The Money Men by Chris Bowen (i wanna iguana read aloud .TXT) 📗

the same mistake. Chifley did give the Caucus an undertaking that the pension would be further increased at some point in the government’s term, which was a small price to pay for instilling the idea that the Cabinet would not be bending to every Caucus whim.

This would be a significant factor in the survival and success of both the Curtin and Chifley governments. The Whitlam government would forget this lesson. The Hawke, Keating, Rudd and Gillard governments would remember it.

Chifley’s Budget was spectacularly derailed five weeks after it was delivered. The war effort needed to be scaled up even more because Australia was now directly under threat. Japan had attacked Pearl Harbor and declared war on the United States and the remaining Allies, including Australia. Within a matter of days, the British warships The Prince of Wales and Repulse, believed to represent the best defence in the event of a southward push by Japan through Singapore, were sunk. This was followed two months later by the first-ever attack on the Australian mainland: the bombing of Darwin.

The 1942 Budget was the first that was truly Chifley’s. It reflected a massively increased war effort. Under Menzies and Fadden, prior to Pearl Harbor, 25 per cent of the Australian workforce was engaged in the war effort. Now, more than 50 per cent of Australian workers would be directly involved. Government war expenditure almost doubled between 1941 and 1942, and Chifley’s 1942/43 Budget increased it further.10 This required more increases in personal, sales and company taxes. The cinema tax of earlier years made a return, but there was a significant discount for live theatre, perhaps reflecting Chifley’s personal tastes.11 But tax could only finance so much: £300 million needed to be raised through war bonds, borrowings and Treasury bills.12

That same year, 1942, saw Chifley usher in his most significant achievement. The states had had responsibility for personal income tax since Federation. With this responsibility went the most significant source of revenue available for governments in Australia. Chifley knew this would have to change if the Commonwealth was to adequately finance the war effort and, importantly, postwar reconstruction. The previous government had been advised by the Finance and Economics Committee—a group of experienced, respected economists that had been established in 1938 to advise the then Lyons government on economic policy—that the transfer of income tax to the Commonwealth was an important reform. Fadden had then tried but failed to convince the premiers to voluntarily hand over their income tax powers. Chifley would show a good deal more determination.

Chifley convened an expert committee to advise on whether the transfer of powers would amount to good policy. He appointed to it his friend from the banking royal commission of 1937, Professor Mills, as well as former prime minister Scullin. The opposition was invited to nominate a representative and they chose Eric Spooner, a UAP MP. The process was lightning-fast. Chifley commissioned the inquiry in February, it reported in March, and by May, Chifley had introduced legislation for the federal takeover of the income tax power. However, every state, including the Labor states, opposed the move, despite Chifley having flagged it at the April Premiers’ Conference, where he’d told the premiers that the burden of war was falling exclusively on the Commonwealth while the states had access to this most important source of revenue.13 In July, the High Court heard a challenge from every state except NSW, which argued that the Commonwealth had overreached its constitutional powers. However, the High Court upheld the Commonwealth position. Importantly, the court did not find that the Commonwealth’s takeover of income tax relied on its war powers under the Constitution, but rather was allowable under more general constitutional powers. This meant that the wartime grab of personal income tax powers did not need to be reversed when the war ended. The biggest change in Commonwealth–state financial relations in the history of the federation was brought about in five busy months.

Chifley’s subsequent wartime budgets maintained their focus on a total war effort, but he recognised that the limits of increased taxation had been reached. He and Curtin now concentrated on financing the war effort through the sale of war bonds, which had the effect of increasing the government’s debt levels. In keeping with Chifley’s low-key public profile, Curtin was the main salesman in the effort to get people to lend the government their money by buying a war bond. Launching a campaign to sell the bonds, which were marketed as ‘liberty loans’, Curtin was clear on the national imperative:

No longer can I appeal to you. Let me speak plainly. The enemy is at our very gates and Australia needs your money now if Australia is to endure. In the battle which rages on Australia’s threshold—and in the loan now opened to support those who are fighting in that battle—we dare not fail.14

The amounts involved were substantial: the first liberty loan campaign sought £35 million but netted £48 million. By 1943, however, the government had really hit its stride in convincing ordinary Australians to lend money for the war effort. The 1943 loan campaign collected £102 million from 432 000 subscribers, which rose to £126 million later in the year.15

Chifley and the Banks: Round One

Chifley did not waste any time in establishing an assertive role for the Commonwealth Bank as a more powerful central bank, and in bringing in more controls over private banks. Chifley had seen treasurer Theodore’s struggles with the private banks during the Depression and had honed his views as to what needed to be done during the banking royal commission. He was not reluctant to use the Commonwealth’s wartime powers to implement reforms to banking that governments of both persuasions had previously attempted. Drawing on the government’s constitutional powers, he quickly implemented ‘special accounts’, which meant that private banks could be obliged to lodge deposits with the Commonwealth Bank as a monetary policy measure. Indeed, as the economic historian Selwyn Cornish observes: ‘From late 1941 the Commonwealth Government possessed