Like many of his colleagues, McMahon came rapidly to realise that the prime minister was wholly his own man and apt to doing things in that vein. Gorton’s attempt to depose Sir John Bunting, the longtime secretary of the prime minister’s department, was glaring evidence of this. After reading all of the papers documenting the VIP affair, Gorton concluded that Bunting had allowed Holt to become vulnerable to charges of deceit and a cover-up. To prevent it happening again — to prevent it happening to him, even — Bunting had to go.17 But opposition to such an ignominious removal welled within the public service, and Gorton was forced to devise a workaround.
Thus, taking a suggestion from Bunting that the functions of the prime minister’s department should be reshaped, Gorton created the Department of the Cabinet Office, which would provide commentary on cabinet submissions and record cabinet decisions — and installed a shocked Bunting as its secretary. Bunting attempted to fight the move, but could not win. ‘I have been in a fight and carry a few marks,’ Bunting would soon say.18 Observers were in no doubt about the effect on him. ‘It was a body blow to Bunting,’ said Peter Lawler, the deputy secretary in the prime minister’s department, who opted to follow Bunting to the cabinet office.19 Gorton’s decision had the effect of putting the public service offside from the beginning of his government, and confirmed the wilfulness suggested in his January comments that:
The Prime Minister … is not to be chairman of the committee so that a majority vote in the committee says what’s going to be done. He should put to the Cabinet or the committee what he believes ought to be done, and if he believes strongly enough that it ought to be done, then it must be done.20
For Gorton, this was the point of leadership. He was not prepared to be conciliatory about his beliefs, as he demonstrated when he appointed Lenox Hewitt as secretary of the prime minister’s department. A former deputy secretary in the Treasury, Hewitt was formidable, intelligent, and blessed with a decisive grasp of issues. He was also divisive and fierce, undiplomatically intolerant of prattle or prevarication. These qualities caused Gorton to like him immensely and the bureaucracy to dislike him intensely.
Gorton also raised eyebrows by appearing to publicly question Australia’s defence arrangements. Sceptical of the worth of Australia’s military presence in Malaysia and Singapore, mindful of the strain that military commitments caused, and wishing to maintain some flexibility ahead of the pending British withdrawal from the Asia-Pacific region that had been announced by British prime minister Harold Wilson, Gorton questioned the doctrine of ‘forward defence’ supported by Hasluck and Fairhall. The inconsistency and apparent unpredictability of Gorton’s public comments caused concern about the direction of Australia’s defence policy. It even prompted McEwen to join McMahon and Hasluck over lunch to discuss how best to respond should these matters be raised in the House.21
Gorton’s propensity for socialising with women and enjoying a drink also caused concern, particularly among more conservative members of the government. In the face of their grumbling, Gorton was defiant and blunt. ‘I like a party where I can sing and dance and yarn,’ he said. ‘Yes, I even like talking to women! How else can I keep in touch with what people are thinking and saying? … Do they want me to live in an ivory tower and meet only diplomats and politicians? Well, damn it, I’m not going to.’22 For some members, used to the portly dignity of Menzies and the urbane restraint of Holt, this was a decided change in prime ministerial behaviour.
