previous night for Malaysia's prime
minister, Tun Abdul Razak, Mr Whitlam had raised the possibility of Sir
In an extraordinary and new account of this
dinner, Sir John reveals he told opposition leader Malcolm Fraser that
night of his fear that he might be removed. "He (Mr Fraser) said it was inconceivable," Sir John wrote. "I replied it was a matter nevertheless to be thought about. "His reaction was to say the Queen would never permit it. "I told him that that question was one I preferred not to discuss."It was all most unlikely but he (Mr Fraser) would have to make up his own mind about it."
In short, at the outset of the crisis, the governor-general was alerting Mr Fraser to how much he distrusted Mr Whitlam. For Mr Fraser, it was vital intelligence. Even more extraordinary is how Sir John explained his motive for this warning. He
wrote: "I did this out of fairness because he (Mr Fraser) could be
badly caught by ending up with a governor-general who would not even
consider ever using the reserve power, however bad the situation was."
is a recurring theme in the Kerr papers - Sir John believes he had a
duty to deceive Mr Whitlam in order to secure an effective dismissal.The
new revelations are contained in a series of notes and letters from Sir
John and a 150-page, hand-written journal he penned from Surrey in
In September 1975, the month before the budget was
blocked, at the Papua New Guinea independence celebration, Sir John
raised with the Prince of Wales his deepest fear - that, needing to
exercise the reserve powers, he might face "the risk of recall".
young Prince Charles was sympathetic to Sir John and suggested "the
Queen should not have to accept advice that you should be recalled". But
this was not the official view of the palace. Upon his return to London, according to the Kerr journal, the prince spoke to Sir Martin, who wrote to Sir John.
Martin's letter is not in the file. It is referenced in Kerr's journal,
which says: "Martin said he should tell me that if the kind of
contingency in mind were to develop, although the Queen would try to
delay things, in the end she would have to take the Prime Minister's
It is a letter from a palace that wants to assist the
governor-general but knows and accepts it must act on the prime
minister's advice. There is no sense in the documents of the palace
giving Sir John an "in-advance" consent to dismiss Mr Whitlam. In
his journal, Sir John reveals his deepest feelings about the dismissal.
He said he decided to act decisively and the phrase "act by stealth"
described exactly "what I decided from September on I would have to do".
_____________________ | _________________
The April 2012 edition of the World Economic
Outlook assesses the prospects for the global economy, which has
gradually strengthened after a major setback during 2011. The threat of a
sharp global slowdown eased with improved activity in the United States
and better policies in the euro area. Weak recovery will likely resume
in the major advanced economies, and activity will remain relatively
solid in most emerging and developing economies. However, recent
improvements are very fragile. Policymakers must calibrate policies to
support growth in the near term and must implement fundamental changes
to achieve healthy growth in the medium term. Chapter 3 examines how
policies directed at real estate markets can accelerate the improvement
of household balance sheets and thus support otherwise anemic
consumption. Chapter 4 examines how swings in commodity prices affect
commodity exporting economies, many of which have experienced a decade
of good growth. With commodity prices unlikely to continue growing at
the recent elevated pace, however, these economies may have to adapt
their fiscal and other policies to lower potential output growth in the
BACK TO ITALY: The four sisters in the Italian custody case have been ordered to return. Source: The Daily Telegraph
A JUDGE sending four Italian girls home against their wishes
"sincerely hopes" their distraught mother will return with them after
their father agreed not to lay criminal charges.
Handing down his long-awaited decision, Family Court judge Colin
Forrest said the "sporty" siblings were all "born in Italy" and "did not
know life in Australia" before being wrongfully retained here.
four girls were all born in Italy, well adjusted, compliant, talented
in sport and made it to Italian competitive level," Justice Forrest told
a packed hearing yesterday.
