That emerged when he was shown the "blue books" - documents prepared by public servants outlining the true state of affairs of the nation to the incoming government.

What was revealed was that the budget position wasn't favourable and that came to be known as the "Beazley black hole".

"I had a bit of a hint that there was a bit of slippage. This was the cold reality of it. We realised then we had a big job ahead," Mr Howard told the National Archives of Australia release of the cabinet documents for 1996 and 1997, the first two years of his government.

It was from this period, as the government embarked on a process of what it called fiscal repair, that Mr Howard and his treasurer Peter Costello gained their reputation for financial austerity.

What the government discovered as it crunched the numbers was that the budget was headed for a $7.6 billion deficit.

It was publicly termed the "Beazley black hole" for two political reasons - Kim Beazley had been finance minister under the previous Labor government, and was now opposition leader.

In a cabinet submission on March 21, Mr Costello said economic growth had been weaker than expected, with lower tax receipts and higher spending, particularly on unemployment benefits.

"Increased outlays also stemmed from policy decisions taken by our predecessors since the (1995-96) budget," he said.

Although the underlying fundamentals remained encouraging, the government had promised during the election to maintain a surplus. So it needed to undertake "fiscal tightening" with the aim of returning to surplus in three years.

In practice that meant cost-cutting across government, with only Defence spared.

Every other department was expected to come up with savings, though the government drew the line at some.

One proposal was to cease unemployment benefits after a year. Social Security Minister Jocelyn Newman argued that this would build a significant poverty trap into the system and was contrary to Mr Howard's own undertakings. She found other savings.

Everyone knew the 1996/97 budget was going to be a shocker and so it was. But it had the effect of returning the budget to surplus in 1997/98, which was maintained throughout the life of the coalition government.

Treasurer Peter Costello announced an enduring reform, to create the Charter of Budget Honesty to ensure no future government received the same nasty budget surprise.

"Financial dishonesty of that magnitude undermines public confidence in our political system. We will ensure it never occurs again," he said.

Charter of Budget Honesty laws passed in 1998 require governments to report twice a year on the economic and fiscal outlook.

The Charter also requires an inter-generational report every five years and for Treasury and Finance to provide a pre-election budget update.

Former deputy prime minister Tim Fischer said decisions made by Mr Howard and his cabinet in 1996 shaped the way forward for Australia in terms of trade.

"These were deliberate cabinet decisions in 1996 which had huge ramifications through to this week," he told AAP on Tuesday.

"Which sees the China trade treaty bilateral in place from today and the TPP regional trade deal in place from this week too... which means more Australian rice into Japan."

He said decisions made back then were the genesis of trade deals in the last couple of years, all flowing from a slight change of direction in policy.

Australian Associated Press