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Thursday, 20 March 2008
Page: 2381

Mr SWAN (Treasurer) (9:09 AM) —I move:

That this bill be now read a second time.

Today I present the Reserve Bank Amendment (Enhanced Independence) Bill 2008.

The Rudd government is committed to relieving the financial pressure on Australian working families by modernising the economy, raising living standards, and keeping inflation in check.

Inflation pushes up interest rates, eats away at family budgets, and threatens future prosperity—that is why the government is so determined to deal with it.

We have taken responsibility for modernising our economy so we can sustain growth, create jobs, and get inflation back in check.

That means tackling the skill shortages and capacity constraints that are pushing up costs and threatening growth.

It means boosting our productive capacity—lifting productivity and encouraging more people into work.

By boosting capacity we allow our economy to grow further and support job growth without fuelling inflation.

We moved from day one to tackle the inflation legacy left to us.

As part of this effort, on 6 December 2007 the Prime Minister, the Governor and I outlined the measures we would take to strengthen the independence of the Reserve Bank and enhance the transparency of the conduct of monetary policy in Australia.

The Rudd government committed to enhance the independence of the Reserve Bank by raising the positions of Governor and Deputy Governor to the same level of statutory independence as the Commissioner of Taxation and the Australian Statistician.

This is the purpose of the legislation I am introducing to the parliament today.

The Rudd government also committed to improving the transparency of future Reserve Bank Board appointments and to remove political considerations.

Accordingly, the Secretary to the Treasury and the Governor of the Reserve Bank will maintain a register of eminent candidates of the highest integrity from which the Treasurer will make appointments to the Reserve Bank Board.

The Statement on the Conduct of Monetary Policy, which the Governor and I agreed to in December last year, also incorporates transparency measures including the publication of board minutes and a statement of reasons for the decision following each monthly meeting irrespective of whether there is an adjustment in the cash rate.

Increased transparency helps business people and working families understand the reasons behind monetary policy decisions which have such a real impact on their lives.

These reforms that the Governor and I agreed to last year herald in a new era of independence and transparency in monetary policy in Australia.

The introduction of this bill into the parliament today is a key step to delivering this.

Under the current legislation, the Treasurer has the sole authority to appoint, suspend and terminate the appointment of the Governor or Deputy Governor of the Reserve Bank without any reference to parliament.

This, for example, gives power to the Treasurer to appoint, if they so wish, partisan political candidates or those who have serious questions hanging over their character.

This circumstance could seriously jeopardise the standing of the Reserve Bank and reduce its effectiveness, thereby lowering Australia’s long-term economic prospects.

This is not something this government will allow to happen.

Under the legislation being introduced today, the positions of the 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 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.

Grounds on the basis of either incapacity, external employment or bankruptcy must be submitted.

Presently the Treasurer is able to carry out the termination of either of these positions, on the set grounds, without reference to parliament.

The present situation could leave the Governor and Deputy Governor in a potentially vulnerable position.

Alternatively the Governor-General may still suspend the Governor or Deputy Governor on the specified grounds for a temporary period, after which the parliament may decide to either allow reinstatement or to terminate.

At the moment, the Treasurer may make an open-ended suspension without reference to parliament.

These reforms will enhance the effectiveness of monetary policy.

But we on this side of the House will not leave the heavy lifting to the Reserve Bank and higher interest rates.

Our predecessors lacked the foresight to deal with the inflationary pressures before they gathered pace.

They left the RBA to shoulder all the responsibility—they failed to invest in our productive capacity and compounded the problem through reckless spending.

They left Australian families facing the full brunt of their policy failures—the highest underlying inflation in 16 years and 12 rate rises on the trot.

That is why in January the Prime Minister outlined the government’s five-point plan for fighting inflation:

  • disciplined fiscal restraint, with the aim of delivering a surplus of at least 1.5 per cent of GDP in 2008-09;
  • encouraging private savings through initiatives like the First Home Saver Accounts;
  • tackling the chronic skills shortages including 450,000 new training places;
  • national leadership to tackle infrastructure, including broadband and Infrastructure Australia;
  • encouraging workforce participation through initiatives in Child Care Tax and tax reform.

Inflation has taken a long time to build in our economy and it will take a long time to deal with it but that is why we started from day one.

This is a government that in its first weeks of office released a joint statement with the Reserve Bank, strengthening its independence.

Together, this bill and the measures the Governor and I have announced represent a new era in the operation of monetary policy in Australia.

This legislation is an important element in our fight against inflation—a fight we intend to win on behalf of Australian families who have worked so hard to make our economy strong.

I commend this bill to the House.

Debate (on motion by Mr Farmer) adjourned.