Monday, 26 May 2008
Reserve Bank Amendment (Enhanced Independence) Bill 2008
Debate resumed from 15 May, on motion by Mr Swan:
That this bill be now read a second time.
Today I commend a bill to the House that strives to strike the balance between independence and accountability in the Reserve Bank of Australia. The purpose of the Reserve Bank Amendment (Enhanced Independence) Bill 2008 is to amend the Reserve Bank Act 1959 to allow the Governor-General on the advice of the federal Executive Council instead of the Treasurer to appoint, suspend and terminate the Governor and Deputy Governor of the Reserve Bank. This will ensure that the potential for political interference with the independence of the Reserve Bank can be put to an end. We have seen in recent years attacks on the concept of Reserve Bank independence by the previous government. As the Treasurer recently noted in the Australian Financial Review on 10 April 2008, either you believe in the independence of the Reserve Bank or you do not. Judging by their recent behaviour, coalition members find it hard to say that they are classed as 100 per cent believers in this very act they are opposing. Like in all the great issues of our time, the coalition does not seem to have a consistent and coherent viewpoint on the role of the Reserve Bank—just like Work Choices, which is either dead or alive and kicking depending on which member of the coalition you are talking to and upon which day of the week it happens to be; just like climate change and the signing of the Kyoto protocol, which is either a left-wing conspiracy or a serious challenge depending again on what day of the week it is and on which particular member of the opposition you happen to be talking to; and just like foreign policy where the Prime Minister is told that he is going too soft on China over human rights in Tibet and then a couple of days later is shamelessly told that he has gone too far.
Unfortunately, the coalition’s brazen inconsistencies and carping opposition is not contained to industrial relations, climate change, foreign policy, Indigenous issues, inflation, whaling, means testing, binge drinking, the 2020 Summit, the budget and the rate of government spending; it also relates to the Reserve Bank. We all remember the 2004 election when the Liberal Party ran ads suggesting that it was not an independent Reserve Bank that formulated and implemented monetary policy but in fact the Liberal Party. Section 10(2) of the Reserve Bank Act 1959, which is often referred to as the bank’s charter, says:
It is the duty of the Reserve Bank Board, within the limits of its powers, to ensure that the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia and that the powers of the Bank ... are exercised in such a manner as, in the opinion of the Reserve Bank Board, will best contribute to:
- the stability of the currency of Australia;
- the maintenance of full employment in Australia; and
- the economic prosperity and welfare of the people of Australia.
It does not mention anything about the Liberal Party having a function in keeping interest rates at record lows, though that is what they tried to have us believe at the 2004 election. I remember last year when John Howard was being criticised after the sixth interest rate rise since the ‘at record lows’ ads of 2004. He sounded incredibly mean and tricky when he was challenging his detractors to check the transcripts and show where he had said that he was keeping interest rates as record lows. I know that at that time there were many people in my electorate that felt betrayed by Mr Howard. Many of those people had been voting for John Howard since 1996.
You would have thought that the Liberal Party would have learnt the lesson from the dive in public confidence that pushed the former government out of office, but apparently not. Brendan Nelson, in the latest issue of the New South Wales Liberal women’s council magazine, is again bragging about low interest rates. After 12 consecutive rate rises the Leader of the Opposition has nothing to brag about. At a time when we desperately needed to build infrastructure, educate and skill our population and cut wasteful spending to take the pressure off inflation, the then Liberal government was twiddling its thumbs or ignoring the elephant in the room. I know that the Leader of the Opposition has a tough time working out what he believes, and it appears that the shadow Treasurer is in much the same boat. He should definitely cut the belief that the former government was a responsible economic manager at the end of its term. The then government gave us a 16-year high inflation rate that is largely to blame for the latest interest rate rises, and it received 20 warnings from the Reserve Bank, yet no action was taken by the former government.
As soon as the Rudd government was elected we got on with the job of responsible economic management. On 6 December 2007 the government released a statement on the conduct of monetary policy. The statement set out the common understanding of the governor, as chairman of the Reserve Bank, and the government on key aspects of Australia’s monetary policy framework. In both the statement and the accompanying joint media release of the Prime Minister, Kevin Rudd, and the Treasurer, Wayne Swan, the government announced that it would make a number of changes to enhance the independence of the Reserve Bank of Australia and the transparency of certain of its operations. The release outlined that the following elements would be implemented: the positions of governor and deputy governor would be raised to the same level of statutory independence as the Commissioner of Taxation and the Australian Statistician; the appointments of both positions would be made by the Governor-General in Council and their terminations would require parliamentary approval; the Secretary to the Treasury and the Governor of the RBA would maintain a register of eminent candidates of the highest integrity from which the Treasurer would make appointments to the board; and the new statement on the conduct of monetary policy would include measures such as the publication of board minutes and the statement of reasons for the decisions of the boards.
