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Land of Opportunity: Australia's post-war reconstruction

Economic policy

The conversion of the Australian economy to a total war economy took place in the first year of the Curtin government. On 10 February 1942 the Prime Minister announced a National Economic Plan to 'place the full resources of the country in men and materials at the disposal of the Government and promote the greatest unity of effort'. A few days later, the National Security (Economic Organisation) Regulations came into effect, strengthening controls on prices and profits, restricting transfers of property, controlling interest rates and pegging wages. The effect of these and related measures was to release money for war loan subscriptions and drastically reduce non-essential investment, thereby enabling men and materials to be diverted to the defence forces and war industries. War expenditure rose from £320 million in 1941–42 to £562 million in 1942–43, of which £216 million was funded by public loans and £159 million from consolidated revenue.


In his first budget in October 1941, JB Chifley increased company taxes, sales tax and income tax on high earners. A few months earlier, the Menzies government had tried unsuccessfully to persuade the state premiers to suspend the collection of income taxes. The Curtin government was more determined. A committee comprising RC Mills, JH Scullin and EH Spooner drew up proposals for the amalgamation of Commonwealth and state income taxes for the duration of the war, with the states to be paid grants as compensation. The necessary legislation was passed in June 1942. Four states immediately challenged the validity of the acts, but the High Court unanimously upheld the two principal acts. Moreover, the majority relied on constitutional grounds that would be equally valid in peacetime. Consequently, in 1946 the Chifley government was able to ensure that uniform taxation would be permanent, despite the opposition of all the premiers. Apart from creating a simplified and more equitable tax system, uniform taxation ensured that the Commonwealth exercised greater control over public and private expenditure during the war. It also greatly augmented the financial resources of the Commonwealth. Between 1941–42 and 1945–46 income tax revenue rose from £47 million to £159 million, far exceeding customs and excise and sales tax revenues.

Economists such as LF Giblin and HC Coombs considered that the income tax base would have to be broadened if the government was to make a major contribution to re-establishment, housing, social services, public works and other services in the post-war years. They thought it likely that increased taxation would be more acceptable to low-income earners if it was accompanied by a range of non-contributory social services. On 5 February 1943 Chifley announced the creation of a National Welfare Fund that would finance new social services, including health, sickness and unemployment benefits. One quarter of income tax payments or £30 million, whichever was lower, would be paid into the fund each year. At the same time, tax rates were increased and the tax threshold lowered from £156 to £104, with the intention of increasing revenue by £40 million per annum. Unemployment and sickness benefits came into force in 1945 and pharmaceutical benefits in 1946, but in the next few years the government was still able to build up substantial reserves in the National Welfare Fund.


On a number of occasions, Chifley declared that 'the Government must accept responsibility for the economic condition of the nation'. In his view, the Commonwealth Bank played a pivotal role in determining and implementing Australia's economic policy. In March 1945 he introduced in Parliament the Commonwealth Bank Bill and the Banking Bill, which together would impose a measure of control over the entire banking system. The legislation drew on the recommendations of the 1936–37 Royal Commission on Banking and on wartime banking regulations. It also reflected the conviction of Labor ministers and parliamentarians that private banks had failed to act in the national interest during the Depression.

For the first time the Commonwealth Bank was given broad economic responsibilities and specific policy objectives: the stability of the currency, the maintenance of full employment, and the economic prosperity and welfare of the people. The legislation abolished the Board of Directors, leaving the Governor with full executive powers, and it provided a mechanism for resolving policy differences between the government and the bank. The bank was empowered to advise the trading banks on the purposes for which advances might be made, it would regulate interest rates and administer exchange control, and it would handle the banking business of all state and local authorities. In particular, the legislation maintained the wartime regulations which required licensed trading banks to lodge 'surplus investible funds' with the Commonwealth Bank (special accounts). In addition to the central bank responsibilities, the General Banking Division of the Commonwealth Bank was directed to compete vigorously with the trading banks. The two bills met with fierce opposition, mainly on the grounds that the bank would be subject to political control. However, they were proclaimed on 21 August 1945 and provided the foundation of the post-war banking system.

