Watt brought a sense of careful administration to the government. Cabinet meetings became more regular, and there was full discussion of every item and the careful recording of decisions. This was a considerable change from Hughes’ more relaxed Cabinet processes.
Watt now had to manage the huge increase in costs to the government that had accompanied the war, which would last many years. Watt was deeply worried that the return of thousands of ex-servicemen combined with the end of munitions production would lead to an economic downturn. He was also rightly concerned that the money in the international debt markets would be very tight in the immediate postwar years, and that the funds raised through bond sales during the war would only keep the government financed for a finite period of time. Watt decided that tough fiscal measures were needed. In addition, even though the war was ending, he wanted to keep as many of the wartime economic controls in place as possible, in order to maximise the financial levers at his disposal. The War Precautions Act 1914, with its powers over the pooled marketing of produce and shipping activities, was continued into 1920. The maintenance of restrictions on selling rural produce and of price controls on staples such as meat were significant factors in the rise of the nascent Country Party at this time.
Watt also embarked on a series of measures to reduce spending and increase revenue. A royal commission into potential expenditure cuts was established in 1918, a forerunner of the modern commissions of audit sometimes called up to fulfil the same role. Meanwhile, Watt imposed tax increases that were punishing by any measure: a 30 per cent increase in personal income tax and a 20 per cent increase in land tax, accompanied by increases in postage charges and customs and excise.
As Watt dealt with these issues throughout 1918 and 1919, the challenges created by Hughes’ absence were greater than those that would normally be posed by a travelling prime minister. The prime minister and his treasurer quickly came to long-distance blows.
Hughes vs Watt
It is clear that a proper conversation did not take place between Hughes and Watt about the processes for managing decision-making during the prime minister’s absence. Hughes was dealing with big issues: he demanded a place for Australia at the peace-negotiations table, rather than being represented by the British Government; he wanted punishing reparations to be paid by the Germans to cover the war costs incurred by the Allies; and he was aggressive in pursuing Australian territorial claims in the Pacific (for example, asserting sovereignty over New Guinea and Nauru). However, while this was the agenda of prime minister Hughes, it was not necessarily that of his Cabinet. There had been no discussion of Australia’s negotiating strategy before Hughes’ departure, and the Cabinet members, led by Watt, were increasingly alarmed about what they read in the press about Australia’s position. In addition, as well as wanting autonomy in representing Australia overseas, Hughes demanded that the Cabinet communicate its decisions to him in London for final approval before implementation. By contrast, Watt took the strong view that apart from policy areas that the Cabinet had specifically considered and decided to delegate to Hughes, all others areas remained his responsibility as acting prime minister, together with the Cabinet.
Watt’s position in this dispute was partly motivated by his longstanding support for the principle of Cabinet government. As premier and acting prime minister, he was an inclusive and consultative chair of Cabinet. However, it is difficult not to conclude that he was also motivated by a desire for status and a fundamental mistrust of his prime minister’s motives and judgement. It did not take long for the telegram traffic between Melbourne and London to bristle with tension.
Watt was polite enough at first. He had been suspicious of the fact that Hughes had sailed for England with Sir Denison Miller, governor of the Commonwealth Bank, on board his ship, making him think that Hughes was attempting to conclude some sort of financial deal behind his back.11 On 24 May 1918, he cabled Hughes: ‘Re finance, hope you will not mind me suggesting you not do anything involving finance on a large scale without consulting me.’
By June, Hughes was expressing frustration that the Cabinet was making decisions without sending them to him for approval. He sent the following message after learning of the Cabinet’s decision to extend Australia’s wool-buying agreement with the United Kingdom to a year beyond the close of the war:
I have received no cables from you since my departure from America. Should be glad to be kept closely in touch with the Government action and policy. Most embarrassing to learn of the things done by columns in the English press. I suggest, in order we may be able to represent Australia effectively, all important decisions of Cabinet be communicated to me before action is taken unless subject matter is such as precludes delay.
This was not in Hughes’ remit for the negotiations. For the Cabinet, making such a decision was a reasonable exercising of its powers. However, given the overwhelming importance of wool exports to the Australian economy of the day, and given Hughes was on his way to the United Kingdom when the negotiations were concluded and announced, it does seem remarkable that Watt didn’t even inform Hughes about his intentions, let alone consult him.
Three days later, Watt stopped hiding his frustration with his leader, replying by cable: ‘Astonished at your suggestion that important decisions of Cabinet be communicated to you before any action is taken. I think you must trust
