RESERVE BANK AMENDMENT (ENHANCED INDEPENDENCE) BILL 2008

GS06/2008
15 May 2008

I welcome the opportunity to make a contribution to the debate on the Reserve Bank Amendment (Enhanced Independence) Bill 2008.

The independence of the Reserve Bank of Australia is critical to the process of setting monetary policy.

Transparent deliberation by the Reserve Bank of Australia gives the public and business confidence in the Reserve Bank.

This bill strengthens the independence of the Reserve Bank of Australia - the RBA, while it and other measures support transparency.

With the important role the RBA plays, and the impact its decisions, warnings and commentary have on business and everyday working families, this bill improves the banks operation and allows even greater confidence by investors, business and the general public in the Reserve Bank.

A central bank that is not independent and free from political interference creates a dangerous situation in which monetary policy decisions are potentially tainted rather than suiting the needs of the economy.

It is argued... and this is an argument that I agree with... that an independent central bank provides better advice, insights and warnings to Government and business.

An independent central bank operates a more credible monetary policy because it is expected to stay the course despite short term political winds.

It is also critical that the Reserve Bank from time to time gives advice to the Government. It's of course assumed that Government considers the advice.

In their last term, no fewer than twenty warnings from the RBA were given to the previous Government on the need to combat capacity constraints by investing in infrastructure, workforce skills and innovation.

August 2007 - RBA Governor Glenn Stevens to the House Standing Committee on Economics, Finance and Public Administration

August 2007 - Statement on Monetary Policy

June 2007 - Speech by RBA Governor Glenn Stevens

May 2007 - Statement on Monetary Policy

ebruary 2007 - Statement on Monetary Policy

February 2007 - remarks by RBA Governor Glenn Stevens

November 2006 - Statement on Monetary Policy

August 2006 - Statement on Monetary Policy

August 2006 - remarks by RBA Governor Ian Macfarlane

May 2006 - Statement on Monetary Policy

February 2006 - Address by Assistant Governor (Economic) Malcolm Edey

February 2006 - remarks by RBA Governor Ian Macfarlane

February 2006 - Statement on Monetary Policy

November 2005 - Statement on Monetary Policy

August 2005 - Statement on Monetary Policy

May 2005 - Statement on Monetary Policy

March 2005 - Remarks by RBA Assistant Governor Malcolm Edey

February 2005 - Statement on Monetary Policy

February 2005 - remarks by RBA Governor Ian Macfarlane

November 2004 - Statement on Monetary Policy

These warnings were simply ignored.

It is from these warnings that we see the growth of the very tap root of inflation.

Inflation is real and no matter how imaginary, fanciful or fairy-tale-like members opposite claim it to be, Australian working families know that prices keep going up.

Families in Rockingham, Kwinana and Mandurah have seen vegetable prices going up by over 10 per cent, bread by nearly 20 per cent, milk, eggs and fresh fruit all by double digits over the past few years.

In the south of my electorate of Brand, the City of Mandurah has gained much media coverage lately for its incredible growth and the associated rise in house prices.

According to the Real Estate Institute of Western Australia, data for the September 2007 quarter show Mandurah's median house price to be $424,000.

My constituents living in the new suburbs of Mandurah live the daily impact of inflation and rate rises and expect all of us in this place to do all we can to take the pressure off inflation and interest rates.

This amendment brings Australia up to speed with the rest of the world's developed economies that already have fully embraced independent monetary policy as best practice.

This bill raises the statutory independence of the Governor and Deputy Governor to the same level as the Commissioner of Taxation and the Australian Statistician.

Their appointments will be made by the Governor-General in Council and can only be terminated with the approval of Parliament.

The calls for more open and transparent operations have been gathering momentum over the years.

In December 2000, an editorial in the Australian Financial Review stated that:

"private-sector decision making is helped by regular information... Whether it is monthly statements, the release of minutes or more public hearings, it is a legitimate and important subject for debate."

It has taken eight years but we are finally having the debate and putting things into place to make the operations of the RBA more transparent and to better inform our community about RBA views, warnings and insights.

In a Statement on the Conduct of Monetary Policy released by the RBA Governor on the 6th of December 2007, the RBA committed to measures aimed at increasing the transparency and enhancing public understanding of the conduct of monetary policy.

A statement will now be released on the afternoon after each Board meeting explaining Board decisions on monetary policy, irrespective of whether there is a change in the cash rate target.

As in the US, the minutes of the meeting will be released publicly as soon as possible after the meeting.

The Governor has said that the Reserve Bank will continue to extend the scope of the economic forecasts in its quarterly statement on monetary policy.

Integral to best practice monetary policy, is the importance of having high standards in the selection of members of the RBA Board.

This bill establishes a register of eminent candidates - to quote the Treasurer - of 'highest integrity.'