At that time there was no outcry from the opposition saying that these were not good measures. There was no-one coming forward saying that these were not things that should take place to make sure that we have more transparency in relation to the Reserve Bank. Yet we find ourselves today with the sorry position of the opposition opposing this bill, which goes to those points that specifically look at enacting what the Prime Minister and the Treasurer outlined back in December of last year.
When the Reserve Bank was first established in 1959, the Governor-General had the function of appointing and terminating the positions of the Governor and the Deputy Governor of the Reserve Bank of Australia. In the Financial Sector Legislation Amendment Act (No. 1) 2003, the state of affairs was changed to give the functions to the Treasurer. Under those amendments the Treasurer was given the function of: appointing the members of the RBA board under section 14 of the act; terminating board members under section 18 of the act; appointing and terminating the governor and the deputy governor; and appointing and terminating members of the Payments System Board.
Items 1 and 2 amend sections 24 and 24B of the act to delete reference to the Treasurer and substitute it with the Governor-General. Section 24 currently provides that the governor and the deputy governor are to be appointed by the Treasurer for a period of seven years, but are eligible for reappointment. Paragraph 24(1)(c) provides that the governor and the deputy governor hold office subject to good behaviour. Members of the Reserve Bank board also hold office subject to good behaviour. Section 24B is the resignation provision.
Item 3 repeals section 25 and substitutes new section 25 to provide for the termination of the appointments of the governor and the deputy governor. Existing section 25 provides:
If the Governor or the Deputy Governor:
- becomes permanently incapable of performing his or her duties; or
- engages in any paid employment outside the duties of his or her office; or
- becomes bankrupt, applies to take the benefit of any law for the relief of bankrupt or insolvent debtors, compounds with his or her creditors or makes an assignment of his or her salary for their benefit;
the Treasurer shall terminate his appointment.
These grounds for termination are replicated in new subsection 25(8) and therefore are the only grounds for the termination of these positions. Under the existing arrangements, paragraph 24(1)(c) may give the Treasurer the discretion to terminate the governor on lack of good behaviour grounds, whereas section 25 requires the Treasurer to terminate if one or more of the stated grounds are met. There is currently no limitation in section 25 as there is in this bill, and the TAA, that there shall be no termination except as provided by this section.
New subsection 25(1) provides that the Governor-General can terminate the appointments if each house of parliament presents to the Governor-General an address praying for the termination of the appointments on a ground specified in new subsection 25(8). Suspension prior to such termination is not necessary under this subsection. The Governor-General can suspend the governor or deputy governor from office on a ground specified in subsection 25(8) and the minister, the Treasurer or the Minister representing the Treasurer has to table a statement concerning the suspension in both houses of parliament within seven sitting days. Within 15 sitting days of the statement, the houses can then declare by resolution that the appointment should be terminated—this is the new subsection 25(4). Under subsection 25(6), if both houses do not pass such a resolution, the suspension ceases and the position holder will continue in office. Under new subsection 25(5), in the event the resolution is passed by each house, the Governor-General must terminate the appointment.
New subsection 25(9) provides that the governor or the deputy governor can only be terminated on a specific ground by the means specified by new section 25. This limits termination to the grounds specified and in the manner specified by this section. As noted earlier, the governor and deputy governor hold office subject to good behaviour, which is an ongoing requirement and a prerequisite for holding office. The Reserve Bank Act is the only Commonwealth act which has this particular expression. Under the changes proposed by the bill, in the event that the position holder is not of good behaviour there is no mechanism for termination as this requirement is not specified as a ground under the new subsection 25(8). If a governor or deputy governor did not offer a resignation to the Governor-General under the amended section 24B there is no power to remove the governor or the deputy governor. This can be contrasted to the present position in that, although the grounds of removal from office are the same, there is no strict limitation on the Treasurer’s current power to terminate an appointment, as will be the case under the proposed amendments.
It is not only monetary policy that requires openness and transparency in the fight against the Liberal Party’s parting gift of high inflation. Fiscal policy is also very important in this fight.
At this stage I would like to put on the record my congratulations to the Treasurer, Wayne Swan, for putting together a terrific budget. In time I believe this budget will be seen as a turning point in which government shifted from short-term spending to long-term investment. After 12 years of the Howard government, who did not adequately invest in health, education, infrastructure and skills, and instead siphoned money into electoral bribes, it was very heartening to watch an Australian Treasurer put forward a fiscally responsible, nation-building budget.
