Most of the fiscal consolidation during the Costello treasurership occurred in his first two budgets. The 1996 Budget contained substantial spending cuts and serious consolidation. The 1997 Budget’s main measure was the cancellation of tax cuts that Keating had promised and then converted into increases in superannuation payments. This was not a difficult or politically courageous move on Costello’s part.
From 2002 onwards, government revenues began a rapid and seemingly inexorable rise due to the explosion of mining construction activity and a very large increase in the terms of trade. This was a fiscal environment that many of Costello’s predecessors could only dream about—all of his successors too. Hartcher’s conclusion concerning the economic management of this period is accurate: ‘The Howard Government’s handling of the resources boom was not ideal, but it was not disastrous.’49
Costello himself claims much of the credit for the economic successes of the period 1996–2007:
Over eleven and a half years in office we had delivered the most successful period of economic management in Australian history. We had lowered interest rates, brought unemployment to historic lows, eliminated commonwealth net debt and managed the longest period of uninterrupted economic growth our country had ever known. We turned Australia from the sick man of Asia into a respected international leader.50
But there are other claimants. The micro-economic reforms of the Hawke–Keating era took time to take full effect and unquestionably made the economy more efficient, enabling higher economic growth to occur without the debilitating inflation that had so often amounted to a constraint on growth in the past. As Alan Wood points out, the foundations of Australia’s very long period of economic growth ‘were laid in the preceding decade and even earlier’.51 Howard has always been happier than Costello to acknowledge the Hawke–Keating reforms as an important factor in Australia’s success. Howard’s post-career memoirs, for example, note that the floating dollar was an important part of Australia’s successful navigation of the Asian financial crisis. Costello’s memoirs, however, make no mention of these reforms as having set up Australia for the period of growth he presided over (which is surprising, as the memoir is a genre in which former politicians can afford to be more generous to their political opponents than they usually feel comfortable doing while in the fray). Australia had experienced a solid five years of economic growth before he became treasurer, so his description of Australia as ‘the sick man of Asia’ is hard to justify.
The other two competitors for credit for Australia’s economic success over the period of Costello’s treasurership are the China-fuelled mining boom and Costello’s partner and boss, John Howard. It is true that the mining boom only occurred well into Costello’s tenure, and that the Budget had already returned to surplus when Commonwealth revenue began to increase massively as a result. But once it was in full swing, the boom provided enormous increases in revenue that made the tasks of reducing unemployment and budgeting for surpluses with tax cuts exponentially easier.
Costello was able to engineer the transition to a broad-based consumption tax, something that both Howard and Keating had failed to do. But the key difference was not Costello’s skills as treasurer, but rather Howard’s support and initiative as prime minister. Both Howard and Keating had attempted to convince nervous prime ministers of the virtues of tax reform. Costello had no such hurdle to jump.
It is clear, though, that the relatively smooth implementation of the GST owes much to Costello’s command of detail and considerable retail political skills. The task would have conquered a less competent technician. Any incident in which the treasurer failed to understand the detailed impact of the imposition of the GST may well have been fatal to the tax-reform project, as well as to the career of said treasurer. Costello was acutely aware of this and avoided such an eventuality.
The biggest mark Costello made on the Treasury portfolio was his elevation of the pursuit of budget surpluses to an economic and political goal in its own right. But the fact is that if Costello had been tested by an international calamity of the scale of the GFC, he would have had to discard his surplus objective. It should be remembered that on the one occasion—post-GST implementation—that two consecutive quarters of negative growth threatened, he did not hesitate to double the First Home Owner Grant in a bid to stimulate demand.
There were three factors that combined to see surplus budgeting reach its apogee during Costello’s tenure as treasurer. Firstly, there were Costello’s conservative instincts, which led him to support cautious and prudent surpluses. Secondly, there was the mining boom, which made continual surplus budgeting combined with annual tax cuts possible for the first (and so far only) time in Australia’s history. And finally, there were Costello’s considerable skills as a political communicator and pugilist. Costello not only made surplus budgeting a virtue in its own right, but he was able to distil his political message into a simple, very effective (albeit misleading) essence: surpluses are good, and Liberals deliver surpluses.
As an economic achievement for the nation, this was a questionable goal. But as a political achievement for his party, it was a marked success, the legacy of which is still having an impact on Australian politics.
Peter Costello will inevitably be included in any list of ‘good prime ministers that never were’. He will also always be nominated by conservatives as a candidate for treasurers of the first rank. The words ‘solid’, ‘competent’ and ‘politically astute’ can justly be attached to Costello’s political ledger, even if