This register, maintained by the Secretary of the Treasury and the Governor of the Reserve Bank will provide for a much needed safeguard in the process of selection.

It is however, incumbent on the Secretary and the Governor to ensure that candidates for the Board have the knowledge, analytical skill and determination to govern our nation's monetary policy.

As such, I believe that a merit based system of selection for candidates for the RBA board is good practice and adds to the already significant measures introduced by this government.

It is disappointing that the members opposite... when in Government... demonstrated why this bill is so important. In a crude example of 'jobs for donors,' Mr Robert Gerard was appointed to the RBA Board on the 20th of March 2003 until he resigned - in disgrace - on the 2nd of December 2005.

What were Mr Gerard's qualifications for this role?

An article in the Australian published on the 3rd of December 2005 stated that:

"Robert Gerard's political ties run deep in the Liberal Party.

[Nothing wrong with that]

He comes from Adelaide establishment stock.

[Nothing wrong with that]

His father Geoff was a state Liberal Party president

[Nothing wrong with that]

and through the years the electrical goods tycoon has poured up to $2 million into the party's coffers."

For some, such close ties to the party in Government would be reason enough for Mr Gerard not to have a place on the board. I do not agree.

It was not this however, that forced him out.

It was tax evasion through a sham, tax haven, insurance scheme!

These dodgy business dealings did not emerge subsequent to his appointment.

Almost unbelievably;

these allegations were being aired as the former Treasurer appointed him to the Board.

According to an article published in The Australian on the 30th of November 2005:

"Mr Gerard, the largest single Liberal donor in South Australia, was battling the ATO in the Federal Court over the tax evasion allegations when Treasurer Peter Costello appointed him to the Reserve Bank."

Here is a bloke who pays more in Liberal Party donations than he does in tax.

What does this tell us about the previous government's system of appointing people to boards?

Boards I would like to add that are crucial to the effective governance of this country.

Is this a case of high quality members being selected for their skills and integrity or is it the case that a more important selection criteria is the capacity to run a tax 'sham' and the amount of money donated to the Liberal Party?

The appointment of Mr Robert Gerard was a complete outrage.

A travesty committed against one of the most important institutions in this country!

A travesty committed against the Reserve Bank.

Mr Gerard was voting to raise interest rates - something that has an impact on hundreds of thousands of people's lives - at the same time he was in dispute with the ATO over his tax bill.

In an article in the Age on the 1st of December 2005 it was revealed that the Tax Commissioner had:

lodged a charge with the Australian Securities and Investments Commission in September 2003 with a maximum liability of $250 million, effectively preventing the Adelaide businessman from selling any assets without settling his liability to the ATO.

The claim was not lifted until February 2004. An out-of-court settlement of up to $150 million in late 2003 ended a 14-year Tax Office investigation into Mr Gerard's involvement in a Caribbean tax haven deal its investigators labelled a "sham".

I don't think this point can be overemphasised.

Mr Gerard was a member of a Board making decisions that affected the budgets of hundreds of thousands of hard working, tax paying families in this country. Between September 2003 and February 2004 while the claim against Mr Gerard was still in place, the RBA raised interest rates twice.

I noted that the Member for Wentworth is concerned about the sacking of incompetent and ineffective Reserve Bank Governors. Well, I didn't see the former Government jumping to hang their hand picked member. He wasn't pushed, he jumped while the Government sat by claiming ignorance as their only defence.

It is fortunate that not all members of the Board were appointed in such controversial circumstances. The RBA has presided over unprecedented economic growth under the stewardship of Bernie Fraser, Ian Macfarlane and the current Governor Glenn Stevens.

Mr Stevens and the other ex-officio members Deputy Governor Ric Battellino and Treasury Secretary Ken Henry AC are well-qualified to steer Australia through the current time of global uncertainty.

All three have exemplary qualifications including high levels of academic achievement as well as extensive experience working with and for Government.

It would take me almost twenty minutes just to list the qualifications of the RBA Board members.

This bill puts the structure in place to ensure the independence of the RBA. High quality members of the Board, I believe, ensure that the RBA Board's decisions reflect the often complex needs of the economy.

Over the past decade, the former Government often unfairly placed the RBA at the focal point of economic policy. This has been because of sloppy fiscal policy - out of control spending and pork barrelling.

One thing has been made clear on numerous occasions; the pork-barrelling approach to Government spending driven by short term political interests does not create a stable and prosperous nation.

The former Government's spending on programs was often determined and prioritised according to the margin in a particular electorate. We simply can't afford to have pork barrelling distorting decisions that should be made in the long term national interest.

This bill not only provides greater independence and supports transparency for the Reserve Bank but it signifies the belief held by this government that the doors of government need to be opened to public scrutiny.

This bill is about openness, it is about integrity, it is about transparency, it is about ensuring that we all have confidence in the RBA.

I commend the bill to the chamber.