Peter Costello: Flying the reform flag

On budget eve, a former treasurer sends a message.

Peter Costello in his Melbourne office.

Peter Costello bounces into a small meeting room next to his ­office high above Melbourne’s Collins Street, bursting with ­energy and brimming with self-confidence.

On the wall hangs a row of front pages from The Australian showcasing his budgets — much like a sportsman displays his trophies — with headlines that he still relishes: “Bringing home the bacon”, “Manna from heaven”, “Costello masterclass”.

And why wouldn’t he? Twenty-five years after Costello was elect­ed to parliament, he remains not only Australia’s longest-serving treasurer but, alongside Paul Keating, one of the best.

Costello delivered several key economic reforms, retired net government debt, produced 10 budget surpluses and left the balance sheet in the black. Sure, he benefited from a booming economy. But his record stands leagues above his lacklustre successors, Wayne Swan and Joe Hockey, a fact so obvious he doesn’t need to affirm it.

But the prime ministership eluded him. So midway through this engaging and entertaining interview, his most revealing in years, one question hangs in the air. If he had seized the Liberal leadership after the 2007 election, or in 2008 when Brendan Nelson hit the wall, could he have won the 2010 election that Tony Abbott so narrowly failed to win?

“Yeah, probably,” Costello says. “That was certainly (Kevin) Rudd’s view. Rudd did everything he could to get me out of parliament. He offered me all sorts of inducements, including diplomatic appointments.” Costello confirms this included several “very senior” ambassadorial posts.

Ahead of the 2007 election, Costello told John Howard that the Coalition government was cascading to defeat and he should hand over the leadership. Howard refused. Costello, knowing he lacked partyroom support, never challenged.

“I told Howard he was going to lose his seat,” Costello says. “I said, ‘You are going to lose. You are going to lose your seat. It is time to go.’ He wouldn’t go. So I had decided at that point I had done as much for the party and as much as I could for the country. It was time for me to begin a new chapter. And I thought the party should be able to turn over a new leaf.”

Costello says if he was offered “a sabbatical” or “a year off” after the election he could have re-emerged as leader at a later point. But this was unworkable. Still, Costello hints that he could have defeated Rudd or Julia Gillard. “To be frank with you, I didn’t expect Gillard and Rudd would be as bad as they were,” he says. “I don’t think anybody did.”

But there were other opportunities too, such as 1994 when John Hewson’s leadership faltered or 1995 when Alexander Downer’s leadership was in a death spiral. Costello agrees he could have made a bid for the leadership on both occasions, but deferred to Downer and then Howard.

“If I had run against Howard in 1995, I might have beaten him. I might have. But again, the party would have torn itself apart over that. I was actually senior to Howard at that point. I was deputy leader … But I think the right decision was to bring him back and we won the (1996) election,” he says.

Nevertheless, Costello argues that Howard — who he says led “a very successful government” — should have made way for him to claim the prime ministership. “He could have been the greatest hero to the Liberal Party if, like (Robert) Menzies, he had figured out when was the time to go. But he didn’t. He lost his seat. So he becomes the second prime minister in history, after Stanley Melbourne Bruce, to lose his seat … that’s what the records will always show about Howard.”

When Costello walked into the House of Representatives for the first time in 1990, he recalls it was “quite a jolly occasion”. He knew many Coalition MPs and some Labor MPs. He was friendly with prime minister Bob Hawke. “Some I didn’t really know but had said the most terrible things about them in the campaign (and) I met there for the first time,” he says with a laugh.

With the economy in recession, Costello urged another wave of economic reform. He had made a name for himself as a barrister involved in several landmark industrial disputes and immediately joined the opposition frontbench.

“I believed in structural reform, labour market reform, tax and budget reform,” he says.

“That was really why I went into parliament and, fortunately for me, I had the chance to be treasurer for just under 12 years, so I was able to do quite a lot in relation to that agenda.”

In his first speech — delivered on May 10, 1990 — he warned about the house becoming less of “a check on executive power” vital for keeping governments accountable. He rejected the notion that the end of the Cold War meant “politics is no longer about ideas and values”.