The Treasurer gave the budget that we need in Australia right now. He gave the budget what my electorate of Dobell needs right now. With the lowest median household income in New South Wales, Dobell does not need cheaper luxury European cars or a baby bonus for millionaires. We need the infrastructure and the services that will give opportunity to all those who live there. It is amazing that the opposition thinks that a tax on alcopops is the major issue facing working families across this country. I invite the opposition to come to Dobell on a Friday or Saturday night and see the effects of cheap alcopops on many of the young people in my electorate.
I believe that this budget has delivered to the working families of the Central Coast a strong and effective way forward. It is a step in the right direction to enhance our prospects of becoming an economically self-sufficient region in our own right. As the Treasurer said:
The Government has made sure every single cent of new spending for the coming year has been more than met by savings elsewhere in the Budget.
Our commitments have been honoured by redirecting spending. Difficult spending cuts have helped fund our Working Families Support Package and our new priorities for the nation.
We are budgeting for a surplus of $21.7 billion in 2008-09, 1.8 per cent of GDP, the largest budget surplus as a share of GDP in nearly a decade.
This honours and exceeds the 1.5 per cent target we set in January, without relying on revenue windfalls.
It is a surplus built on substantial savings of $33 billion over four years, including $7 billion in 2008-09 alone.
And it is a surplus built on disciplined spending, with the lowest real increase in Government spending in nearly a decade; spending growth which is one quarter of the average of the previous four years.
We need a strong surplus to anchor a strong economy; to do our bit to ease inflationary pressures in the economy; to build a buffer against international turbulence; and so we can fund ongoing long term investment in the ports, roads, railways, hospitals, universities and vocational education we need, to deliver growth with low inflation into the future.
Enhancing the independence of the Reserve Bank is a part of the broader ideology of Kevin Rudd, Wayne Swan and the Labor government to deliver strong, decisive and unashamedly fiscally conservative policy to ensure a modern and competitive economy.
This proposed bill shows the commitment of the government to a more independent Reserve Bank in line with modern practice and it is worthy of our support. It shows a new and forward-thinking government that is willing to make difficult decisions in fiscal and monetary policy in order to ensure that Australia is the best country it can be in economic terms. The new government has had a lifespan short of only 200 days so far, yet even in this short period of time the foundations are being laid for an Australia that working families deserve. The building blocks are there for a fairer, more inclusive and more prosperous nation that we can all be proud of. This bill is part of that. It will increase the transparency of the Reserve Bank and ensure that all Australians have confidence in the Reserve Bank in its role in setting monetary and fiscal policies and ensuring that inflation is kept in control. I commend this bill to the house.
I rise to support the legislation before the House, another initiative in the Rudd Labor government’s plan to modernise the Australian economy. The Reserve Bank Amendment (Enhanced Independence) Bill 2008 delivers on our commitment to strengthen the independence of the Reserve Bank and put downward pressure on inflation. For too long, the previous Howard-Costello government neglected their responsibility to fight inflation. Inflation pushes up interest rates, eats away at family budgets and threatens future prosperity. That is why we on this side of the House are so determined to beat it. It starts by being up-front about the state of the economy.
I would be the first person to admit that we on this side of the House inherited some positive trends. Yes, the economy is experiencing a period of good solid growth. We are in our 17th year of economic growth, a boom born out of the tough reforms and hard economic decisions made by the Hawke and Keating governments. Having previously worked in the mining sector before coming into this House, I can certainly testify to the great work that the mining sector have done and the growth that they are spreading to the rest of the community. The economy is experiencing a period of high jobs growth. But that is where it ends.
The member for Wentworth told the House a fortnight ago that the coalition left the economy in the best state it had ever been in. If the Howard-Costello government left the Australian economy in such a robust state, as claimed by the member for Wentworth and also by the member for Higgins, why are Australian families struggling to pay their mortgages? Why do young people feel they have missed the boat in the housing market? Why are rents spiralling beyond control? Why are grocery prices, petrol prices and cost of living pressures crippling household budgets? Why? Because the previous coalition government squandered the prosperity of the mining boom, ignored the advice of the Reserve Bank and ignored the calls from Australian working families to do something about inflation.
