changing fortunes
lesson summary
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The Australian Treasury’s initial purpose was to be a bookkeeper and budget manager for the new commonwealth government. A couple of decades later, the inadequacy of Treasury in providing meaningful economic policy advice to the government during the Great Depression was a catalyst for the development of a more substantive policy role.
The quality of a nation’s political and
economic institutions is the key to economic and social progress. This was the central theme of the celebrated book, Why Nations Fail by Daron Acemoglu and James A. Robinson. And in Australia’s case, perhaps the most important public institution has been the partnership between the nation’s treasurer and the government department serving him, the Treasury, as argued by Paul Tilley in his well-researched history of the Australian Treasury, Changing Fortunes.
Tilley, a former senior advisor to Australian governments for some 32 years, has delivered a veritable tour de force. He takes readers from the beginning of the Australian Federation in 1901, when the Treasury started with a modest staff of five, until the present time, where the once-powerful Treasury is struggling to remain influential. Indeed, the major theme of the book is the waxing and waning of the Treasury’s partnership with the treasurer.
Tilley recounts how Treasury’s power increased during the 1950s and 1960s, the golden years of the Menzies government and the reign of Treasury Secretary Sir Roland Wilson. This was followed by a tumultuous three years, starting in 1972, when the Labor Party
came to power under the leadership of Gough Whitlam, after 23 years in the political wilderness. Ultimately, there was a complete breakdown in the relationship between the Treasury and the treasurer when the Treasury secretary, Sir Frederick Wheeler, blew the whistle on the government’s unconventional initiative to borrow money through a small-time Pakistani commodity dealer, Tirath Hassaram Khemlani.
While the return to power in 1975 of the right-wing Liberal Party promised a return to normality, Treasury’s “frank and fearless” advice was not appreciated by Prime Minister Malcolm Fraser, who proceeded to split the Treasury in two with the creation of a Department of Finance. Notwithstanding the trauma,
the broad consensus is that the “split” was beneficial in that it led to a strengthening of Treasury’s role as an economic policy agency.
A recurrent theme in Tilley’s book is Treasury’s stubborn insistence on recommending to the government only first-best solutions — “frank and fearless advice” — even when governments had no interest in such recommendations, with the result that the Treasury was widely regarded as being conservative, arrogant, and dogmatic. A parallel theme is to what extent the Treasury should even provide independent policy advice to the government, or remain a mere implementer of government policy, as the current government of Scott Morrison believes.