AUSTRALIA'S HAWKE GOVERNMENT: EYING EARLY ELECTIONS
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Directorate of
Intelligence
Eying Early Elections
Australia's Hawke Government:
Seeret
EA 84-10039
March 1984
Copy 3 4 0
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Intelligence 25X1
Australia's Hawke Government:
Eying Early Elections
This paper was prepared by
of the Office of East Asian Analysis.
Comments and queries are welcome and may be
directed to the Chief, Southeast Asia Division, OEA,
Secret
EA 84-10039
March 1984
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Australia's Hawke Government:
Eying Early Elections F 25X1
Key Judgments Prime Minister Hawke has shown considerable political skill during his first
Information available year in office, avoiding many of the pitfalls that eroded the credibility of the
as of 25 February 1984 last Labor government. His relatively conservative economic policies and
was used in this report.
successful retreat from many of his party's more radical policy positions
have resulted in record approval ratings in Australian public opinion polls.
These moves, however, further antagonized the party's left wing, and
although the left lacks strong leadership, it still has the potential to undercut
Hawke's control of the party.
Hawke faces two key issues this year that will test his control over the party:
? Uranium mining and exports-which Hawke supports and the left op-
poses-will be the central issue at the Labor Party Conference in July.
This will be Hawke's first opportunity to imprint his views on the party's
policy platform.
? As the 1984 budget debate approaches, Hawke and Treasurer Keating
will face mounting pressures within the party and the cabinet to boost
spending, despite concern over a record budget deficit.
If Hawke prevails, and we believe he will, he will probably take advantage of
domestic economic recovery and the weakness of the opposition Liberal-
National Party coalition by calling for early elections in late 1984 or early
1985-a year before his term expires. If he stumbles, particularly on the
uranium issue, he will be vulnerable to attacks from the left and possibly
face a leadership challenge from Foreign Minister Hayden.
iii Secret
EA 84-10039
March 1984
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Australia's Hawke Government:
Eying Early Elections
Hawke at the Helm
Bob Hawke's first year in office has been marked by
moderation and pragmatism in both political and
economic affairs.' He has reaffirmed the US-Austra-
lian relationship and the ANZUS alliance, successful-
ly retreated from his party's more radical platform
positions, and pursued relatively conservative econom-
ic policies to cope with high unemployment and
inflation. Hawke's brand of politics has made him the
Figure 1
Australia: Public Opinion Polls
"Do you think Hawke is doing "Who do you think would make
a good job as Prime Minister?" a better Prime Minister?"
(Yes)
most popular Prime Minister in recent memory and Percent
helped him maintain record high ratings in public 90
opinion polls (see figure 1).
Nonetheless, the Hawke government has not been
entirely free of problems. A series of potentially
serious security incidents-highlighted by the expul-
sion of a KGB officer in April 1983 because of his
close relationship with a former high-ranking Labor
Party official-has marred Hawke's first year in
office. As a result of the KGB affair, Hawke faced
calls from several state branches of the Labor Party to
abolish the Australian Security Intelligence Organi-
zation because of perceived civil rights abuses during
its investigation. The findings of a royal commission
appointed by Hawke absolved the government of any
wrongdoing in the KGB affair and largely defused the
issue. Hawke escaped with a minimum of political
damage
Hawke also has had to contend with cabinet ministers
who have spoken out publicly on issues outside their
official portfolios and who have released policy state-
ments before obtaining cabinet approval. Although
such behavior was largely excused by the electorate
while Labor was in opposition, it threatens to under-
cut confidence in the government by creating the
impression that Hawke is not in control of his minis-
ters. Hawke was particularly embarrassed by Minis-
ter for Trade Bowen's startling suggestion for a joint
Japanese-Australian peacekeeping force in Kampu-
chea and Minister for Defense Support Howe's criti-
cism of US policy in Central America.
' The Labor Party swept into power in March 1983 after seven
years in opposition, capturing 75 seats in the 125-seat House of
Representative~ ~
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11111111111 1111111111
M A M J J A S O N D J 0 M A M J J A S O N D J
These trouble spots, however, have been overshad-
owed by the Hawke government's strong showing in
economic management. Public opinion polls give
Hawke high marks for managing the domestic eco-
nomic recovery. His high-profile style of leadership
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apparently fosters the public's perception that Hawke
is the catalyst for change, even though the recovery
results largely from factors beyond Hawke's control.