All of this created concern within the government, though little of it was to McMahon’s benefit. The treasurer was ‘distrusted everywhere,’ Peter Howson wrote in March.23 It was as much to do with the events of the summer as his general modus operandi. McMahon knew it. ‘It is true, I’m sure, that to a lot of members I lost a great deal of favour,’ he said later. These months were ‘a difficult period of readjustment,’ he said.24 Working with McEwen after the veto took conscious effort. ‘I had to try to pretend to myself that none of it had happened. That was the only way in which it was possible for me to carry on.’25 Howson thought McMahon ‘lonely and anxious’, that he was missing his typical ‘happiness and self-assurance’.26 McMahon was anxious, jittery, and suspicious that he was under surveillance by forces working on behalf of McEwen. ‘McMahon was convinced that McEwen had used ASIO to tap his phone,’ Alan Ramsey recalled. When he sought to speak with journalists, McMahon would do so from a phone box outside his home.27 Concerned that reporters might be seen when they came to his home, McMahon would also turn off lights and usher them in via the back door.28 His concerns were not without some warrant, and his suspicions were not entirely paranoid. In the absence of an official statement, rumours about why McEwen had rebuffed him were thick on the ground in Canberra, and could easily verge on the scurrilous. McMahon would recall the toll that these took:
It was not easy after the McEwen episode putting up with journalists who would ring me late at night and tell me that I was supposed to have been seen entering a hotel on a certain date in the company of a nice-looking young man in blue pants or something like that and then to hear a demand that I should identify who that young man was. In fact, that actually was the story put to me on one occasion. When I thought back on the date mentioned I was in bed with my wife.29
But McMahon had not given up on his ambitions. By the end of May, he was ‘starting to try to build up his own faction in the party’.30 Surreptitiously, quietly, behind the scenes, he worked at rebuilding himself. He was aided in this by the rise of Eric Robinson, a businessman-turned-politician who was elected, in June, as the new president of the Queensland Liberal Party. A fan of McMahon and his close ties to business, Robinson presided over a new and divisive approach from the Queensland section of the Liberal Party. The division would become a foil for Gorton, working to oust him in favour of McMahon.31
On a personal level, McEwen’s veto, marriage, and fatherhood had effected change in McMahon. Marriage, most of all, had calmed him, had given him more breadth. His staff saw it. ‘It softened him in lots of ways,’ said Peter Kelly. ‘He became less engaged in his work, although he still worked long hours.’32 So, too, did the public service. Peter Lawler, working in the cabinet office with Bunting, thought that McMahon was ‘more concentrated, more serious, more on the job’ after his marriage, but that it had ‘humanised’ him, too.33 McMahon recognised that there was change. ‘I’ve had to adapt myself to a different life and become much more tolerant of others,’ he said.34
The demands he placed on his staff did not change. Kelly could recall McMahon keeping a public servant working late into the night with him and then calling for him to come back early the next morning. When Kelly made a small, gentle plea that it would be rough on the man, McMahon’s response was blunt: ‘Well, I’ll be up, won’t I?’35 He was always demanding, brusque, and seemingly unaware of the toll that his incessant demands could exact. When the deputy secretary of the Treasury, Maurice O’Donnell, died in September 1969, some blame was levelled at McMahon. ‘I know that O’Donnell served him so assiduously that when he died of a coronary, it was generally believed in Treasury that McMahon’s demands had killed him,’ John Stone said later.36
Nonetheless, McMahon was more expansive and reflective about the cost of his work. No, he did not get to go dancing, he said. Excursions to the theatre were ‘a rare indulgence’. He did not listen to music. He read little but cabinet papers. He played squash twice a week to keep fit, yes, and could occasionally make time for golf, but that was about all.37 Otherwise, McMahon’s life was work and family — and his family was growing. Sonia was pregnant again, due to give birth at the end of July, and his daughter, Melinda, was growing up. Deciding that their flat in Darling Point was too small, he and Sonia scouted for a new home. They eventually bought a house at 18 Drumalbyn Road, close by Frank Packer’s residence, ‘Cairnton’, in the affluent Sydney suburb of Bellevue Hill.
Meanwhile, there was instability in the ALP. Despit
e having established a clear ascendancy over Harold Holt the year before, Gough Whitlam found his authority within the party constantly in question. Tensions between the right and left wings were a recurrent source of angst, and, in the first half of 1968, they were exacerbated by the public support Gorton enjoyed and the party-reform agenda that Whitlam pursued. It became the subject of headlines in the lead-up to the April meeting of the ALP federal executive. Objections to seating the right-wing Tasmanian delegate, Brian Harradine, were the first challenge; second was the repeated and humiliating censures that the executive — outvoting Whitlam each time — imposed on the party leader.
Whitlam decided to go to the mat. ‘Am firmly convinced that I cannot face the Parliament or the public with confidence unless Caucus shows its confidence in me,’ he telegrammed his colleagues. He announced he would resign the leadership and recontest it immediately.38 Jim Cairns, the left-wing opponent of Australia’s involvement in Vietnam, reluctantly announced he would stand against Whitlam, and notably framed the leadership contest as a marker for the future: ‘Whose party is this — ours or his?’ he asked.39 The resulting ballot was close — too close for Whitlam’s liking, and it gave the government breathing space to develop its agenda.
