hold a private meeting after Scullin's swearing-in as prime minister, 1929 Scullin came to Canberra amid rapturous applause from his supporters and the largest majority that Labor had ever won at the time. However, the party had many diverse interests and factions within it, ranging from metropolitan socialist radicals to rural professional politicians. The
Scullin government immediately rolled back several of the Bruce government's measures deemed to be anti-labor – including changes made to industrial arbitration and competition, and the immediate abolition of
compulsory military training. Scullin also chose not to take residence in
The Lodge, which had only been completed two years prior, citing its unnecessary extravagance and cost to the taxpayer. In 1929, the Scullin government established the Canberra University College. But the government's attention would soon shift to the economy. On the very day Scullin arrived in Canberra after the
1929 election,
The Sydney Morning Herald announced large losses on
Wall Street. On 24 October, two days after Scullin's cabinet was sworn in, news of
Black Thursday reached Australia and the government. The effect these developments would have on the Australian economy were not yet known, as economic conditions were already agreed to be poor, but the portents of future disaster were there. Three of the last four Commonwealth budgets had been in substantial arrears funded by overseas borrowing, and the value of Australian debt had been steadily declining in foreign markets. Sluggish years for the agricultural and manufacturing sectors were compounding the problem, but the most worrying statistic was unemployment, which was just over 13% at the end of 1929. A further problem was the decline in Australian trade. Price for wool and wheat – Australia's two principal exports – had fallen by almost a third during 1929. With debts rising and the ability to repay diminishing, Australia was faced with a seriously troubled financial outlook when Scullin took office. Scullin's government faced significant limitations on its power to implement its response to the economic crisis. There had been no half-Senate election in 1929, meaning that the
Nationalist majority elected at the
1928 election was still in place. The conservative Senate proved hostile to much of Labor's economic program. Scullin also had to contend with a financial establishment in Australia (most notably
Commonwealth Bank Board chairman
Sir Robert Gibson) and in the United Kingdom (such as
Bank of England representative
Sir Otto Niemeyer) that was firmly opposed to any deviation from
orthodox economics in responding to the Great Depression. On the contrary, there was much disagreement with Scullin's parliamentary party as to how to respond to the crisis, and a great many were sympathetic to the then radical ideas of
inflationary finance and other
proto-Keynesian approaches. Furthermore, Scullin and his Treasurer Ted Theodore were vehemently opposed to suggestions from the Opposition and Commonwealth Bank to reduce the deficit by cutting Federal welfare emoluments. Thus began two-years of clashes between the government and its opponents, which would prove to be some of the most turbulent in Australian political history.
Crisis and deadlock in December 1929 Ongoing industrial disputes on the coalfields of the
Hunter Valley and
Newcastle dragged on throughout Scullin's government, the Commonwealth
lacking the power to coerce a solution and numerous negotiations between owners and workers collapsed. As a Labor Prime Minister, expectations ran high that Scullin would force the mine owners to submit to worker demands. Scullin was sympathetic, but refused to go beyond negotiations and inducements to end the disputes. Many within the
New South Wales Labor branch were infuriated and felt they had been betrayed, catalysing a beginning of a separation between the state branch (led by fiery
demagogue Jack Lang) and the federal party led by Scullin. Heavily indebted and with conditions worsening, Scullin and Theodore took many novel steps in an attempt to turn the economy around. Appeals were made, both to the Australian public and on overseas markets, to bolster confidence and boost government bond subscriptions. A "Grow More Wheat" campaign was launched in 1930 to encourage farmers to plant a record crop and attempt to improve Australia's serious
trade deficit, although ultimately Scullin was unsuccessful in convincing the Senate or the Commonwealth Bank to support this program through price guarantees. At the same time unemployment had hit a record high of 14.6% in the March quarter of 1930. Scullin's election promise of unemployment insurance was discussed in this period, but with dire predictions for government finance the promise was continually stalled. Scullin made major proposals to change the constitutional amendment process; expand Commonwealth powers over commerce, trade and industry; and to break apart the
Commonwealth Bank to separate out its reserve bank and trading bank functions. The Senate blocked them all, or made amendments which rendered them unrecognisable. A
