If Anthony Albanese becomes the next PM, he faces the same economic woes confronted by Gough Whitlam in 1972

Anthony Albanese faces difficult economic challenges should he be elected Australia’s next PM. Picture: Justin Lloyd

On December 5, 1972, Gough Whitlam became the 21st Prime Minister of Australia.

Almost 50 years later, in 2022, the opinion polls are telling us that voters will elect Anthony Albanese as Australia’s 31st Prime Minister.

What alarms me is that the economic challenges Albanese looks set to face are close to a mirror image of those that confronted Whitlam. He made changes to the social fabric of the nation but his government could not handle the economic issues. Given the similarities between 2022 and 1972 both parties can profit for examining the Whitlam mistakes but the exercise is particularly important for the ALP.

This commentary is not about politics and who should be Prime Minister but an alert to both parties of the dangers ahead as we go through the eerie parallels between 1972 and 2022.

In March 1971, Billy McMahon toppled John Gorton as Prime Minister. Around the same time Whitlam was preparing an ambitious spending agenda directed towards social issues. The Vietnam War had caused massive US spending and inflation. President Nixon tried to stabilise inflation with a prices and wages freeze which did not work.

In Australia with the 1972 election approaching McMahon ignored the fact that inflation had jumped from the 1969 level of 3.0 per cent to 5.7 per cent in 1971. Instead of restraint, McMahon and his Treasurer Billy Sneddon in March 1972 embraced a massive stimulus program including lower taxes and higher pensions. Whitlam did not realise the dangers of super imposing his agenda on an already over stimulated economy.

Accordingly when Australia decided “it was time” it elected an ALP government demanding even greater spending plus higher wages so workers could catch up. And the ACTU was headed by arguably the best higher wages advocate we have ever experienced – Bob Hawke.

Into that cauldron of economic dangers came a huge boost in oil prices, in the wake of the 1973 Arab-Israeli war.

The ALP and Hawke achieved their “objectives” – wages exploded between 40 and 50 per cent between 1973 and 1974 and the CPI increase exceeded 15 per cent.

Skyrocketing government wages plus the ambitious programs saw government spending jump by around 75 per cent in the 1973-74 period. Whitlam recognised the inflationary dangers of his actions and increased the value of the Australian dollar, lowered tariffs, increased taxes and established a prices justification tribunal. None of those actions were effective against the wage stimulation and high government spending. Mortgage rates hit nine per cent in 1975.

Surely that could not happen again.

Fast forward those 50 years. We are running unprecedented government deficits as a result of the Covid measures.

A badly advised Reserve Bank board kept stimulating the economy even though the CPI December 2021 annual rate rose above five per cent (remember 1971); US inflation is around 8 per cent; oil prices have since jumped 1973 style.

Salaries and wages of skilled people have risen spectacularly. But even though unemployment has slumped and is now approaching 1972 levels (it took 50 years), the vast rump of Australian semi skilled and unskilled workers have received only token extra rewards. Given the exploding rates of inflation they are actually experiencing real pay cuts. They are understandably furious and blame the Coalition government for their plight.

They appear to see Albanese as their only hope but if Albanese tries to “remedy the injustice” he will be in grave danger of creating a Whitlam style upward wage spiral leading to higher inflation and mortgage interest rates that are much higher than current levels.

And because home mortgage lending is on a far larger style than in 1972, the consequent increases in interest rates will devastate large areas of the community.

US inflation is rising even faster than Australia so US interest rates are on the rise which will add to local forces.

One technique the Whitlam government used to boost overall wages was to start lifting salaries of government employees.

And so its no surprise that in 2022 that movement has already started. The Health Services Union and the Australian Nursing and Midwifery Federation have asked the Fair Work Commission for pay rises of 25 per cent – repeat 25 per cent! – for more than 200,000 workers, arguing pay rates in aged care don‘t meet the Fair Work Act’s requirement for a “safety net of fair minimum wages”.

Whitlam style, Albanese says he will make a submission to Fair Work supporting an increase in pay for aged care workers if he wins the election. Albanese does not specify an amount but in an election campaign he may be forced to set a policy.

What is decided in aged care workers will spark claims for similar rises across the public service and beyond. That’s how it started in 1972.