By Damien Murphy
THE beginning of the end of a beautiful relationship between the prime minister Bob Hawke and treasurer Paul Keating is exposed in selected key cabinet documents released today by the National Archives of Australia.
Cabinet strongly backed Keating's 1985 tax reform centrepiece - a consumption tax - and although an initial supporter, Hawke baulked amid opposition from unions, the welfare lobby and business, and pulled the rug from under his treasurer.
The way they were … Bob Hawke and Paul Keating on July 1, 1985 at the opening of the promised national tax summit.
Fifteen years later it was John Howard who displayed true grit and introduced a GST.
Hawke still walked on water in 1985. He had just won a second election but Keating did the government's heavy lifting.
The treasurer drove economic reforms that brought cabinet approval for strict budget controls, increased bank competition and eased controls on foreign investment but tax reform was perhaps his biggest motivation.
On May 12, 1985, cabinet endorsed a draft white paper on options for tax reform recommending the reduction in marginal income tax rates offset by a broad-based consumption tax; it become known as ''Option C''.
Two months later Hawke fulfilled an election promise by holding a national tax summit.
On July 8, Keating briefed cabinet on the summit outcomes, noting Hawke had indicated in the final session there seemed general support for a number of positions, including a 12.5 per cent consumption tax on services.
But on August 12, cabinet agreed that ''the treasurer announce as soon as practicable that … the government would not consider further implementation of a tax on services''.
Behind closed doors, Keating had lost the battle. It was, said the then education minister, Susan Ryan, the beginning of the end.
''Afterwards there was a lot of unhappiness. I think you could say the outcome of the tax summit and the dropping [of] Option C did start to lead to the divergence of views between Hawke and Keating,'' she said, addressing an audience at the National Archives last month.
''In many ways as you know they were a real power team but their views did diverge. I think you could trace the beginning of that divergence to the failure to proceed with Option C.''
Keating walked into Parliament on September 19 with a new tax package, suggesting that ''few of the people in the top bracket have paid the 60¢ in the dollar asked of them. They have arranged their affairs to evade, avoid or minimise that liability. Instead their share of the burden has been carried by ordinary middle income Australians''.
There was no consumption tax, but there were new taxes on fringe benefits and capital gains, wholesale tax was streamlined and a range of other measures.
The cabinet documents show the Hawke government's honeymoon was starting to fade.
With widespread concern over nuclear tests in the South Pacific, the French government sinking a Greenpeace vessel and the Lange government banning US warships, Hawke had to somehow handle a commitment by the Fraser government to the Americans to allow MX missiles to land in Australian waters.
There were also sensitive espionage matters to work through: cabinet disarmed the Australian Secret Intelligence Service and stopped them undertaking training exercises after officers made a fool of the service through a bungled ''dry run'' at Melbourne's Sheraton Hotel.