The problem for the new administration was getting legislation passed through the Senate as long as the Opposition did not recognise any electoral mandate for the Labor government. Meanwhile, the first year in office saw a deterioration in economic conditions precipitated by huge increases in the price of oil because of an embargo by the oil producing nations. It produced a world-wide recession accompanied by rapidly rising inflation so-called 'stagflation' which put most of the high spending policies of the Australian government at risk. The Senate passed the legislation establishing the Schools Commission only after bitter controversy, and refused to pass the Medibank legislation. Led by Billy Snedden, the Liberal Party was determined to use the Senate to block as much of the Whitlam agenda as possible.
Eventually the refusal of the Senate to guarantee supply forced the government to call an early double dissolution election in May 1974. Although it was a re-run of the 1972 election for the Labor Party, which was asking for a clear mandate to implement its program, the political climate had changed in that brief time. Foreign policy, Vietnam and conscription were no longer factors working for Labor, while the main issue for the Whitlam team was its management of the economy. The Labor government was returned to power with a slightly reduced majority but did not gain control of the Senate, winning only 29 of the 60 seats. In an accompanying referendum, the government's request to be given overriding powers over prices and incomes was decisively rejected in every State.
Even though the 1974 election effectively destroyed the DLP, and allowed passage of the Medibank legislation at the subsequent joint sitting of the two Houses, the government was still hostage to the Senate. The new Leader of the Liberal Party from the beginning of 1975, Malcolm Fraser, initially seemed to back away from the Snedden strategy of parliamentary confrontation and promised that the elected government would be allowed to get on with the job.
For the new Parliament after the 1974 elections economic issues effectively took centre stage. The difficulties for the Whitlam team can be seen in the succession of Treasurers during the three years of the two terms. Other than the few days of the duumvirate of Whitlam and Barnard in December 1972, when Whitlam himself was Treasurer, Frank Crean was replaced by Jim Cairns, to himself be replaced by Bill Hayden. Inflation rose alarmingly, caused by huge increases in the prices of petrol. Within Treasury itself there was great reluctance to facilitate the Labor program of social reform. This was the situation that led a number of members of the Ministry secretly to explore the possibilities of seeking unofficial loans from the huge pool of money on which the oil producing Arab world was afloat. The subsequent 'loans affair' was to dominate politics in 1975 and eventually bring down the government.