Let us look at the facts. Firstly, the Treasurer, Wayne Swan, was handed an economy experiencing 16-year high inflation levels. Secondly, interest rates had risen 10 times in a row and were the second highest in the developed world. Thirdly, productivity growth was running at its lowest level in 15 years. There has been an attempt recently by the member for Higgins to pass on the crown that has ‘luckiest treasurer in the world’ written on it. It was a pitiful attempt. I remind the House that in March 1996 when Treasurer Ralph Willis handed his crown over to the member for Higgins—I am not sure if it was a crown or a coronet—productivity was at four per cent. What did the current part-time member for Higgins hand over to Treasurer Wayne Swan? A productivity level of zero. Shameful. Fourthly, Commonwealth spending in real terms had grown by about four per cent a year since 2004-05 and even spiked over 4.5 per cent recently at the end of that period. Lastly, John Howard and Peter Costello had overseen 5½ years of monthly trade deficits. When we hear claims about our wonderful economy, it is interesting to look at those hard facts about inflation, interest rates, productivity, Commonwealth spending and trade deficits.
My electorate has one of the biggest used car strips in Queensland, the Moorooka Magic Mile. I live just behind the Moorooka Magic Mile. I want to use an analogy. The member for Higgins is like a used car salesman—and I say that with no disrespect to the good people on the Moorooka Magic Mile. It is as though the member for Higgins was talking about my brother’s 1970 purple two-door V8 Monaro. The member for Higgins is saying: ‘Look, this is a great car. Look at how fast it can go; look at the paint work; look at this.’ But the reality is that cars have changed significantly since my brother’s 1970 purple two-door V8 Monaro was an appropriate car. Yet we have the member for Higgins saying, ‘Look at the spoiler; look at this.’ But the reality is that if you have a productivity of zero then the economy is in poor shape, and it does not matter how flash the mags are, how flash the engine is or what the spoiler looks like.
When we add to this economic environment a national skills crisis, a spike in world oil prices, the possibility of peak oil and the subprime mortgage crisis, the government rightly has cause for concern. Obviously it is not a time to panic but time for a measured, planned response to rebuild strength in our economy. That is exactly what Treasurer Swan delivered in his first budget here a fortnight ago. The Treasurer delivered a budget that will gradually ease underlying inflation. Measures include a surplus of 1.8 per cent of GDP and policies that will lift productivity, including investments in infrastructure, education and training.
If the coalition had taken inflation seriously when in government, perhaps they could have saved Australians some pain in the hip pocket today. The reality is that the Reserve Bank warned the previous coalition government 20 times about capacity constraints in the economy. Those warnings were stubbornly ignored. We will not make the same mistake. We know how to listen to the Reserve Bank. We will heed the advice of the central bank and put measures in place to deal with inflation. Unlike the Leader of the Opposition, we do not believe inflation is a complete charade, as he stated on PM on Tuesday, 6 May.
This budget builds on the Rudd government’s five-point plan to tackle inflation. Elements of the five-point plan include: a budget surplus of at least 1.5 per cent of GDP—which, as I said, we have exceeded; incentives to encourage household savings through first home saver accounts; a new agency called Skills Australia to drive an additional 820,000 training places over 10 years, with 20,000 places to be created around the country from April this year; and national leadership to tackle infrastructure bottlenecks. This is particularly important in my home state of Queensland and is certainly something we fully support. But it is interesting that during question time there are often comments from the members for Moncrieff, Sturt, Dunkley and Dickson—Mr Speaker, I think you call them the ‘barbershop quartet’—whenever we talk about infrastructure bottlenecks. They yell out things like: ‘What about state borrowings?’ With no disrespect to the barbershop quartet, I think it is a good investment if states and the Commonwealth invest in these infrastructure bottlenecks. Anyone who has anything to do with the mining sector, particularly coalmining, knows that some of these restraints are opportunities lost. So the barbershop quartet—I am not sure who would be the bass, the baritone, the tenor and the countertenor; they can fight that out for themselves, maybe in the next question time—really need to have a look at what industry is calling for, and that is leadership on some of these infrastructure bottlenecks. That is something that the Rudd government is delivering.
The elements of the five-point plan that I have already touched on are the budget surplus, household savings, Skills Australia and infrastructure bottlenecks. Lastly, the Rudd government will provide ways to help people re-enter the workforce, through tax reforms and better childcare assistance, to make some of these skills issues less problematic. Over time, these measures, along with the greater independence of the Reserve Bank, will help address inflation and set us on a course for lower interest rates.