The 1945 banking legislation was discussed in great detail by Cabinet over seven days and it was also debated in the caucus. In contrast, when Cabinet met on 16 August 1947, there was virtually no discussion of Chifley's proposal to nationalise the trading banks. He received complete support in both the Cabinet and caucus. The decision was made three days after the High Court ruled that Section 48 of the Banking Act, which required state authorities to bank with the Commonwealth Bank, was invalid. It would appear that legal advisers had suggested there might be other weaknesses in the 1945 legislation and, in particular, Chifley feared that the sections dealing with special accounts might be challenged. The Banking Act 1947 was promptly passed, but it led to immediate litigation and an extraordinary campaign of resistance that was to continue until December 1949. In August 1948 the High Court held that the greater part of the Act was invalid and in July 1949 the Privy Council upheld the judgement.

In November 1943 Douglas Copland produced a paper for the Prime Minister on post-war economic and social policy. He argued that the aim of the government would be to establish an economy characterised by full employment, high national income and spending power. In such an economy, all factors of production would be scarce and the economy would therefore always be on the verge of inflation. The government would need to ensure that the aggregate demand did not exceed available supplies, spending power was distributed on an equitable basis, factors of production were sufficiently mobile, and the price structure was not distorted by monopoly. Certain wartime controls would need to be maintained. In general, Copland's views were shared by ministers and their advisers and even by Opposition leaders. For instance, RG Menzies asserted in 1944 that 'if, on the very day of the armistice, we were to discontinue capital investment controls, price control and rationing, and were to reduce the tax level ... this country will be flooded with increasingly valueless money inside twelve months' (Campbell, 1944, p. 179). There was a widespread fear of a short inflationary boom, as in 1919–20, followed by a severe recession, as in 1921–23. Coombs predicted that after the war purchasing power would far exceed current production and only strict control over prices, distribution and consumption would prevent inflation.

Post-war boom

As it eventuated, the post-war boom continued for several years, characterised by full employment, high export prices, rising wages, the elimination of the wartime budget deficit, favourable balances of payments, substantial sterling reserves, low interest rates and high bank advances. The government was able to dampen demand by means of price and rent control, controls on capital issues and imports, rationing, control of bank credit and limited public works expenditure. It was successful for the first two years, but from 1947 to 1949 the cost of living rose by 18 per cent. In 1949–50 the inflation rate reached 20 per cent and, following a sharp drop in wool prices, there was a major slump in 1951. The virtual cessation of price control in 1948 was a major cause of inflation. Other factors were low output in basic industries on account of shortages of coal, iron, steel and building materials; excessive expenditure on luxury goods; industrial stoppages; high incomes of wool producers and other exporters; substantial wage increases in 1947; and the introduction of the 40-hour week in 1948.

In 1945 Coombs and other economists had envisaged that, if necessary, the government would use Keynesian techniques to combat inflation. However, instead of aiming at a budget surplus, the government reduced income tax rates every year and after 1947 it increased expenditure, particularly on development projects and immigration. It also made no attempt to raise interest rates or alter the exchange rate. Although the battle against inflation remained a high priority, from 1947 the government was preoccupied with the balance of payments problems of Britain and the sterling bloc and the consequent need to reduce imports from the United States and other dollar countries to a minimum.

The major influence on economic policy in the early years of the war was the Financial and Economic Committee, which was set up as a Treasury committee in September 1939. It was chaired by LF Giblin and its members included the leading economists working for the government: Roland Wilson, JB Brigden, HC Coombs, LG Melville, Douglas Copland and Ronald Walker. They were all influenced by the writings of John Maynard Keynes. Thus they were sceptical of the idea of a self-regulating economy and believed that economic planning and fiscal policy were the most effective means of dealing with economic instability. Their memoranda and reports, which were circulated among ministers and officials, ranged over numerous subjects, from taxation and controls to Article VII and immigration.

After 1943 the formulation of economic policy often gave rise to inter-departmental disputes, especially between the Treasury and the Department of Post War Reconstruction. Treasury officials such as Frederick Wheeler were determined to maintain the supremacy of their department, but the Department of Post War Reconstruction employed a number of gifted economists who had the time and talents to engage in studies of long-term policy. In 1947 representatives of the two departments, together with the Department of Labour and National Service and the Commonwealth Bank, came together in the Investment and Employment Committee. It was chaired by Chifley and Dedman and its essential task was to ensure that public and private investment plans promoted full employment without inflation. Led by Wheeler, Trevor Swan and HP Brown, officials assembled copious data and produced annual reviews of the economy, but they exerted only a limited influence on Chifley and his ministers.

