Watt came under considerable pressure from his party to transfer to the Commonwealth Parliament, as he was widely seen as the natural successor to Alfred Deakin as leader of the Liberal Party—Watt would be unable to take up the position on Deakin’s retirement unless he was in the federal parliament. So in 1914 he ran for the very safe conservative seat of Balaclava, based in the Melbourne suburb of Sandringham, and easily defeated the then young Labor candidate John Curtin. Nationally, however, Labor easily defeated the government of Sir Joseph Cook, and Andrew Fisher again became prime minister as Australia marched towards World War I.
From within the opposition, Watt stridently supported the war effort and argued for conscription. He got himself into difficulty by accusing the pacifist Labor MP Frank Brenan of being a ‘pigeonlivered’ coward. Brenan then said he would enlist to fight if Watt would do the same, and subsequently turned up at the recruiting office—Watt did not. This caused Watt a lot of embarrassment, as he was not beyond the age of recruitment and was without ministerial responsibilities. He was only partially saved from charges of hypocrisy when the pro-conscription Holman said that Watt’s most effective contribution to the war effort would be in parliament and not on the front line.
In 1915 Fisher resigned the prime ministership, feeling the pressure of wartime leadership. His deputy, Billy Hughes, was unanimously elected by the parliamentary Labor Party as his replacement. Hughes was an enthusiastic proponent of the maximum war effort, and in 1916 he reached the view that conscription was a vital element of a total commitment to winning the war. But Hughes could not get parliamentary approval for conscription and therefore called a referendum, which he narrowly lost. Hughes’ fervent support for conscription pitted him against his own party and led to the Labor Party expelling its leader and the sitting prime minister. He initially formed a Cabinet of supporters who followed him out of the Labor Party, but it was clear that a more stable government was needed.
Watt played an important though not pivotal role in the negotiations between Hughes and the Liberal Party opposition that led to the formation of the Nationalist Party. Despite his misgivings about Hughes’ management style, Watt formed the view that it was best for the incumbent wartime prime minister to continue in the office, and he stared down efforts by former Western Australian premier Forrest, Liberal politician James Cook and former Victorian premier Sir William Irvine to seize the prime ministership for themselves, decreeing that he and his supporters would only join the government if Hughes’ tenure continued.
Forrest had become famous as an explorer of Western Australia’s interior and had been the state’s first premier, as well as its only premier as a self-governing colony. His ten years as premier had seen Western Australia grow rapidly as he adopted the model of large public works projects and aggressive land release. He was also one of the fathers of Federation, having delivered Western Australian support for it and participated in the constitutional conventions. He’d entered the federal parliament in 1901 and had held a range of portfolios, including that of treasurer three times. So while prime minister Hughes recognised Watt’s abilities and preferred to make him his treasurer, a personality as large and popular as Forrest was too hard for him to resist. Watt had to settle for a lesser role, joining the Cabinet as minister for works and railways. He was responsible for the completion of the transcontinental railway and legislated for its sensible harmonised regulation across state boundaries.
When Hughes lost a second referendum on conscription, he kept a promise made during the referendum campaign and tendered his resignation to the governor-general, Sir Munro Ferguson, who promptly sought the counsel of senior ministers. Watt advised him not to call on treasurer Forrest to form an administration, despite Forrest making it clear he was available to serve, but instead to ask Hughes and the existing ministers to carry on. The governor-general accepted this advice, and the outgoing members of the Cabinet were all sworn in again.
By this time, Forrest was ailing and Watt was growing increasingly frustrated with the treasurer’s stewardship of the government’s finances. The two had clashed over the proposed establishment of a National Debts Commission when Watt was Victorian premier as well as on a number of occasions after Watt’s ascension to the Cabinet. So Watt privately urged Hughes to remove Forrest. No doubt Watt knew he would likely be called upon to take the office if Forrest was moved on, but he was also genuinely perturbed at Forrest’s administration of the Treasury portfolio.
Hughes, with Watt’s agreement, hit upon an ideal solution to this conundrum. On 6 February 1918, it was announced that King George V, on the advice of prime minister Hughes, was elevating the treasurer to Baron Forrest of Bunbury in the Commonwealth of Australia, making him the first of three Australian treasurers to be ennobled—the others were Stanley Melbourne Bruce, who became Viscount Bruce of Melbourne, and Richard Casey, who became Baron Casey of Bengal and Berwick. Forrest resigned the Treasury portfolio and sailed for London to take his place in the House of Lords. He never made it, however, dying of cancer of the temple en route. Watt was subsequently commissioned as federal treasurer in March 1918.
A Careful Administration
Watt had been treasurer for a month when Hughes left for Europe to represent Australia in discussions about planning for postwar peace. Hughes would not return for seventeen months, making Watt Australia’s longest-serving acting prime minister. As economic historian John Hawkins points out,