double dissolution was threatened, though for various reasons both practical and political, Scullin never took this step. In June 1930 the government suffered a heavy loss when Theodore was forced to resign after he was criticised by a Royal Commission enquiring into a scandal known as the
Mungana affair, claims of corrupt deals dating back to Theodore's time as Premier of Queensland. Scullin took over the Treasury portfolio in the interim while Theodore went to Queensland to face charges, and was compelled to bring down the 1930 budget personally. in about 1930 Tarred with the political scandal, the budget, which raised taxes, cut spending and still did not deliver a surplus, was very unpopular with all sections of the community. What is more, the budget proved overly optimistic as Australian revenues continued to plunge and the deficit rose. By August 1930, crisis meetings were held in which Sir Robert Gibson and Sir Otto Niemeyer were demanding further economies in Commonwealth spending. Niemeyer, a representative of the Bank of England, had arrived in Australia to inspect financial conditions on behalf of creditors and had a grim report – that "Australian credit is at a low ebb...lower than that of any of the other dominions" and that without drastic steps default and financial collapse was assured. Gibson agreed, and as Chairman of the Commonwealth Bank Board had the power to deny the Australian government loans to finance the budget unless more cuts were made by both the national and state governments. After meeting with Scullin and state premiers, the 'Melbourne Agreement' was reluctantly struck in which further major spending cuts were agreed to, although opposed by a significant minority of Scullin's party. In the heat of this crisis, matters were made worse still by Scullin's decision to travel to London on 25 August 1930 to seek an emergency loan and to attend the
Imperial Conference. While in London, Scullin succeeded in gaining loans for Australia at reduced interest. He also succeeded in having King
George V appoint Sir
Isaac Isaacs as the first Australian-born
Governor-General of Australia, despite the King's personal opposition and the strong objections of both the British establishment and the conservative opposition in Australia, who attacked the appointment as tantamount to republicanism. However a leadership vacuum was left behind, with Scullin out of the country for the whole second half of 1930,
James Fenton (as acting prime minister) and
Joseph Lyons (as acting Treasurer) were left in charge. They insisted on pursuing deflationary policies and orthodox solutions to degrading Commonwealth budgetary position, arousing great opposition in the Labor caucus. In regular contact with Fenton and Lyons in London through the awkward means of cables, Scullin felt he had no choice but to agree to the recommendations of economic advisers, supported by Lyons and Fenton, that government spending be heavily cut, despite the suffering this caused and the disillusionment of the Labor party's base, whom were most affected by these cuts. Party unity began to crumble, and the gulf between the moderate and radical wings of the party began to grow.
Internal divisions and the Theodore Plan Returning to Australia on 6 January 1931, Scullin was faced with a party now deeply divided over how to respond to the Depression. Jack Lang had won election as
Premier of New South Wales and had become a leading alternative voice within Labor, advocating radical measures including
repudiation of interest on debts to Britain and printing money to pay for public works programs to relieve unemployment and inflate the currency. The NSW contingent in Federal parliament was sympathetic to Lang's views and had become disillusioned with Scullin's leadership and his compromises with conservative interests. At the first meeting of cabinet upon his return, Scullin made things worse by reappointing Theodore as treasurer, despite his name not having been yet cleared over the Mungana Affair. Although arguably Theodore was the most competent man available to implement Scullin's economic program, Lyons and Fenton (as well as several others) were strongly opposed and resigned from the cabinet in protest. Making matters worse, Theodore had become a fierce personal rival of Lang within the New South Wales branch, and his return as treasurer further isolated radical elements of the party. At the same time, the economy had continued to decline and unemployment had soared, with most of the government measures designed to combat the crisis still in limbo due to opposition either from the Senate or refusal of funding by the Commonwealth Bank. In February Scullin and Theodore presented a comprehensive plan at a conference of the state premiers that attempted to straddle both orthodox and radical approaches. While maintaining heavy budgetary cuts, it also planned to provide economic stimulus to help the unemployed and farmers, as well as repaying short-term debts and overdrafts held by British banks. This would require substantial further funds to be advanced by the Commonwealth Bank, however Gibson soon made it clear he would not do so unless significant cuts to social spending (particularly pensions) was also implemented. Scullin refused, instead planning to pay for the plan through the expanding the note issue. This 'Theodore Plan' was approved by narrow majorities of the state premiers and then the parliamentary party. However, Jack Lang rejected the plan, stating instead that Australia should default on its British debts until more equitable repayment terms were agreed to. Lyons and the conservatives within the party were horrified, as were the Opposition, seeing note issue as a sure path to hyperinflation and complete economic ruin. In March matters came to a head. The
