Great Depression in Australia - Lyons Government

Lyons Government

The stance of Joseph Lyons and James Fenton against the more radical proposals of the Labor movement to deal the Depression had attracted the support of prominent Australian conservatives, known as "the Group", whose number included future prime minister Robert Menzies. In parliament on 13 March 1931, though still a member of the ALP, Lyons supported a no confidence motion against the Scullin Labor government. The United Australia Party was then formed from a coalition of citizens’ groups and with the support of the Nationalist Party of Australia. Lyons quit the ALP to become parliamentary leader of the newly established United Australia Party, with John Latham, Nationalist Leader of the Opposition, becoming the new party's deputy leader.

In November 1931, Lang Labor dissidents chose to challenge the Scullin Labor government and align with the United Australia Party Opposition to pass a ‘no confidence’ and the government fell. At the consequent election on 19 December, Labor lost all but 14 of its seats, and the United Australia Party commenced its first term in government in January 1932.

Before being voted out of office, the Scullin government had covered NSW's debt default. The federal government had paid NSW's bond installments and intended to recoup this money from the NSW Government. A dramatic episode in Australian history followed Lyons first electoral victory. When NSW Premier Jack Lang refused to pay interest on overseas State debts, the Lyons government stepped in and paid the debts and then passed the Financial Agreement Enforcement Act to recover the money it had paid. In an effort to frustrate this move, Lang ordered State departments to pay all receipts directly to the Treasury instead of into Government bank accounts. The New South Wales Governor, Sir Philip Game, intervened on the basis that Lang had acted illegally in breach of the state Audit Act and sacked the Lang Government, who then suffered a landslide loss at the consequent 1932 state election.

Australia recovered relatively quickly from the financial downturn of 1929-1930, with recovery beginning around 1932. Prime Minister Joseph Lyons was the leader responsible for stewarding Australia out of this difficult period. Lyons favoured the tough economic measures of the Premiers' Plan, pursued an orthodox fiscal policy and refused to accept NSW Premier Jack Lang's proposals to default on overseas debt repayments. Australia entered the Depression with a debt crisis and a credit crisis. According to author Anne Henderson of the Sydney Institute, Lyons held a steadfast belief in "the need to balance budgets, lower costs to business and restore confidence" and the Lyons period gave Australia "stability and eventual growth" between the drama of the Depression and the outbreak of the Second World War. A lowering of wages was enforced and industry tariff protections maintained, which together with cheaper raw materials during the 1930s saw a shift from agriculture to manufacturing as the chief employer of the Australian economy - a shift which was consolidated by increased investment by the commonwealth government into defence and armaments manufacture. Lyons saw restoration of Australia's exports as the key to economic recovery. A devalued Australian currency assisted in restoring a favourable balance of trade.