Series: A2700
Proposals for Commonwealth Bank Bill, 17 January 1945 767
Proposed Bill to regulate trading banks, 17 January 1945 768
Uniform taxation, 20 November 1945 988
Uniform taxation, 6 February 1946 988A
Review of basic wage and hours of work, 20 November 1945 992
Sterling balances, 25 February 1947 1298
Proposed reduction of income tax and social service contribution, 25 February 1947 1301A
Conservation of dollars, 15 August 1947 1376
Conservation of dollars, 2 September 1947 1376A
Nationalisation of banking: question of trustee savings banks and foreign banks, 15 September 1947 1387
Economic trends and prospects: survey by Investment and Employment Committee, 8 December 1947 1413
Australian currency as affected by world currencies, 16 February 1948 1433
Financial outlook, 16 March 1948 1443
Report on London Financial Conference, 19 August 1949 1625
Series: A3307

Agenda, minutes, memoranda, reports and correspondence of the Cabinet Sub-Committee on Investment and Employment (chair: JB Chifley).
Review of labour market, 1947 8/47
Review of general economic conditions, 1947 10/47
Prices and wages, 1948 1/48
Scope of reserve investment plans, 1948 7/48
National works reserve, 1949 18/49
Public investment and full employment policy, 1949 24/49
Attorney-General's Department
Series: A432
Continuation of uniform taxation, 1945–46
Cabinet submission (15 November 1945) by JB Chifley, agenda papers for the premiers conference (January 1946) and a letter (28 February 1946) from Chifley to the state premiers about legislation on tax reimbursements to the states.
Series: A472
Uniform taxation: constitutional powers of the Commonwealth, 1942–43
Correspondence, cables, minutes, legal opinions and draft legislation on the Income Tax (Wartime Arrangements) Act 1942, the constitutional validity of uniform taxation legislation, and the Uniform Tax Case (1942). The correspondents include HV Evatt, Sir George Knowles, FF Clausen, KH Bailey and LS Jackson.
Department of Post War Reconstruction
Series: A9790
Investment and Employment Committee: general, 1947–49
Includes a minute (21 July 1947) from AS Brown to RT Pollard on the functions and composition of the Investment and Employment Committee and subjects to be dealt with at future meetings.
Investment and Employment Committee: objectives and establishment, 1945–49
Minutes and correspondence concerning discussions between the Treasury, Department of Post War Reconstruction and Department of Labour and National Service on the establishment of the Investment and Employment Committee. The correspondents include JB Chifley, JJ Dedman, HC Coombs and AS Brown.
Investment and Employment Committee: agenda and decisions, 1947–49
Agenda and decisions (February 1947 – June 1949) of the Commonwealth Investment and Employment Committee.
Investment and Employment Committee: review of economic conditions, 1946–49 (2 parts)
Survey of general economic conditions (5 August 1947), review of economic prospects for 1948–49 (9 August 1948), review of economic policy (3 June 1949), minutes of the Working Party, and related correspondence. The correspondents include EJB Foxcroft, PJ Lawler, HC Coombs, LG Melville and FH Wheeler.
National income: Australia, 1946
Draft (May 1946) of the Australian national accounts 1938–39 to 1944–45, compiled by HP Brown in the Bureau of Census and Statistics.
Private investment: policy, 1946–49
Statistics of private investment, analysis of output and employment in manufacturing industries, memoranda, correspondence and minutes on the prospects of manufacturing industries, trends in factory output and employment, British investment in Australia, and measures to induce non-cyclical private investment. The correspondents include HC Coombs, TW Swan, JK Jensen and GPN Watt.
IDC on Prices and Subsidies, 1947–48
Memoranda and correspondence concerning price control, price subsidy policy, subsidies and rationing. The correspondents include HC Coombs, AS Brown, CL Hewitt, EJ Bunting, PW Nette and ME McCarthy.
Discussions on post-war prices policy, 1942–47
Reports, memoranda and correspondence on price stabilisation, post-war price control, construction costs, and the 1948 referendum on rents and prices. The correspondents include HC Coombs, GG Firth, BW Hartnell, DB Copland and RI Downing.
Basic wage investigations, 1945–46 (3 parts)
Draft report (11 April 1946) of the inter-departmental committee on the economic and financial effects of ACTU claims (chair: R Wilson), memoranda, correspondence and notes on hours of work and the basic wage, wages policy and price stabilisation. The correspondents include HC Coombs, AS Brown, GG Firth, TW Swan, NF Stuart, FH Wheeler and R Wilson.
Taxation policy, 1948–49
Minutes and memoranda on taxation reform and a survey of problems associated with taxation.
Banking legislation, 1945–47
Includes notes (2 September 1947) by HW Arndt on the proposed nationalisation of Australian trading banks.
Inflationary trends, 1947–49
Correspondence and memoranda on inflationary trends in Australia and overseas.
Series: A9816
Research on internal subjects: banking, 1942–45
Includes notes by GG Firth and HP Breen on the 1945 Commonwealth Bank Bill and Banking Bill and correspondence (March–April 1945) between JJ Dedman and the Australian Bank Officials Association.
Research on internal subjects: economic fluctuations in Australia, 1943
Includes a letter (14 January 1943) from NB Butlin to TW Swan on proposed research on public investment and employment in Australia following the 1938 recession
Price stabilisation, 1945–47 (2 parts)
Memorandum (2 October 1945) by DB Copland on liquidity control and correspondence and minutes concerning price stabilisation, import subsidies and rulings.
White Paper: conference of economists (Commonwealth Bank), 1943
Record of a meeting of government economists (8–9 November 1943) organised by LG Melville at the Commonwealth Bank. There are also several memoranda on estimated national income, liquidity, private investment and other aspects of post-war financial policy by Melville, LF Giblin, HP Brown, DB Copland, GG Firth and JF Nimmo.
Taxation and the economy, 1948
Notes on taxation and the economy compiled for the use of ministers by RJ Randall of the Treasury and related correspondence.
Financial and Economic Committee
Series: CP184/3
Financial and Economic Committee correspondence, 1940–43
Draft notes of meetings of the Financial and Economic Committee and correspondence of LF Giblin and the Secretary (EJR Heyward, FH Wheeler) regarding meetings, distribution of papers and matters raised by the committee.
Series: CP184/4

