When Dr Evatt was persuaded to step down as party leader in 1960, his replacement, Arthur Calwell, initially enjoyed considerable popular support. He had been a successful director of Australia's immigration policies in the Chifley government, and was respected as an honest, straight-speaking politician. Although he was associated with the Left of the party he could not be accused of any Communist sympathies. Moreover, as a practising Catholic, Calwell could appeal to sections of the electorate that regarded the Federal Executive and Conference of the party as sectarian. There was a hope that his leadership could neutralise the electoral prospects of the DLP which was such a barrier to Labor's return to office.
When Menzies called an election for December 1961 the government was becoming unpopular because a spurt of inflation had precipitated a credit squeeze with sharply-rising interest rates that produced unemployment and seemed to threaten the economic boom that had characterised most of the 1950s. In accordance with policy determined by Federal Conference, Calwell campaigned by opposing the involvement of Australian military forces in the Malaya emergency, opposing the location of American bases in Australia, and opposing any concessions on state aid for non-government schools.
Even with a campaign that was largely negative, Labor went very close to winning the election, which was the closest result in all Federal elections. Menzies was returned to office with an effective majority of one seat. Although Labor had won more primary votes than the Coalition, the DLP polled strongly enough (nearly 9% of the total and significantly more in Victoria) to make its point through the distribution of preferences in close contests that Labor would find it very difficult to win any election while the DLP flourished.
The influence of Chamberlain became most significant when the ALP was trying to revive its electoral stocks in the early 1960s. The two issues most affected were state aid for independent schools and the growing involvement of Australia in the Vietnam War. Chamberlain insisted that there could be no change to established ALP policy opposing direct aid to non-government schools. This presented Prime Minister Menzies with the opportunity to further separate Catholic voters from Labor by promising to help Catholic schools, as he did in the 1963 election. On Vietnam, the issues were more complicated. Probably a majority of members of the Parliamentary ALP were opposed to continued participation of Australia in the war, while an even larger proportion were opposed to the introduction of conscription. The aspect which gave greatest anxiety within the party was whether to support or oppose the Menzies leasing of military bases to American defence and intelligence personnel. On the one hand, this was giving support to a war that many opposed and perhaps involving Australia in other American ventures that might be even more objectionable. On the other, to refuse seemed to be a repudiation of the ANZUS alliance that had its origins with the close military cooperation between Australia and the USA under the Curtin Labor government.
In the general community before about 1968 most Australian voters gave qualified support to the conservative policies. To contest elections in 1961, 1963, 1964 (Senate), 1966, and 1967 (Senate), Federal Labor leaders Arthur Calwell and Gough Whitlam, needed some scope to provide nuanced policy alternatives. Chamberlain was not interested in nuances. Within the various parliamentary sections of the party the suspicion grew that Chamberlain had no concern for Labor's electoral fortunes; he was interested only in defending traditional policies and keeping politicians in line. The incident that made the Federal Conference itself a political issue was a 1963 photograph of Calwell and Whitlam waiting outside a meeting of the Conference which was deciding Labor policy with regard to US military bases in Australia without input from the parliamentary leadership. Menzies took full electoral advantage in the subsequent election, referring constantly to the 'thirty-six faceless men' who made Labor policy.
Although Chamberlain was firmly anti-Communist and party policy always continued to reject any association with Communism, the party had difficulty convincing the electorate on this matter. Faced by enemies of the party on the left (Communists) and the right (the DLP), Chamberlain seemed much more intent on blocking any initiative of the right than of confronting Communist influence at lower levels of the party. The DLP was able to gain considerable propaganda value by highlighting instances of Labor support for 'unity tickets' (where Labor and Communist candidates appeared on the same ticket in trade union elections) that were especially common in Victoria.