Australian and foreign economists point to the agri-
cultural sector's rebound after the worst drought in
over a century and improving demand for mineral
commodities in Australia's leading trading partners.
Nevertheless, Hawke has maintained the confidence
of both the domestic and international business com-
munities by:
? Floating the Australian dollar and liberalizing other
foreign exchange regulations.
? Preserving, with only minor changes, the former
government's liberal policy on foreign investment,
despite the Labor Party's platform calling for great-
er Australian control.
? Pursuing a tight monetary policy to reduce price
and wage pressures.
Treasurer Paul Keating is, we believe, the driving
force behind these policies. His persuasive arguments
have effectively undercut opposition views in the
cabinet, according to press reports. During the cabi-
net's budget deliberations in mid-1983, Keating-
with Hawke's support-held the deficit to his desig-
nated ceiling of $7.5 billion despite efforts by some
ministers to boost spending.' The budget negotiations
also revealed another powerful supporter of Hawke's
economic policies-Foreign Minister Bill Hayden,
whom Hawke replaced as party leader immediately
before the 1983 elections.'
Girding for the Battle: The ALP Conference
Hawke's successes over the past year have bolstered
his political clout as he moves toward the party's
biennial national conference in July 1984. We believe
the conference will be the most important test of his
tenure in office, because it will provide Hawke his
ative and deficit-conscious than Keating. Well respected by party
moderates and a former Treasurer in the last Labor Government
his views carry considerable weight in the cabinet,
by attacking Australia's high levels of protectionism, arguing that it
has left domestic exporters unable to compete with more efficient
foreign producers. His recent move to strengthen the economic
expertise of the Department of Foreign Affairs suggests to us that
Hayden wants to maintain a voice in framing economic policy.
first opportunity to change the party platform he
inherited upon becoming party leader in February
1983. If Hawke is able to imprint his views on the
party's platform, he will narrow the maneuvering
room of the party's troublesome left wing and put a
damper on much of the intraparty conflict he has had
to deal with.
The Threat From the Left. Relations between Hawke
and the left have grown steadily cooler over the past
year. Although Hawke won widespread-if some-
times grudging-admiration from party members for
returning the party to power, the left wing continues
to reject his pragmatic approach to policymaking, a
situation that has resulted in Hawke's either abandon-
ing or finessing several longstanding party positions
(see appendix). The left has threatened to have Hawke
censured for ignoring party procedure that requires
him to follow the party platform, and senior Hawke
advisers continue to worry about the effects of inter-
nal party fighting. Mindful of this danger, Hawke has
minimized the left's influence in his government. At
present, there are only four leftwing representatives in
his cabinet and, following the resignation of the
Minister of Immigration and Ethnic Affairs in late
1983 over a cabinet vote on uranium, none in the
important inner cabinet-Hawke's council of advis-
ers.
Hawke can take comfort that the left's strength has
been gradually declining since the mid-1970s, when
the left garnered widespread support for an unequivo-
cal antiuranium stance. Although several other fac-
tors may be responsible, it appears to domestic politi-
cal observers that a growing conservative trend among
Australians has left Labor Party radicals'without a
clear agenda beyond the uranium issue. In addition,
the left now lacks strong leadership and its factions
have become divided and strained. Nevertheless, be-
cause of the generous coverage it receives in Austra-
lia's left-leaning press, the left has the potential to
undercut public confidence in Hawke and his control
over the party.
The Uranium Issue. The left will bring all its influ-
ence to bear on the uranium debate, which we believe
will be the most important issue at the conference.
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This political cartoon depicts
Hawke's strategy for winning
the uranium debate. It also il-
lustrates one of his greatest po-
litical strengths-the ability to
finesse issues either by working
out compromise policies or by
waiting out the opposition while
slowly gaining public approval
The battlelines between the Prime Minister and the
left have already been drawn.' Hawke is a longtime
supporter of uranium development in Australia; the
left is committed to stopping all uranium mining and
exports. The last ALP Conference in 1982 resulted in
a compromise policy that supported a gradual phase-
out of the industry, but permitted the honoring of
existing contracts. Although the compromise was a
far cry from what the pro-uranium faction wanted,
press reports indicated both sides saw the new policy
as the first step toward an inevitable turnaround in
the party's position.