One part of that agenda was Commonwealth–state relations. As the annual Premiers’ Conference neared in June, McMahon and Gorton worked in concert to effect a decisive shift in those relations.40 At issue were money and power. Since 1942, the Commonwealth government had held the power to tax income, the revenue of which it distributed to state governments according to a periodically adjusted formula. By 1968, the premiers were muttering about the injustice of that power, the formula, their own budgetary hardships, and the steps they would take if the Commonwealth did nothing. On 27 June, the premiers came to Canberra with tough talk, expecting a buy-off.
They were to have a rude shock. McMahon’s preparatory submission to cabinet had argued that it was necessary to make a forthright declaration of what was acceptable and not in the taxation field. Prompted by moves in Victoria and Western Australia to introduce receipts taxes, he urged his colleagues to consider ‘the likely effects of state tax on our revenues and its implications’. McMahon argued that the Commonwealth should veto moves by any of the states to re-enter the income tax or payroll tax fields. Furthermore, it should adjust the distribution formula to penalise those states that persisted with any such attempts. Believing that this would be ‘strongly supported’ by the public, cabinet accepted McMahon’s submission, and Gorton duly informed the premiers on 28 June.41
A series of grants lessened the blow, but the premiers nevertheless all departed Canberra angry. Though McMahon, too, caught some of the stick, the premiers lashed Gorton most of all. They branded the prime minister a ‘centralist’ who was upending decades of understanding of Commonwealth–state relations. The meeting especially antagonised the Liberal premiers of New South Wales and Victoria, respectively Bob Askin and Henry Bolte. The latter, no fan of Gorton’s already, was especially angered. ‘The federal government’s prestige has diminished since Mr Gorton became prime minister,’ he remarked later that year.42
‘From the beginning,’ one observer wrote, ‘the Commonwealth showed who was boss.’43 For some readers, this would have sounded like criticism. For Gorton and McMahon, this would have been a compliment.
THERE was further change in McMahon’s professional and personal life. Towards the middle of 1968, Peter Kelly decided to leave the treasurer’s employ. He had made the decision the year before, but delayed his resignation in order to see through the 1967 Senate campaign.44 Now that had passed, Kelly was out. ‘I left him [McMahon] because, first of all, I wanted to go and work with Maxwell Newton,’ Kelly said later. ‘I thought I’d learn more.’ But there was another reason, one that spoke to McMahon’s still-evident ambitions and capacities:
I also left, as a secondary motive, because I didn’t think he’d be a good Prime Minister. I didn’t think he could handle the work. I thought it’d be too big for him, as far as foreign affairs and managing men went. I didn’t think he could handle the job.45
Once Kelly had officially joined his staff, as head of service in the parliamentary Press Gallery, Newton announced the news on the front page of the 1 July issue of Incentive.46 Six months later, Pat Wheatley would also leave McMahon — and, like Kelly, she went to work for Newton.47 She was surprised to find McMahon’s reaction was far from congratulatory when she told him the news while he holidayed with his family at Surfers Paradise. ‘He wasn’t happy,’ Wheatley said later. She realised only afterwards that news of her new employer might cause him embarrassment. Tensions with McEwen, after all, were still rife.48 Newton’s name was still poison. What kind of message did this send? McMahon’s reaction was swift, unsentimental, and unceremonious. Wheatley was sent back to Sydney on the first available flight early the next morning, and immediately transferred from his office. The speed did not help. News of Wheatley’s appointment caught the attention of the press, and McMahon issued a statement that was, soon after, contradicted by Wheatley herself. Newton, for his part, was cutting when asked to explain it: ‘What do you want me to say? That I’m hiring her because she’s going to bring me a big stack of secret Treasury files?’49
On 27 July, Sonia gave birth to a second child, Julian. Within weeks, McMahon was talking about how his two children had affected his life:
Now I’ve got two children I’m developing an even more different attitude. Where I go they want to follow. They want to participate in everything I do, even reading the newspapers; they insist on eating my breakfast with me and drinking my coffee with me. Somehow it all adds up to making me accept some previously unbelievable aspects of life. So, in the long run, marriage and children have made me more adaptable and tolerant. Life is better and much happier.50