In giving his reasons, Justice
Forrest sought an assurance from the father, who was back in Italy, not
to lay criminal charges now or in the future against his ex-wife "should
she determine to return to Italy as I sincerely hope she does".
father's Italian-speaking lawyers stepped out of the hearing room to
call the father and explain the custody deal before Justice Forrest
issued the warrant to return the girls.In a sign of the sensitivity of the case, Justice Forrest ordered
lawyers for the relevant authorities to correct the spelling of one of
the girls' names and to check their birth dates.
Linklater-Steele, for the relevant authority, which is acting as the
Sheriff to return the girls under The Hague Convention, said a federal
police officer was waiting in the courtroom.Mr Linklater-Steele also asked for the girls' current location to be written down and not read aloud.The mother's lawyers failed to get another adjournment to seek a further stay."Every
effort will be made to immediately return the children," Mr
Linklater-Steele told Justice Forrest after he asked if the relevant
authority would act "immediately" to send the girls back.
Justice Forrest told the hearing he did not "intend to grant a stay at this point in time" but said the mother "has her rights".The mother broke down as the return orders were made and family members tried to comfort her.
Justice Forrest gave her a few moments to compose herself before she wrote down the address her children were staying at.In
a lengthy legal analysis, Justice Forrest rejected all three grounds
argued by the mother for her daughters to remain in Australia.
arguments that it was "impractical" to send them back, that there were
"exceptional circumstances" for them to stay, and it had been "12
months" since the return order was made were all rejected.But
Justice Forrest found the girls had been significantly influenced by the
mother and those around her, including "extremely inappropriate and
bizarre" views of their maternal great grandmother.
He told the
hearing that when Queensland police found them in hiding, the great
grandmother declared in front of them, "How exciting. Who is going to
play you in the movie? They will have to find a good little dark-headed
actress to play you".
Justice Forrest told the court he did not
want to trivialise the threats of self-harm made by the second eldest
daughter but found it was more attention-seeking and she never intended
to carry it out.He also found the lapse of 12 months under the
legislation which would allow for a possible discharge of the return
orders started at the point of the appeal in May, not June last year
when return order was first made.
In his closing remarks, Justice
Forrest indicated he would have used his discretion to send the girls
back even if the mother's argument on the three legal points was
successful."The evidence all points to the fact the girls all
love their father, even if they do not want to return to Italy," Justice
The Reserve Bank has cut interest rates to 3.25 per cent, a fall of 25 basis points. Source: The Australian
THE Reserve Bank is calling the end of Australia's resources boom
next year, as mining projects are shelved or cancelled amid growing
concern about the downturn in China.
The Reserve Bank yesterday cut the official cash rate by 0.25
percentage points to 3.25 per cent - taking cuts in the past five months
to a full percentage point - as governor Glenn Stevens warned that
weaker Chinese growth was affecting the rest of Asia and forcing a
downgrade in Australia's growth outlook. "On the back of international developments, the growth outlook for next year looked a little weaker," Mr Stevens said.
markets expect the Reserve Bank to follow yesterday's cut with a
further 25-basis-point reduction at its board meeting on Melbourne Cup
day next month, which would take official rates back to their low point
during the global financial crisis.
The Reserve Bank is likely to trim its forecast for Australia's
growth in its next economic review, due next month. However, Wayne Swan
said the nation's economy was still growing at its trend rate and the
government remained committed to its aim of returning the budget to
surplus this financial year.
The Treasurer said the Reserve Bank's
decision was a win for families struggling with mortgage costs and
argued that the succession of interest rate cuts this year "have been
made possible by our responsible budget policy".
mortgages have come down by 55 basis points to 6.85 per cent since May
and would fall to 6.6 per cent if banks passed on the full cut. This would represent a $150-a-month saving on a $300,000 mortgage since May. However, bank funding costs are under pressure. Ratecity, a firm that compares bank lending rates, said it did not expect many lenders to pass on the full 25-basis-points cut.
Swan has repeatedly pointed to a continued multi-billion-dollar boom in
resources industry investment despite the recent slump in commodity
prices. Mr Stevens indicated that the sharp fall in commodity
prices over the past few months was forcing resource companies to
reconsider their investment plans. "The peak in resource investment is
likely to occur next year, and may be at a lower level than earlier
expected," he said in a statement that accompanied the rates decision.