Hawke's position was strengthened last December,
when a left-sponsored caucus vote, calling for reaffir-
mation of the party's antiuranium platform, was
soundly defeated. As a further step toward a more
liberal uranium development policy, Hawke recently
gained party approval for continued development of
the huge Roxby Downs mine in South Australia and
for a government inquiry into nuclear safeguards and
Australia's role in curbing nuclear proliferation. If the
inquiry-scheduled for completion by midyear-sup-
ports uranium development, as we believe it will,
Hawke will probably push at the conference for a
uranium policy that permits additional export con-
tracts for Roxby Downs and the two operating mines
in the Northern Territory. Beyond this, Hawke may
not encourage development of additional new mines
even if he is successful at the conference. The weak
international uranium market will persist for some
time and will probably support only one new domestic
uranium mine,
In our judgment, Hawke's greatest leverage on the
uranium battle will come from public support. On 25X1
uranium, as with other issues, Hawke makes his
appeal on the basis of "bread and butter" concerns,
rather than on ideology. According to a recent report
released by the Prime Minister's office, the shutdown
of Australia's uranium industry would cost $6 billion
in lost export earnings and 20,000 new jobs over the
next decade. In addition, because of Australia's early
history in gold and silver mining, the mining industry
in general has developed a folklore status in the minds
of many Australians. This image grevv during the
mineral resources boom of the late 1970s, when many
Australians saw mining as the key to economic pros-
perity. Thus it is not surprising that a recent poll
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found that more than 66 percent of Australians
believe uranium mining should continue, including 60
percent of ALP voters. Moreover, the unions involved
in uranium mining and transport have pledged to
support the industry, despite the antiuranium position
of the Australian Council of Trade Unions (ACTU).
Hawke is approaching the uranium battle as if it were
trench warfare-the gains are gradual and hard won.
He has been forced to work harder on the uranium
issue than on others and has become involved in
cultivating caucus members and playing the numbers
game. He even went so far as to demand complete
support from his cabinet members-a gamble that
worked but resulted in the resignation of one minister.
We believe Hawke is approaching his goal with
uncharacteristic cautiousness because he recognizes
both the tenacity of the opposition and the high
political cost of failure. Indeed, the Australian press
sees the uranium battle as a litmus test of the left's
future influence in the party and the Hawke govern-
ment. Although most political observers believe the
fight will be tough, they are cautiously predicting that
Hawke will win.
A Challenge by Hayden? If Hawke stumbles, on the
uranium issue in particular, he could face a leadership
challenge from Hayden-who resigned under pres-
sure as party leader in February 1983. The intense
rivalry between Hawke and Hayden has been an
important political undercurrent since Hawke as-
sumed office. Political observers believe Hayden re-
mains bitter over being denied what he felt was a sure
shot at the prime-ministership. Hayden still takes
occasional off-the-record jabs at Hawke,
We believe Hayden's push for
influence on economic and defense issues and his
continued sensitivity to some of the demands of the
left illustrate his interest in regaining the party
leadership. On the other hand, Hayden is clearly
enjoying his position as Foreign Minister, according to
US Embassy officials, and has been given a relatively
free rein by Hawke. Because of this and the political
risks of a leadership challenge, we believe Hayden will
proceed cautiously and see how matters develop at the
conference.
Figure 2
Australia: Selected Economic Indicators
Real Gross Domestic Product Unemployment
Percent change from previous Percent
year
a Estimated.
b Projected.
2
83 a 84 b 0 c c c c
The Looming Budget Battle
Like the ALP Conference, the budget debate this year
will be a test of Hawke's control over his party. As the
economy improves, we believe Hawke and Keating
will face greater pressures to increase spending. Many
ministers, including Deputy Prime Minister Bowen
and Labor Relations Minister Willis, are already
arguing for greater spending to make good on Labor's
election commitments to create jobs and improve
social programs. For his part, Keating is concerned
that continued large budget deficits coupled with a
revival in business credit demands will push up inter-
est rates to levels that will slow if not abort the
economic recovery. In public statements and in the
cabinet, Keating-with Hawke's support-is pushing
for a reduction in the deficit for the fiscal year that
begins 1 July. Both Keating and Hawke argue that
excessive spending in the 1984-85 budget will erode
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The Australian Economy in 1984: Good News for
Hawke
It is generally accepted by political observers in
Australia that Hawke is anxious to take advantage
of the domestic economic recovery (see figure 2). The
economy is rebounding strongly from its dismal
performance in 1983-the worst in 20 years. The
OECD expects real GDP growth of over 5 percent this
year, the strongest in any OECD country.