Today, Costello is concerned the house has been further weakened.

He says the Senate has seen an “opportunity to parlay itself as a house of review and as a check on executive power”. He adds: “I don’t like the Senate having control over money bills.”

He laments the standard of parliamentary debate has diminished and lacks the “wit and cleverness” of the past. Moreover, discussion of politics “has got shallower” as attention spans become shorter, influenced by social media.

During the 1990 election, which propelled Costello into parliament, Andrew Peacock was Liberal leader. Costello describes him as a “bon vivant” who enjoyed life and was fun to be around.

“But economics wasn’t his thing,” he says. “He never really focused on it.”

After Peacock lost that election, Hewson succeeded him as Liberal leader and appointed Costello to the corporate law reform and consumer affairs portfolio in the shadow ministry. Costello says Hewson’s Fightback! manifesto and his defeat at 1993’s “unlosable election” taught him a clear lesson.

“Hewson showed that you can have a decent reform program but if you don’t have the political capacity, it won’t go anywhere,” he says. Policy and politics are inexorably linked.

In 1994, Hewson was challenged by the so-called “dream team” of next-generation politicians Downer and Costello. They succeeded. Costello began a near 14-year term as deputy leader. But Downer failed. “Unfortunately it didn’t work out for Alex,” Costello says. “He turned out to be a bridge to Howard coming back.”

As Treasury spokesman and deputy leader, Costello helped facilitate Howard’s return to the leadership in 1995. They immediately set their sights on defeating Keating’s government.

Recalling the 1996 election victory, Costello is scathing about the “budget black hole” they inherited. “What was supposed to be a surplus the day before the election turned into a deficit the day after.”

It helped to garner authority for wider reform. Costello lists among his key achievements: a fully ­independent monetary policy, balancing the budget, eliminating government net debt, corporate regulatory reform and taxation reform, including the introduction of the GST.

“Since the Second World War, budget surpluses have been the exception,” Costello says. “We’ve only had Keating’s and my surpluses.” It requires political courage and compelling advocacy, he argues. Costello names Keating as the best Labor treasurer in the postwar era. Like Keating, he says, “I always saw it as my business to run the economic argument and to bash down the critics”.

After the 2007 election, the Liberal leadership baton passed to Nelson. “Brendan was a good guy who inherited a difficult situation,” Costello says. “I don’t think Malcolm (Turnbull) ever accepted it. And so he was in Malcolm’s sights from day one.”

In 2008, Nelson lost the leadership to Turnbull. “Malcolm came in with a lot of goodwill but it didn’t work out for him,” Costello says. “I think Malcolm still has a lot to give to public life but he just got to the leadership probably when he didn’t have enough experience.”

By the time Costello left parliament — in late 2009 — Abbott had not yet become leader. “He is prime minister and it has been his opportunity,” Costello says. “And he’s won an election — you can’t take that away from him.”

Hockey’s test is a credible path back to surplus

When Joe Hockey delivers his second budget tomorrow night, Peter Costello will be watching. He doesn’t miss politics, especially on budget night.

The government has done a much better job selling the budget this year, Costello says. But the test for Hockey is to show a clear and credible path back to surplus.

“They will want to see that we do have a budget balance in sight,” he says.

Alarmingly, Costello says government net debt — now $245 billion — will not be paid off in his lifetime. “You would have to run surpluses of 1 per cent (of GDP) for 15 years in a row to pay off the debt,” he says. This is nowhere in sight.

He bristles at criticism his decisions to cut taxes, increase pensions and expand middle-class welfare eroded the budget. “The IMF, the OECD all reported Australia was in a structural surplus in 2007,” he says. “I can’t take any responsibility for anything after 2007.”

Asked how he has changed in the past 25 years, Costello says he is now “older and wiser”. However, his views on policy have not changed much. He went into parliament committed to economic reform. But Costello is disappointed that in some areas, such as workplace relations, reform has been wound back.

“I still believe, as I did then, in balanced budgets, hard currency, labour market deregulation, low taxation,” he says. “I thought that if you could accomplish those things, they would be done once (and) for all. And now I realise that reform is just an endless battle.”