1931 East Sydney by-election saw
Eddie Ward elected on a specifically pro-Lang platform, and the bitter campaign within the seat saw federal Labor and NSW Labor mutually expel each other from the party. Scullin and the Federal party refused to admit Ward to the caucus, and subsequently
Jack Beasley led five others out of the party room to sit on the
cross-benches as "Lang Labor". With chaos in Labor ranks and parliament facing a highly controversial plan for economic rehabilitation, the Opposition presented a
motion of no confidence. Lyons, Fenton and four others on the conservative wing resigned from Labor and crossed over to the opposition benches. Scullin was reduced to a minority government of just 35 members, depending on the Lang faction to stay in power. Having built a large and popular following among the public, Lyons and his ex-Labor followers joined the Nationalists and the erstwhile followers of Hughes in
United Australia Party, with Lyons becoming the new
Leader of the Opposition. With a possible default by the Commonwealth looming in June, Scullin's minority government attempted to push through the Theodore Plan. Although under pressure given the prospect of bankruptcy, the Senate and Gibson did not relent, and nearly all the bills needed to implement the Theodore Plan were rejected. Nationwide opinion was divided on the government plan, however many were extremely concerned about the prospect of excessive inflation should the government start printing money to pay its bills.
Premiers' Plan and downfall portrait of Scullin by
William Beckwith McInnes, 1938 Now May, with unemployment at 27.6% widespread suffering across much of the population, Scullin called another conference of the state premiers to try and forge a new deal, now resigned to the fact that compromise with the Opposition was inevitable if any plan could be implemented. A new orthodox plan calling for 20% reductions in spending across the board for all governments was struck, and such cuts to also apply to social welfare spending. Combined with a mass loan conversion that would reduce the interest rates paid on
government bonds by 22.5%, Australia now had a consensus as to how to reduce the annual
deficit from some £41.08m to £14.65m. Although he had finally secured parliamentary and state approval for a plan, Scullin now faced a revolt from his own party. Cuts to pensions and the poor were particularly hard for Scullin, and many core Labor supporters felt deeply betrayed by this compromise of society's most vulnerable groups. Scullin ardently defend the program, but Lang's influence as an alternative opinion leader of Labor was growing, now with state branches in Victoria and South Australia rebelling against the
Premiers' Plan. , January 1932 Traumatic as it was, the government finally now was implementing an economic plan, and things began to improve. Domestic confidence, and confidence in the British loan market, began to recover and default was averted. Voluntary acceptance of lower bond rates on government debt had been extremely successful in a patriotic campaign, wool and wheat prices finally began to rise, and government finances at both Commonwealth and state level were largely under control by October. But with unemployment still rising (it would not peak until 1932), Scullin still faced disillusionment from many within his party, and further gains in ground by Lang. Lang felt threatened by the apparent success of the Premier's Plan though, and renewed talks of unity between the factions had appeared with the improvement of economic conditions. Lang Labor subsequently forced a showdown with the Scullin government in November. With allegations arising that Theodore had abused his position as treasurer to buy support in New South Wales away from the Lang faction, Beasley and his followers called for a
royal commission into the charges. Scullin refused. To the surprise of many observers, the Beasley group crossed the floor to join the Opposition, thereby defeating the government. A snap poll, the
1931 election, was called. Scullin for the first time in Australian politics made heavy use of the radio to reach voters. The campaign was one of the shortest in history, but with open warfare between pro-Lang and pro-Scullin forces in Victoria and New South Wales, and much of the country still facing hardship and grievances against the government, a Labor defeat was virtually assured. Labor was defeated in a massive landslide. The official Labor Party was reduced to a mere 14 seats (Lang Labor won another 4), and Lyons became prime minister. However, Scullin was not held responsible for the debacle and stayed on as Labor leader. To date, it is the last time that a sitting Australian government has been defeated after a single term. ==Later career==