The First World War generated a division in the Party over the issue of conscription. Conscription was supported by a majority of leading Labor politicians and opposed by some sections of the Labor movement, notably Irish Catholics and nearly all union officials.
When Billy Hughes, then Labor Prime Minister, put the issue to a Referendum, the NSW Labor Premier Holman campaigned vigorously for the 'Yes' case. The Referendum was lost. Shortly thereafter, Holman and 17 other Labor Members of the Legislative Assembly were expelled from the Party. Holman became the Premier of a National Party Government.
Similar expulsions were carried out on the Federal level and the Party was considerably weakened. The Federal Labor Government was destroyed and Hughes and 23 ALP politicians left the Labor Party and joined with the Opposition to form a Nationalist Government. Hughes continued as Prime Minister, the only Prime Minister to have represented both the Labor and the Conservative parties. A weakened Federal Labor Party struggled through the next ten years, led by Frank Tudor, then Matthew Charlton. The Party did not recover until 1929, when it won the Election in October and J.H.Scullin became Prime Minister.
Despite the effects of the 1916-1917 Party split, Labor in New South Wales regained control by a narrow margin in 1920 under the leadership of John Storey. Storey, with a one seat majority did not believe he had a clear mandate to carry out Labor's policies. Storey died and was replaced by Dooley with the conservatives gaining power in 1922. Neither Storey or Dooley were in a position to introduce any progressive legislation. From the mid 1920's the Labor Party was regularly embroiled in internal disputes.
Out of the conflict emerged perhaps the most controversial Labor leader in NSW history, Jack Lang. His personal style was abrasive and he set about increasing the leader's powers within the Party. By the mid 1920s Lang had strong support from the unions and from the ALP Conference, the Party's decision making body. He did not have as strong support in the parliamentary caucus as he had in the Conference. His position was strengthened by giving his supporters, rather than the NSW Parliamentary Caucus, the power to choose the parliamentary leader. In the history of the NSW Labor Party the only time the Conference has had that power was during Lang's years (1926-38). Although he is strongly criticised for the power struggles in which he played a key role he is admired by many for the legislation he introduced to improve the lives of ordinary people. The Widows' Pension which kept many children with their mothers during the Depression and the Moratorium Act which stopped people being evicted when they could not meet mortgage payments, helped lessen the impact on families of widespread unemployment.
In 1925 the Lang Labor Government was elected. This Government reinstated the 1917 transport strikers and restored the 44-hour week. In 1926 it introduced the Widows' Pensions and Workers' Compensation Acts. As a strong willed and ambitious leader, Lang felt restricted by the Party and his actions to circumvent the rules at times invoked criticism.