As I said before, on this side of the House we cherish the role of an independent Reserve Bank. The bill before the House will achieve greater independence for the RBA by removing the Treasurer’s power to appoint, suspend and terminate the positions of governor and deputy governor of the RBA. This authority is placed in the hands of the Governor-General. The positions of the Governor or the Deputy Governor of the RBA may be terminated or suspended by the Governor-General with the approval of the parliament. This would require the approval of each house of the parliament in the same session of parliament. The grounds for termination or suspension are set out in section 25(8) of the bill and include an incapacity to perform duties, taking outside employment or becoming bankrupt. Although one would have thought that, if the governor of the Reserve Bank was bankrupt, the people might have spoken up before the parliament needed to do something, the provision is obviously a logical inclusion. The bill also amends the Reserve Bank Act 1959 to require the Governor or Deputy Governor of the RBA to provide a written letter of resignation to the Governor-General should they choose to resign.
These amendments will achieve greater independence by limiting political interference in Reserve Bank appointments. Also, the Secretary to the Treasury and the governor will maintain a register of eminent candidates of the highest integrity from which the Treasurer will make new appointments to the Reserve Bank board. This procedure removes the potential for political considerations in the appointment process and ensures that only the best qualified candidates are appointed to the Reserve Bank board. Of course, everyone in the House would remember the scandal involving businessman and Liberal Party donor Robert Gerard and his appointment to the Reserve Bank board following intervention from the then Treasurer, Peter Costello. Robert Gerard was the man who donated more to the Liberal Party than he did to the Taxation Office. It would have been great to have been a fly on the wall to hear the discussions between the member for Higgins and his advisers. I imagine it would have been like something out of Yes, Ministera case of saying, ‘Yes, Treasurer, that would be a very courageous decision to put him on the board.’ However, he obviously ignored that advice and went ahead with that appointment. And it is interesting that Mr Gerard resigned from the board following the airing of his dispute with the tax office, not because the member for Higgins found some backbone and retreated from that appointment.
The amending legislation before the House will ensure that such obvious political appointments will not happen again and will also remove any perception of political interference. It also brings arrangements for Australia’s central bank governance in line with international best practice. This is another bill that honours another election commitment by the Rudd government. We do not have a difference between core and non-core. If I recall correctly from my teaching days, the Latin root for core is cor, cordis, meaning the heart. The Rudd government’s commitments come from the heart—we say, with our hand on our heart, that we will carry out every commitment we made and not make them core and non-core. I am proud to be a part of a federal government that cares about working families and is prepared to do the hard yards to fight inflation. I commend this bill to the House.
in reply—I would like to thank all members who have taken part in the debate on the Reserve Bank Amendment (Enhanced Independence) Bill 2008. The measures contained in this bill implement the government’s election commitment to enhance the independence and transparency of the conduct of monetary policy by the Reserve Bank. Under this legislation the positions of governor and deputy governor will have their level of statutory independence raised to that of the Commissioner of Taxation and the Australian Statistician. As such, their appointments will be made by the Governor-General acting in council. At the moment they are simply appointed by the Treasurer. In addition—and more importantly—the termination of the governor and the deputy governor may now only occur if each house of the parliament in the same session of the parliament requests the Governor-General to do so. Presently the Treasurer is able to carry out the termination of either of these positions without reference to the parliament. The present situation could leave the governor and deputy governor in a potentially vulnerable position. Put simply, this bill vests with the Governor-General the existing powers to appoint and terminate the governor and deputy governor that currently rests with the Treasurer.
It has been suggested during the debate that under this bill the governor and deputy governor would no longer hold office subject to good behaviour, through the operation of paragraph 24(1)(c). This is not the view of the Office of the Australian Government Solicitor. Paragraph 24(1)(c) has always pertained to the removal of the governor and deputy governor from office by a court should they no longer be of good behaviour. This bill in no way changes the clause or its intended effect.
There has also been an amendment put forward to require the governor to appear before the House of Representatives Economics Committee four times a year. The governor and his predecessor have regularly appeared before the committee, and at only his last appearance Governor Stevens indicated, ‘It is really in the hands of the committee how often you want me to come.’ This amendment is unnecessary and, I think, an unfortunate effort to score a political point right when the very intent of this bill is to put the positions of governor and deputy governor above partisan politics.
The increased independence of the RBA delivered by this bill is an important component of the government’s strategy to tackle the inflation challenge and to help reduce the financial pressures on working families. From day one the government has taken responsibility for tackling the inflation challenge. This bill supports the efforts I outlined in the budget to meet the inflation challenge head on. In doing so, the government will continue to honour its commitment to help reduce financial pressure on working families, who have made the Australian economy strong. I commend this bill to the House.
Question agreed to.
Bill read a second time.