Premiers' Plan

The Premiers' Plan was a deflationary economic policy agreed by a meeting of the Premiers of the Australian states in June 1931 to combat the Great Depression in Australia which sparked the 1931 Labor split.

The Great Depression in Australia saw huge levels of unemployment and economic suffering amid plummeting export income. Although the economic downturn was a product of international events, Australian governments grappled with how to respond. Conventional economists said governments should pursue deflationary policies. Radicals proposed inflationary responses and increased government spending. The Scullin Labor Government had won office in 1929 in time to face the full force of the global crisis—the ‘Wall Street crash’ took place in the first week of his government. Division emerged within the Labor government over how to respond.

Scullin invited Sir Otto Niemeyer of the Bank of England to come to Australia to advise on economic policy. Niemeyer recommended a traditional deflationary response of balanced budgets to combat Australia's high levels of debt and insisted that interest on loans be met. Labor Treasurer Ted Theodore meanwhile supported the view of John Maynard Keynes that an inflationary policy of increased government spending was required. The Senate and Commonwealth Bank rejected his spending plans. The Labor Premier of New South Wales meanwhile announced the Lang Plan in February 1931, which entailed a cessation of interest repayments on debts to Britain and that interest on all government borrowings be reduced by 3% to free up money for injection into the economy.

With the rejection of the Theodore and Lang inflationary plans, the governments of Australia met to negotiate a compromise in 1931.

The plan required the Australian Federal and State governments to cut spending by 20%, including cuts to wages and pensions and was to be accompanied by tax increases, reductions in interest on bank deposits and a 22.5% reduction in the interest the government paid on internal loans.

The policy contrasted with the approach put forward by the British economist John Maynard Keynes and which was pursued by the United States, which held that governments needed to "spend" their way out of the Depression. The plan was signed by New South Wales Labor Premier Jack Lang, but he was a notable critic of its underlying philosophy and went on to pursue his own policy of defaulting on debt repayments, which led to confrontation with the Federal Scullin and Lyons Governments and resulted in the Lang Dismissal Crisis of 1932.

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