Treasury's transition from bookkeeper to economic policy adviser
Over the first 50 years of Australia’s federation, from 1901 to 1951, Treasury went through a transformation from bookkeeper to economic policy agency, as it tracked the developing needs of the new commonwealth government.
Treasury’s early role
Treasury was one of seven Commonwealth Public Service departments established at federation in 1901. Its initial purpose was quite limited, with its staff of five to be the bookkeeper and budget manager for the new commonwealth government – working with the state treasuries. The constitution, however, conferred the key economic and taxing powers on the commonwealth government and over time this would underpin its, and Treasury’s, growing prominence.
Treasury’s expansion beyond its bookkeeper and budget manager role initially came with the progressive establishment of the commonwealth government’s institutional infrastructure. The Federal Audit Office was established in 1902, the Commonwealth Bureau of Census and Statistics in 1906, commonwealth coins were first issued in 1910 and notes in 1913, a tax office was established in 1910, the age pension commenced in 1909 and the Commonwealth Bank was created in 1912. Oversight of these functions gave Treasury a substantial administration role in the government.
Australia’s involvement in WW1 presented the government with its first great challenge, including how to finance the war effort. The financing was managed through increases in both revenue, with a temporary income tax, and debt, with the first commonwealth public bond issue in 1915. After the war, the National Debt Commission was established in 1923 and the Loans Council in 1927 to manage the repayment of debt and future borrowing arrangements – and this would be a focus for Treasury for some decades.
Treasury’s role in the Depression and its Keynesian aftermath
By the time Treasury moved, with the government, from Melbourne to Canberra in 1927 it had substantial budget and administration responsibilities. It did not, however, have an economic advising capacity and this was exposed in the Great Depression. The government was instead dependent on external advisers who were divided between those who sought to stimulate the economy (the reflationists) and those that sought to balance the budget (the deflationists). Ultimately the policy responses were confused and ineffective.
In the aftermath of the Depression, Treasury set about establishing an economic capacity with some notable appointees such as Lyndhurst Giblin, Sir Roland Wilson, Nugget Coombs, Sir Frederick Wheeler and Sir Richard Randall arriving as the Keynesian debate about macroeconomic management unfolded. The Treasury advisers were, however, on the whole relatively ‘reluctant’ Keynesians, being more concerned about budget and debt management and economic policies that supported the long-run growth potential of the Australian economy. The vanguard for Keynesianism in Australia was elsewhere, including Coombs who returned to the central bank.
Treasury in the post-war period
Australia’s involvement in WW2 presented the government with another great challenge, again including how to finance it. And again, both additional revenue and debt were required with the commonwealth taking over income tax from the states and issuing large volumes of public bonds – each demanding a central role of Treasury.
In the post-war period the commonwealth government retained an expanded role with its responsibilities for returning soldiers, a growing welfare state and some (limited) ‘Keynesian’ management of the economy. This meant a growing role for Treasury, both in its budget management and economic policy roles.
Treasury was also taking a more international role as part of the post-war Bretton Woods arrangements, including the establishment of the IMF and the World Bank as well as the fixed exchange rate regime that was agreed.
Treasury in two dimensions
In the post-war period, then, Treasury was effectively developing two functions. In addition to its budget and administration responsibilities it was nurturing a growing responsibility for economic management.
This economic policy advising role was cemented with the appointment of Sir Roland Wilson as Treasury secretary in 1951 – the first economist to hold that position. Wilson would remain as Treasury’s longest-serving secretary, through the golden years of the Menzies government.