Stevens said Australia's terms of trade - export prices compared with
import prices - had dropped 10 per cent and were likely to fall lower.
Although iron ore prices had stabilised over the past month, coal prices
had continued to fall. "Economic activity in Europe is
contracting, while growth in the US remains modest," he said, adding
"growth in China has also slowed, and uncertainty about near-term
prospects is greater than it was some months ago".
In August, the
Reserve Bank projected that resource investment would peak at 9 per cent
of gross domestic product sometime next financial year, but now
anticipates a weaker peak in 2013, roughly six months earlier.
O'Donaghoe, a Deutsche Bank senior economist, said the rate cut
reflected a desire to shore up the non-resource sector. He said slowing
economic growth would make it more difficult for the government to
achieve a budget surplus.
Joe Hockey, opposition Treasury
spokesman, said Australia could no longer rely on record high commodity
prices to boost economic growth and the budget bottom line. He
said the rate cut reflected weakness in the economy and noted that Mr
Swan had previously described the 3 per cent interest rate reached
during the global financial crisis as an "emergency level".
Swan conceded that Australia's lower commodity prices, a higher
Australian dollar and heightened global uncertainty had contributed to
the bank's decision: "But we should also keep a very keen eye on our
fundamental strengths: low official interest rates, contained inflation,
solid growth, low unemployment, healthy consumption and a very big
pipeline of investment."
Westpac chief economist Bill Evans said
the RBA had become more downbeat about the labour market, where jobs
growth had remained weak despite a relatively low unemployment rate. The
bank had shifted its focus from containing potential price pressure
from the mining boom to stimulating struggling construction and retail
sectors. Most economists had expected the RBA to wait until next
month before cutting rates. The bank's statement once again said the
exchange rate "remained higher than might have been expected" given the
fall in export prices.
The Australian dollar slumped more than
half a cent to US103.4c against the US dollar following yesterday's cut.
"We suspect the RBA is likely to continue to be surprised by the
resilience in the Australian dollar," Mr O'Donaghoe said. Recent rate
cuts have had little lasting impact on the dollar's value. Financial markets are trading on the basis that there is a 73 per cent chance of a follow-up rate cut next month.
Mr Stevens's statement gave no clues, simply commenting that the weaker
global outlook meant that monetary policy could now be "more
accommodative". Innes Willox, chief executive of the Australian
Industry Group, welcomed the move, reflecting ongoing concerns among
unions and businesses that the economy was weaker than official
statistics suggested and Australia's currency was stubbornly high,
partly because local interest rates were high compared to other
"This rate cut will hopefully give a shot in the arm to
key employing industries across the economy, including manufacturing,
construction and services," he added. Greg Evans, head of policy
at the Australian Chamber of Commerce and Industry, said that the cut
would "boost consumer confidence, take pressure off household budgets
and ease business borrowing costs".
Attention will now turn to how
much of the rate cut the major banks will pass on to mortgage rates,
which Mr Stevens said had "for some months been below their medium-term
averages". Wilhelm Harnisch, chief executive of the Master
Builders Association, said it was "now up to the commercial banks to do
their bit and pass on these rate cuts in full to their customers, small
businesses and homebuyers to help stimulate the economy".
The Reserve's third cut this year, one percentage point in total, brings official rates to their lowest level since late 2009. But
the gap between the official interest rate and mortgage rates has
increased by about 1.5 percentage points since then, as banks have
withheld some of the cuts rather than pass them on to borrowers or
increased rates independently of Reserve Bank movements.
competitive market for deposits and tougher wholesale funding conditions
for Australia's major banks is the explanation," Mr O'Donaghoe said.National
Seniors chief executive Michael O'Neill said that the downward movement
in rates had come as a shock to older Australians, many of whom relied
on fixed income from deposits.