There were some hard decisions to be made. For a time following Melinda’s birth in 1966, she and Sonia had accompanied McMahon between Canberra and Sydney. Sonia soon realised that the constant travelling was no good for them. They employed a nanny to look after Melinda and, subsequently, Julian, in Sydney, while she accompanied McMahon to Canberra and on the international trips his career required. ‘It was a hard decision,’ Sonia said later. ‘Very hard. I loved being with Bill and I loved being a mum. But I knew I had to make a decision and I chose to be with my husband.’51
On 13 August, Parliament returned for the spring sittings, and McMahon delivered the budget. One might have expected it to be tough. As Treasury’s analysis of the 1967–68 financial year noted, there had been ‘more than the usual disruptive economic events’ over the previous twelve months.52
In the face of all this, the 1968–69 budget was surprisingly generous. With only an 8 per cent increase in defence expenditure (in contrast to 18 per cent in 1967–68), the budget was defined by spending on social services. ‘The Government,’ McMahon said, ‘has placed the objective of helping the aged, the sick, and the needy in the forefront of its domestic programmes.’ Aided by a ‘buoyant’ economy with strong demand, McMahon announced increased spending on social services, housing, repatriation, and health by $111m. In the social services, that expenditure went to increases in the pension, health benefits for the chronically ill and aged, and repatriation benefits for war widows and invalids. There was extra spending in education: capital grants for school libraries and preschool teachers’ colleges, and university scholarships for undergraduate and postgraduate students. In keeping with the new attention paid to Aboriginal affairs since passage of the 1967 referendum, the budget contained a $10m appropriation for assistance in housing, education, health, and enterprises.
To pay for this, McMahon drew on the growth in tax receipts — there was a projected $482m increase in receipts, attributable to the growth of the economy — and increases in company tax, sales tax, and television licence fees.53 According to John Stone, these increased taxes ‘were, in hindsight, undesirable; and
to the extent that they were needed to pay for the (non-Defence) spending measures … those measures were also wrong-headed’.54
Preparation of the budget was nowhere near as smooth as it had been under Holt. In July, McMahon had telephoned Howson to complain that Gorton could not understand ‘the elementary facts of Keynesian economics’, and felt he could print Treasury Bills without economic damage or inflation. ‘This apparently led to an explosion on Wednesday [17 July], at which Bill finally stood him up,’ Howson wrote in his diary, ‘and for a time John went carefully.’55
Despite its fraught preparation and generous measures, the reception to the budget was decidedly mixed. Some observers noted that it reflected Gorton’s preference for a ‘full social programme’, albeit in a ‘give and take’ fashion.56 More generous observers suggested that it demonstrated ‘a place for humanity’,57 but the voices of discontent were louder. Pensioners’ groups thought the measures underwhelming. Education groups thought it patchy. Predictably, business groups criticised the increases in company tax — ‘Savage and unwarranted,’ said one — and the state premiers continued to squabble about their own taxation powers.58
The journalist Maximilian Walsh, however, was suspicious that the budget was a prelude to an election. ‘The very sectors where Mr McMahon and Mr Gorton have directed their attention — health, pensions, and education — are the three key issues selected by voters polled on the eve of the general election in 1966 and the Senate election in 1967,’ he wrote. Nonetheless, he wondered if the efforts would pay off: ‘Unfortunately, nobody has turned up a scintilla of evidence to show that such sentiments receive their just electoral reward.’59
Similar doubts were shared within the government. Gorton’s appeal and the new directions he appeared to offer suggested that the gamble of an early election could well pay off. But there were some hard questions to be asked. Were health, education, and pensions really the best policy areas to fight on? Eighteen years of Liberal-Country Party rule had been won on the back of national security and opposition to communism. Were these reliable planks to be so cavalierly exchanged for areas where Labor had long held an advantage? Would holding off until 1969 — when the economic headwinds could be stronger — be a safer bet? McMahon, according to Howson, thought it would be better to go,60 and repeated this belief to pressmen right into October: ‘I think that the early election is a certainty.’61
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