The largest single factor in the improved outlook is
the end of a disastrous four-year drought. Favorable
weather is resulting in a record 19-million-metric-ton
wheat harvest and good harvests of other cereal
crops. Bolstered by improved international prices,
Australia's six major agricultural products-wheat,
wool, meat, sugar, barley, and dairy products-are
expected to be among the country's top 10 export
earners this year. The Bureau of Agricultural Eco-
nomics expects farm incomes to increase by nearly 75
percent in 1984, a rise that will replenish farmers'
cash reserves and boost the demand for farm equip-
ment. All told, the Bureau estimates that the rural
sector will add at least 2 percentage points to GDP
growth in 1984.
The most important short-term benefit of the recov-
ery for Hawke is its positive impact on unemploy-
ment, a problem he promised to tackle during last
year's election campaign. The unemployment rate has
already fallen-from a record 10.4 percent in Sep-
tember 1983 to 9.2 percent in December 1983. Al-
though it inched back up to 9.5 in January 1984, we
expect it to resume declining in the months ahead.
Despite the improvements, however, some Australian
economists believe that Hawke could have made
greater gains on unemployment if he had not struck a
wage and incomes bargain with organized labor.
Given the weakness in the labor market, full indexa-
tion has kept real wages in Australia higher than they
would have been under collective bargaining. In re- 25X1
cent talks with the IMF, Australian officials agreed
with this assessment. Nonetheless, they believe that
the policy will prove successful in the medium term
by holding down wage increases when the labor
market tightens. This view depends on unions honor-
ing their promise not to push for wage increases above
the indexed amount, a promise that--in our judg-
ment-will become harder to keep as the economy
continues to improve.
In any case, we believe all the elements for a sus-
tained recovery are not yet in place. For one thing,
private-sector investment particularly in the impor-
tant mining industry-remains weak. The IMF is
also concerned that government borrowing because of
record budget deficits will put upward pressure on 25X1
interest rates and crowd out any rebound in private-
sector borrowing. Interest rates have already in-
creased 2 -percentage points from their December
1983 trough. Because most analysts believe that
Canberra will find it difficult to reduce the deficit in
an election year, they are not convinced that strong
growth will be sustained in 1985.
confidence at home and abroad in the competency of
economic management. Continued high deficits, they
say, will hurt the Australian dollar in foreign ex-
change markets and, in turn, Labor's political for-
tunes.
Hawke and Keating will probably use the strength of
the recently floated Australian dollar as leverage in
the budget fight. They have started to argue that as a
result of the float, the electorate now sees the value of
the dollar as a barometer of the strength of the
economy. Since the dollar was allowed to float last
December, it has appreciated slightly to 94 cents.
Trade unions will also probably enter the budget
battle. Last year they agreed to a wage indexation
scheme but the introduction of Medicare will shave
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nearly 3 percentage points off the inflation adjust-
ment rates for the March and June quarters of 1984.
Thus, the third indexation pay hike in October-
based on the inflation rate over the previous six
months-will be small at a time when corporate
profits may be showing impressive gains. With this in
mind, the ACTU is already pushing the government
for tax cuts in this year's budget in exchange for its
continued support of Hawke's wage-price accord.'
ACTU Secretary Bill Kelty has privately pursued this
proposal with Canberra, according to press reports,
and is stating it publicly at union meetings. We expect
that the improving economy and slowly declining
unemployment will give Hawke some leeway on in-
come tax cuts because both factors will act to lower
the deficit.
An Early Election in 1984?
If Hawke prevails at the ALP conference and wins the
budget battle, we believe he will take advantage of his
strong political position and call for early elections in
late 1984 or early 1985. Hawke has already done
more than hint at the possibility, and many of Austra-
lia's politically astute newspapers are treating it as a
foregone conclusion, if for no other reason than the
upswing in the economy. At a projected 5 percent,
economic growth in 1984 is expected to be the
strongest in the OECD.
We believe Hawke sees an early election as an
opportunity to further reduce leftist influence in the
ALP and to reshuffle several key cabinet positions. A
new election mandate for Hawke would signal to left-
of-center Labor members of parliament that the left is
out of step with both the party and the Australian
electorate. In addition, the past year has given Hawke
an opportunity to "grade" his ministers, and, although
it is not yet clear how great a cabinet shakeup might
be, political observers believe Defense Secretary
Scholes is a likely candidate for replacement following
his involvement in the politically damaging "Invinci-
ble aircraft carrier incident" (see appendix).
