Bruce Baird (Cook, Liberal Party) Share this | Hansard source

On behalf of the House of Representatives Standing Committee on Economics, Finance and Public Administration, I present the committee’s report entitled Review of the Reserve Bank of Australia and Payments System Board annual reports 2005 (first report), together with the minutes of proceedings.

Ordered that the report be made a parliamentary paper.

Two areas of economic importance to almost all Australians are monetary policy and the payments system. The Reserve Bank of Australia plays a central role in both of these areas—for monetary policy, through the Reserve Bank Board, and for the payments system, through the Payments System Board. The payments system, in particular, has been an area of contention in recent times. The RBA has pursued what some have termed an ‘aggressive reform agenda’, with the consequences of those reforms being the subject of considerable debate. Conversely, monetary policy has been relatively stable when compared with some of the more turbulent periods in Australia’s history. Notwithstanding this, the RBA has lifted the cash rate by 25 basis points three times in the past 18 months, which, in combination with record petrol prices, has caused some level of community concern.

The committee’s February 2006 public hearing with the RBA was the third for the 41st parliament. Once again, the committee had the opportunity to discuss some of the key monetary policy issues in this important public forum. Overall, the RBA reported that the Australian economy, which is now in its fifteenth consecutive year of growth, is in a strong position. The RBA attributed Australia’s continued growth to well-above-average growth in the world economy and the emergence of China as an economic superpower.

While describing Australia’s economic growth as ‘impressive’, the RBA did raise some potential issues. In particular, it noted a ‘large’ current account deficit despite favourable export prices and terms of trade, increasing levels of household debt, and capacity constraints—all of which are recurring themes from the hearings in 2005.

In terms of interest rates, the RBA noted a number of factors which could put upward pressure on inflation: a high level of capacity utilisation, the tight labour market and large increases in the cost of some raw materials. In May and August, interest rates were raised by 25 basis points in response to the realisation of some of these inflationary pressures.

Unlike previous RBA inquiries, this inquiry also included an extensive investigation of the payments system. This investigation had a particular focus on the RBA’s recent and proposed reforms. The committee found that there are a wide range of views on these reforms, as has been evident in the media over the past five years or so. The most contentious of these issues is undoubtedly the reduction of credit card interchange fees. On the one hand, the RBA argues that its reduction of these fees will result in cardholders facing truer price signals when using their cards, while also saving merchants—and, ultimately, consumers—millions of dollars each year. Conversely, the two largest card schemes, Visa and MasterCard, amongst others, argue that there is no evidence of savings being passed through to consumers. They also argue that their competitors, the three-party schemes American Express and Diners Club, have been unfairly advantaged by the reforms.

The committee is not wholly convinced by either perspective with respect to credit card interchange fees. While there is no empirical evidence that savings have reached consumers, equally there is no evidence they have not. However, in competitive markets it seems illogical to suggest that lower costs for merchants do not result in lower prices for consumers. The committee therefore concluded that the benefits of the reform, at this point, outweigh any alleged disadvantages.

Some other reform areas which the committee investigated included the lowering of EFTPOS and scheme debit interchange fees, the removal of the ‘honour all cards’ rule, and the removal of the ‘no surcharge’ rule. Generally speaking, the committee found the RBA’s rationale for these reforms reasonably sound.

One area of concern for the committee is Australia’s evident shortfall in payments system technology. While we were once considered to be a world leader in this area, there was consensus during the hearings that we have now fallen behind. To remedy this concern, the committee recommends that those involved in the industry implement, or consider implementing in one case, a number of innovations, namely—PIN authorisations for credit cards, online functionalities for EFTPOS cards and chip technology for all cards.

I would like to thank all those who participated in this inquiry. The Governor of the RBA, Mr Ian Macfarlane, and his staff were always forthright and helpful throughout this inquiry process. Finally, I would like to inform the House that the committee’s next meeting with the RBA will be held in Sydney this Friday, 18 August. The committee is obviously keen to probe the RBA on the latest rate rise and on the probability of future rate rises. This hearing will also mark the last appearance before the committee of the current governor, Mr Ian Macfarlane. It promises to be a fascinating hearing. I commend the report to the House.

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