Labor can’t manage the economy, right? The claim by Dutton and co doesn’t stand up

One does get weary of Liberals weaponising the Whitlam government’s economic record – they’ve been doing it for almost half a century.

When the Albanese government announced plans to purchase the embattled Rex Airlines and Whyalla steelworks, right on cue Peter Dutton labelled the plan “Whitlam-esque”. Last November shadow treasurer Angus Taylor called the Albanese government “the weakest and most incompetent since the Whitlam government” following a Reserve Bank report on spending.

Labor prime ministers Bob Hawke, Paul Keating and Gough Whitlam at Kevin Rudd’s campaign launch in 2007.Credit: Paul Harris

Dutton and Taylor can trot out such smears because Labor’s enemies, including the likes of John Howard, spent decades reinforcing a narrative that Whitlam’s government was an “economic disaster”. The myth has stuck because it’s impossible to fit a truthful rebuttal into a soundbite.

Historical polling shows economic management is always front and centre of voters’ minds. But the accepted wisdom is that Liberals are better at it, which disadvantages Labor when there’s an election on the horizon and voters are feeling the pinch.

Fifty years ago inflation was peaking at 17.6 per cent and unemployment was rising to its highest level since the Great Depression. Gough Whitlam was Labor’s first PM for 23 years, but decades of post-war boom meant Australians were unaccustomed to economic gloom.

In the election immediately after Whitlam’s infamous 1975 dismissal, Malcolm Fraser’s Coalition won in a landslide after he promised to “turn on the lights”.

Fraser was still banging on about Whitlam’s spending habits when I interviewed him in the early 2010s. He had a point. Spending rose 20 per cent in Whitlam’s first year and 16 per cent in his second.

But federal government spending never returned to pre-Whitlam levels, says John Hawkins, a former secretary of the Senate economics committee and Reserve Bank economist.

“Fraser and co were giving the impression they would quickly reverse the spending increase, but it never happens. Not under Fraser, not under Howard, not under Abbott,” Hawkins says.

“That suggests it wasn’t just waste and extravagance. People actually wanted sewerage in the outer suburbs and things like this.”

Credit: Matt Davidson

Whitlam’s trademark reform was Medibank, precursor to the Medicare system Dutton is now promising to spend billions on.

A class-based prejudice historically caused voters to doubt Labor’s economic credentials because it was the worker’s party, suggests Paul Strangio, emeritus professor of politics at Monash University.

“Right-of-centre parties are seen as the party of business and this feeds a perception of them as superior economic managers,” Strangio says.

There’s little doubt the Whitlam government made mistakes, not least of all the scandalous attempt to raise loans through Pakistani money lender Tirath Khemlani (although the loans never materialised).

But in retrospect, the Whitlam government’s economic record compares favourably with other countries at the time. Global economic meltdown caused double-digit inflation in Japan, Italy, the US, France, and Canada. It hit 24 per cent in the UK.

“The post-war economic order was collapsing and the established verities of policymaking were no longer working,” Strangio says.

The 1971 collapse of the international monetary system was followed by the 1973 oil shock. With it came stagflation, the virtually unprecedented phenomenon of rising unemployment and high inflation.

“High unemployment would suggest you should lower interest rates and expand government spending, but high inflation suggests you should do the opposite,” says Hawkins.

The Whitlam government attacked inflation by revaluing the dollar and raising interest rates. It reduced tariffs by 25 per cent (a very un-Labor idea at the time) and introduced the landmark Trade Practices Act, which outlawed price fixing and other unfair business practices.

Inflation was already trending down by Whitlam’s dismissal, but it hadn’t fallen all that much by the end of the Fraser government, says Hawkins.

Dutton and Taylor may be surprised to learn net government debt was in the black under Whitlam. Two out of three budgets were in surplus, based on the underlying cash balance – the standard fiscal indicator since the late 1990s. Six out of seven were in deficit under Fraser and treasurer John Howard.

Not that deficits are necessarily a bad thing. Hawkins says they’re necessary when the economy needs stimulating, it’s just that the public has been trained to believe it’s a sign of fiscal irresponsibility.

In the mid-’90s Howard was back on deck as prime minister, just as global prosperity and booming commodity prices began to fill the economy’s sails and the government’s coffers.

“He ran budget surpluses and managed to sell the idea that was an indication of good economic management,” Hawkins says.

Strangio thinks this period further cemented the view that Liberals make better economic managers. Howard took the important steps of consolidating the budget and introducing the GST, he says. “But in the later stages of its term it was spending profligately on middle-class welfare and measures that entrenched privilege.”

The Albanese government’s record looks solid given it kickstarted wage growth while keeping inflation below the OECD average. Yet the bounce in the polls they craved didn’t materialise when the Reserve Bank finally cut interest rates.

“People ignore or don’t care that these kinds of economic shocks affect the whole world, and they blame it on the federal government,” Hawkins says.

“Politicians have themselves to blame, partly because they always take credit when international factors cause the economy to do well. So it’s perhaps not surprising that they think you’re responsible when the economy is going badly.”

To be fair, Labor governments often arrive when things are already going south. The Scullin government was sworn in as Wall Street crashed, heralding the Great Depression. Whitlam copped the first oil shock, while Rudd was greeted by the Global Financial Crisis.

Albanese arrived as post-COVID inflation spiralled around the globe. But the worst seems to be over, and it’s his job to draw the nation’s gaze to the government’s strengths. Unfortunately for Labor, he’s no silver tongue. And so long as the topic remains economic management, he’ll always be starting from a deficit in voters’ minds.

Gary Newman is the director and producer of How to Capture a Prime Minister. He was previously a policy advisor and journalist.

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