Minutes and notes of meetings (September 1939 – September 1943) of the Financial and Economic Committee (chair: LF Giblin) and related correspondence.
Series: A571
Social services in Australia: National Welfare Fund, 1943–52 (2 parts)
Correspondence, minutes, notes, speeches and extracts from Hansard on the establishment of the National Welfare Fund, financing of social services, changes to the National Welfare Fund in relation to benefits in kind, and the merging of income tax and the social service contribution in 1950. The correspondents include JB Chifley, HJ Goodes and FH Rowe.
Notes of meetings of the Uniform Taxation Committee, 1942
Notes of meetings (February–April 1942) of the Uniform Taxation Committee (RC Mills, JH Scullin, ES Spooner).
Uniform tax plan, 1943
A statement (9 August 1943) by JB Chifley on uniform income tax and newspaper articles criticising the implications of uniform taxation for Victorian taxpayers.
Proposed banking legislation: policy, 1944–47 (2 parts)
Draft Cabinet submissions, correspondence, minutes and parliamentary questions concerning the 1945 Commonwealth Bank Bill and the 1945 Banking Bill, discussions with the Commonwealth Bank Board, powers needed by a central bank, the separation of central and trading bank functions, the regulation of trading banks, nationalisation of banking, special accounts procedures, exchange control, housing loans and wartime banking controls. The correspondents include JB Chifley, SG McFarlane, FH Wheeler, PW Nette, Sir Claude Reading, HT Armitage and Sir George Knowles.
Proposed bank for industrial development in Australia, 1944–45 (2 parts)
Correspondence, memoranda and a draft report on long-term finance for industry, a proposed Australian Bank for Industrial Development, and the Industrial Finance Department of the Commonwealth Bank. The correspondents include FH Wheeler, HC Coombs and BW Hartnell.
Charter for the Commonwealth Bank, 1945
Drafts by SG McFarlane and FH Wheeler of a charter for the Commonwealth Bank and minutes and memoranda on the functions of the bank, possible divergence of views between the government and the bank, and possible political domination of the bank.
Post-war taxation: policy, 1944–47
Includes memoranda and minutes (September–October 1944) by FH Wheeler, HP Brown, LF Giblin, GG Firth, JF Nimmo and BW Hartnell on taxation policy, tax reductions, taxation of private companies, and taxation and the development of industry.
Banking Bill 1945: clause 48, 1945–47
Correspondence, minutes and extracts from Hansard concerning the capacity of the Commonwealth Bank to handle accounts of state authorities, directions given to state and local authorities, the gazettal of notices under Section 48 of the Banking Act 1945, and action taken in 1947 by the Melbourne City Council in the High Court. The correspondents include JB Chifley, PW Nette, FH Wheeler, HT Armitage and SA Bryson.
Report by JH Scullin on uniform taxation, 1945–46
Drafts of the report (November 1945) by JH Scullin and NE McKenna on uniform taxation, correspondence, memoranda, notes and newspaper cuttings on arguments for and against uniform taxation, reimbursement grants payable to the states, discussion with the states, and expenditure on social services. The correspondents include JB Chifley, NE McKenna, SG McFarlane, FH Wheeler, WJ McKell and other state premiers.
1945/3202 Pt 1
Wages policy: economic and financial implications of ACTU claims, 1945–48 (2 parts)
Minutes and report (31 May 1946) of the inter-departmental committee on the economic and financial effects of ACTU claims (chair: R Wilson), correspondence, memoranda and newspaper cuttings on price, wage and cost effects of a 40-hour week, wage control, the principles of wage fixation, wage policies in other countries, productivity and the basic wage, and price stabilisation. The correspondents include JB Chifley, FH Wheeler, RJ Randall, SP Stevens and R Wilson.
Commonwealth Bank Act 1945: Industrial Finance Department, 1945–55 (2 parts)
Memoranda on the provision of initial capital to companies and rates of interest, correspondence, and progress reports of the Industrial Finance Department of the Commonwealth Bank.
Investment and employment policy: Commonwealth machinery, 1946–50
Minutes of an inter-departmental meeting (12 August 1946) on employment and loan policy (chair: SG McFarlane), correspondence and notes on proposed government machinery to deal with employment and investment policy, and membership of the Commonwealth Investment and Employment Committee. The correspondents include JB Chifley, JJ Dedman, FH Wheeler, RJ Randall and TW Swan.
Commonwealth Bank Act, 1945
Statements (October 1945) on Commonwealth Bank Act 1945 and Banking Act 1945 drafted by FH Wheeler.
Dr Coombs' evidence in 40 hour week case, 1946