Opposition Weaknesses. If Hawke calls an early
election, he would also be trying to capitalize on the
poor performance of the opposition Liberal-National
Party coalition. Thus far, it has proved incapable of
launching any effective political attack on the Hawke
government. Liberal Party and opposition leader
Andrew Peacock-who had performed very well in
the Fraser government and was pegged as a future
prime minister by the Australian press-has proved a
woefully inadequate foil for Hawke
many members of his own
party. Perceived as being more style than substance,
Peacock has been hampered by his party's inability to
present cogent alternative policies. On both economic
and political questions, moderate Liberals have had
difficulty distinguishing their own philosophy from
that of the equally moderate Hawke government. F_
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A leadership challenge in the Liberal Party has been
frequently mentioned in the Australian press because
of Peacock's disappointing performance. Without an
attractive alternative to Hawke, however
there is little rationale for a poten-
tially damaging party shakeup. In our judgment, if
there is to be a leadership change, it will have to come
soon in order to give Peacock's replacement a chance
to strengthen the party under new leadership and
launch a sustained challenge to Hawke in preparation
for early elections.
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Appendix
Traditional Leftwing Issues
We expect the left to concentrate its efforts on the
uranium debate. It will also probably revive several
other issues that were hotly debated at the last ALP
Conference in July 1982.
US-Australian Security Arrangements. Bilateral de-
fense cooperation-including operation of joint com-
munications and tracking facilities, US Navy ship
visits, B-52 training flights, and MX missile testing-
is a sensitive issue closely linked to the uranium
debate.6 The public furor late last year over Canber-
ra's waffling on Britain's request to drydock the
aircraft carrier Invincible in Sydney, for example,
disclosed several glaring inconsistencies in Australia's
antinuclear policy. In addition, the left wing remains
opposed to the continued operation of US-Australian
joint facilities because they are seen as compromising
Australian sovereignty and increasing the likelihood
of Australia's becoming a nuclear target. Hawke, we
believe, hopes that the government's recent public
statement clarifying drydocking policy and a likely
public statement on the joint facilities will undercut
leftwing criticism well before the July conference.
Aid to Vietnam. As part of its 1982 platform, the
Labor Party is committed to resuming economic aid
to Vietnam, which was cut off by the Fraser govern-
ment following the invasion of Kampuchea. The left
wing argues that keeping Vietnam isolated from the
West increases its dependence on the Soviet Union
and reduces the prospect for a peaceful settlement in
Kampuchea. This stand has caused considerable con-
cern among ASEAN countries, and, coupled with
Canberra's refusal last year to cosponsor the annual
UN resolution on Kampuchea, is taken as tacit
approval of Vietnam's role in Kampuchea. After
months of postponement, the Hawke government ap-
pears to have found a middle path that has satisfied
ASEAN and temporarily appeased the party's left
wing. After several severe typhoons this winter dam-
aged Vietnam's rice crop, Canberra decided to pro-
vide $450,000 in aid through the United Nations'
disaster relief organization. The Hawke government
has clearly stated that the relief does not constitute an
official resumption of Australia's bilateral aid pro-
gram. For its part, the left will probably push for a
resumption of Australia's economic aid program, ar-
guing that disaster relief is only a first step
Sinai Peacekeeping Force. Another facet of the La-
bor Party's 1982 platform called for the withdrawal of
Australia's 100-man contingent from the Sinai peace-
keeping force. Nevertheless, Hawke wants to main-
tain Australia's presence in the Sinai. In addition to
being concerned over foreign reactions to withdrawing
the contingent, he is a longstanding and passionate
supporter of Israel. Using the excuse of "changing
circumstances," Hawke has postponed any decision on
the force until he and Hayden have the opportunity to
discuss the matter with both Israeli and Egyptian
officials. Although Australia's official commitment to
the force ends in April 1984, Hayden indicated to the 25X1
press following his recent trip to the Middle East that
Canberra will probably renew its commitment.
issue alive at the party conference.
East Timor. The Hawke government places consider- 25X1
able importance on establishing warmer relations with
Jakarta and has gradually retreated on the Labor
Party's traditional condemnation of Indonesia's 1976
takeover of East Timor. The postponement of the UN
resolution on East Timor last October until next fall
and the favorable findings of an Australian parlia-
mentary delegation that visited East Timor have
undercut leftwing criticism and given Hawke more
time to win over public support on this issue. At this
point, political observers expect Hawke to follow the
example of the former Fraser government and abstain
from voting on the UN resolution later this year.
Nonetheless, the prospect of continued low-level fight-
ing and food shortages in East Timor will keep the
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