Reserve Bank archives reveal Costello and Fraser ‘stoush’

Internal Reserve Bank memos reveal simmering tensions between governor Bernie Fraser and incoming treasurer Peter Costello ahead of the 1996 poll.

Former treasurer Peter Costello. Picture: Aaron Francis

Internal Reserve Bank memos reveal simmering tensions between governor Bernie Fraser and incoming treasurer Peter Costello ahead of the 1996 election after Mr Fraser had criticised John Howard and Peter Reith, guaranteeing he would not be reappointed when his term expired later that year.

Mr Fraser made a confidential “note for file” detailing a robust phone call with Mr Costello in July 1995 after he had seemingly criticised Mr Howard’s comment that the economic recovery was akin to “five minutes of economic sunshine”. Mr Costello warned him to stay out of politics and ­accused him of being too close to the Labor government.

“We had both said more than once during the course of our discussion (which lasted approximately 15 to 20 minutes) that it would be unhelpful to everyone concerned if a ‘slanging match’ were to develop,” Mr Fraser wrote.

“I said a couple of times that I did not want that, that it did not help the bank in the job it had to do, and that it was not my style. I reiterated … I would speak out against what I saw as untruths (from whatever quarter) which belittled and misrepresented policy, and therefore threatened to undermine its effectiveness. I saw this as something inherent in being ‘independent’.”

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Mr Costello replied that politicians would “defend themselves” if attacked and cautioned Mr Fraser that he could expect “a good old stoush” if this continued.

Mr Fraser was prompted to record the exchange following an article in The Australian saying he was unlikely to “survive” as governor if the Coalition won the election, which he thought was informed by Mr ­Costello.

The memo is one of a series of documents made available to The Australian from the Reserve Bank archives. Tomorrow, the National Archives of Australia will make public the cabinet papers from the Howard government’s first two years in office, 1996-97.

Mr Costello told The Australian relations with Mr Fraser “were pretty bad” and there was “no way” he was going to be reappointed by the Coalition when his term expired in September 1996 as he was too close to Labor.

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“I had no qualms about ringing Bernie,” he said. “My point would have been ‘Bernie stay out of politics, it’s not your job mate, stick to monetary policy’.”

Memos also reveal Mr Costello rebuffed Mr Fraser’s advice to replace ACTU secretary Bill Kelty on the Reserve Bank board with another union representative such as Michael Easson, Michael Costa or Peter Sams from the Labour Council of NSW. “It would be desirable to appoint someone with a union background to fill Kelty’s vacancy,” Mr Fraser suggested to Treasury secretary Ted Evans. “I had ­expressed the same view to the treasurer some time ago.”

Mr Fraser preferred Mr Easson and queried whether Mr Costa or Mr Sams would have the ACTU’s support to join the board. In any event, Mr Costello ­appointed businessman Hugh Morgan to replace Mr Kelty.

Relations between the Reserve Bank and the treasurer significantly improved when Ian Macfarlane became governor but memos reveal initial uncertainty over what contact they should have as the Reserve Bank transitioned to full independence.

Mr Costello and Mr Macfarlane had agreed on a joint Statement on the Conduct of Monetary Policy which spelt out their roles and responsibilities with regard to monetary policy.

TOMORROW: Full coverage and analysis of the 1996-97 Cabinet Papers in The Australian and online