Draft of evidence of HC Coombs to the Arbitration Court in the 40-hour week case, including appendices and comments (13 August 1946) by SP Stevens.
Proposed amendments to the 1945 Commonwealth Bank Act, 1947–50
Correspondence, minutes, draft legislation and parliamentary debates on proposed amendments to the Commonwealth Bank Act, export credits insurance proposals, and rural credits. The correspondents include GPN Watt, PW Nette, WE Dunk, HT Armitage and EB Richardson.
Investment and Employment Committee: Committee Secretary's file documents, 1947–49 (7 parts)
Minutes of meetings of the Investment and Employment Committee (chair: JB Chifley), correspondence, and memoranda and submissions by government departments and other agencies. The subjects include the national economic survey, the works program, the direction of private investment, coal supplies and allocations, the labour market, reserve investment plans, stabilisation of incomes of primary producers, anti-inflationary measures, export income estimates, and measures to end bottlenecks in basic industries.
Investment and Employment Committee Working Committee documents: Secretary's file, 1947–49 (12 parts)
Minutes of meetings of the Working Party (chair: FH Wheeler), submissions from departments and other agencies, correspondence, and minutes from Wheeler to JB Chifley and JJ Dedman.
Nationalisation of trading banks legislation: 1947 Banking Bill, 1947–49
Correspondence, speeches, parliamentary debates and newspaper cuttings concerning the 1947 Banking Bill, views of the Commonwealth Bank and the Attorney-General's Department, the constitutional feasibility of the bill, and the position of overseas banks. The correspondents include JB Chifley, HV Evatt, GPN Watt, FH Wheeler, HT Armitage and MC Boniwell.
Nationalisation of trading banks: acquisition of assets and shares, 1947–48
Correspondence, cables and notes regarding the assets and liabilities of Australian banks in New Zealand, the purchase of shares of trading banks, and the 'assets approach' versus the 'share and management' approach. The correspondents include PW Nette, HT Armitage and EB Richardson.
Australian policy in relation to the dollar problem, 1948–49
Minutes of inter-departmental meetings (August–September 1948) on long-term dollar policy (chair: HC Coombs), correspondence, minutes and memoranda on the world dollar problem, British balance of payments problems, trade diversion, long-term planning in the United Kingdom and exports to dollar countries. The correspondents include JB Chifley, FH Wheeler, JF Nimmo, HT Armitage, HC Coombs, E McCarthy and JJ Kennedy.
London Financial Conference, 1949 (4 parts)
Minutes of meetings (13–18 July 1949) of Commonwealth Finance Ministers (chair: Sir Stafford Cripps), impressions of the conference by FH Wheeler, and correspondence, minutes, reports and notes on the dollar problem, a possible approach to the International Monetary Fund, British balance of payments problems, Australian and the sterling area system, and cuts in dollar imports. The correspondents include GPN Watt, FH Wheeler, HR Woodrow, JF Nimmo, HC Coombs and JA Tonkin.
Commonwealth Bank Act 1945: legislation, 1944–58 (2 parts)
Correspondence, minutes, notes and draft speeches about the 1945 Commonwealth Bank Bill, amendments suggested by the Commonwealth Bank, the Industrial Finance Department, the Note Issue Department, the abolition of the Bank Board, regulations, and the appointment of the Advisory Council. The correspondents include SG McFarlane, FH Wheeler, LA McWatters and EB Richardson.
Banking Act 1945: general, 1944–59 (4 parts)
Correspondence, minutes, notes, draft speeches and press statements about the 1945 Banking Bill, special accounts, exchange control, the definition of 'banking business', Opposition amendments, and regulations. The correspondents include JB Chifley, SG McFarlane, FH Wheeler, PW Nette, LG Melville, EB Richardson and Sir George Knowles.
HC Coombs
Series: M448
Forty hours week: evidence, 1946
Evidence of HC Coombs on the economic effects of a 40-hour week prepared for the Arbitration Court hearing (August 1946).
The White Paper, 1945–48
Includes the draft and published version of a paper by Coombs on Australia's ability to avoid booms and slumps, presented to the Economic Society of Australia and New Zealand in Sydney in May 1948.
Sir Douglas Copland
Series: CP6/1
Reconstruction: financial, 1943–44
Financial and Economic Committee memoranda on post-war finance and national income, including papers by HP Brown, JF Nimmo, LG Melville and LF Giblin.
AC Joyce
Series: CP184/2
Banking, 1945
Includes a review of profits and investments of trading banks (3 January 1945), a summary of press criticism of the banking legislation (15 March 1945) and an extract from a letter (10 August 1945) from FH Wheeler to Joyce about the banking legislation.

Further reading

Butlin, SJ and Schedvin, CB, War Economy 1942–1945, Australian War Memorial, Canberra, 1977.

Coombs, HC, 'Australia's ability to avoid booms and depressions', Economic Papers, no. 8, 1948, pp. 36–53.

Cornish, Selwyn, 'The Keynesian revolution in Australia: fact or fiction?', Australian Economic History Review, vol. 23, no. 2, 1983, pp. 42–68.

Howard, Michael, The growth in the domestic economic and social role of the Commonwealth Government from the late 1930s to the early post-war years: some aspects, PhD thesis, University of Sydney, 1978.

Maddock, Rodney and Penny, Janet, 'Economists at war: the Financial and Economic Committee 1939–44', Australian Economic History Review, vol. 23, no. 1, 1983, pp. 28–47.

Schedvin, CB, In Reserve: central banking in Australia, 1945–75, Allen & Unwin, Sydney, 1992.

Smyth, Paul, Australian Social Policy: the Keynesian chapter, UNSW Press, Sydney, 1994.

Walker, E Ronald, The Australian Economy in War and Reconstruction, Oxford University Press, New York, 1947.

Watts, Rob, The Foundations of the National Welfare State, Allen & Unwin, Sydney, 1987.

Whitwell, Greg, The Treasury Line, Allen & Unwin, Sydney, 1986.