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Monday, 23 June 2008
Page: 2995


Senator COONAN (1:06 PM) —Unfortunately, the Reserve Bank Amendment (Enhanced Independence) Bill 2008 is, in the opinion of the opposition, a poorly thought out bill that highlights what a fiasco the government’s spin machine has become. The bill is all about politics, with a very thin veneer of policy. Unfortunately, it is becoming all too clear that this is a classic approach by Labor: all glossy on the surface but, when you dig a bit deeper, you see that it is all a public relations exercise and not a contribution to sound economic policy. In December last year, the Prime Minister announced that this bill would lead to ‘a new era of independence for the Reserve Bank’. I do not agree with that. The bill will do nothing of the sort. All that the bill will do is take us backwards to the position that we were in in 2001. This is not a new era; it is simply a return to the past.

I will speak on the issue of the Labor government’s grandstanding on this matter in more detail in a moment. But first I would like to take the opportunity to discuss very briefly the history of Reserve Bank independence and how we got to the stage of the government now reverting to the past to solve a problem that never existed in the first place. When it comes to Reserve Bank independence, Labor’s record is distinctly lacking. When the Labor Party were last in government, they made absolutely no attempt to make the Reserve Bank independent. We all recall very well the former Prime Minister Mr Keating famously boasting that ‘they do as I say’—they being the Reserve Bank.

It took the foresight of a hardworking and economically diligent coalition government to move to install Reserve Bank independence, which we all now universally agree is a very good thing. In 1996, the then Treasurer, the member for Higgins, Mr Costello, issued a statement on monetary policy which clarified the bank’s role and the government’s commitment to respect its independence. In an extraordinary move, the then Leader of the Opposition, Mr Kim Beazley, sought legal advice, because Labor did not support the reforms. So, in 1996, the Labor Party did not even support an independent Reserve Bank.

By 2002, though, they had changed their tune completely. The Prime Minister and Treasurer both supported the Financial Sector Legislation Amendment Act No. 1 2002, which amended the Reserve Bank Act so that the Treasurer appointed officers and board members to streamline the appointment and termination process. Yet now they want to undo the 2002 legislation and go back to the old system of the Governor-General making appointments. This is at odds with their statements in 2002.

We have a Prime Minister and a Treasurer who were at one stage opposed to Reserve Bank independence. Back then, they supported a streamlined appointments and removals process. But now they want to turn back the clock, while at the same time telling the media that this is the beginning of a new era of independence. You get the idea that this is all spin and no substance. Quite clearly, the government are confused as to their motives—although I am not surprised, because these are the same people who promised to put maximum downward pressure on inflation and then proceeded to increase government spending in their first budget.

The real reason that Labor are moving this bill is that they are desperate to appear to be economic conservatives. A trick which Labor seem to have picked up from their counterparts in the United Kingdom is creating a non-existent problem and then claiming credit for solving it. This again is classic Labor. There was no problem with Reserve Bank independence under the coalition, but Labor are desperate to appear to be doing something—anything—to fill in the gaps while these innumerable committees dither and report. They want to build up an air of economic competence. The Treasurer thought: ‘I know; I’ll talk about making the Reserve Bank more independent. That’ll make me look like I know what I’m doing.’ Sadly, though, the problem is that Labor are contradicting their own past behaviour and criticising the forward-looking Howard government when it was, in fact, the Howard government that pioneered Reserve Bank independence.

There are some very substantial problems with this bill. Currently, the Treasurer is required to terminate the appointment of the Governor or Deputy Governor of the Reserve Bank on the essentially objective grounds of paid employment outside the Reserve Bank, bankruptcy and permanent incapacity. A major fault in this bill is that it would make this optional in two degrees. Firstly, the parliament would need to agree to the termination. Secondly, the Governor-General in Council would need to agree. This would all take time. If, for example, the Governor of the Reserve Bank were to have an accident or become gravely ill and parliament were in recess, then parliament would need to be recalled. This would not only take time but also be very costly. Delay could cause considerable economic damage and damage to Australia’s reputation. If the Governor of the Reserve Bank were to become bankrupt, for example, it would take weeks to replace him or her under the new legislation. Under existing arrangements, the Treasurer could move quickly to shore up financial market support of the bank and to protect the reputation and credibility of the bank and Australia’s broader economy.

In order to address what we perceive as some of the serious deficiencies with this bill, the coalition is proposing to move amendments to ensure that this bill really does reform the governance arrangements of the Reserve Bank. We have looked to see whether or not there could be some improvements—and they are not the improvements that have been proposed under the bill. The opposition amendments would insert a new section 24C into the Reserve Bank Act 1959, which would require the Governor of the Reserve Bank to appear before the House of Representatives Standing Committee on Economics at least four times a year. Presently, the Governor of the Reserve Bank generally appears before the House economics committee twice a year, and this is optional. The coalition considers that it would increase the accountability of the Reserve Bank if the hearings were conducted four times a year, in line with best practice overseas. The coalition considers that this amendment would enhance the independence of the Reserve Bank.

The opposition amendments would omit schedule 1, item 3, page 3, which I will come to when we move these amendments in the Committee of the Whole. That would have the effect of leaving extant section 25 of the Reserve Bank Act 1959. That is, it will remain mandatory for the Treasurer to terminate the appointment of the Governor or Deputy Governor of the Reserve Bank on the essentially objective and easy to ascertain grounds of permanent incapacity, paid employment outside the Reserve Bank and bankruptcy. As I said, these are objectively based and, if they occur, the consequences should be both mandatory and prompt.

However, I think a different and perhaps more subtle response is necessary when it comes to the possibility of misbehaviour and what should be done about potentially removing the governor in the event of misbehaviour. The opposition amendments would insert, then, a new section 25AA to the Reserve Bank Act 1959 which provides for parliamentary approval for the termination of the Governor or Deputy Governor of the Reserve Bank on the ground of misbehaviour. It is much more difficult, of course, to get agreement in relation to misbehaviour. Perhaps some of the more egregious forms of misbehaviour might not cause this kind of concern, but I can envisage circumstances where it may be difficult to come to a view as a parliament as to whether or not the misbehaviour is of the kind that would call for the dismissal of the governor.

These clauses have been essentially modelled on those applying to judges, under section 72 of the Constitution; the Australian Statistician, under the Australian Bureau of Statistics Act 1975; the Commissioner of Taxation and Second Commissioner, under the Taxation Administration Act 1953; and the Ombudsman, under the Ombudsman Act 1976. All of these offices require parliamentary approval to terminate their appointments on the ground of misbehaviour, sometimes described as ‘proved misbehaviour’. That probably should be ‘proven’ misbehaviour. In other words, the coalition amendments would achieve the stated intent of the government of raising the statutory independence of the governor to that of the Australian Statistician and the Commissioner of Taxation. The proposed new section 25AA would provide that the Governor-General in Council may terminate the appointment of the governor or deputy governor if each house of parliament, in the same session of the parliament, presents an address to the Governor-General praying for the termination of the appointment on the ground of misbehaviour.

The proposed section also provides that the Treasurer may suspend the governor or deputy governor from office on the ground of misbehaviour—and I think that is absolutely critical—but must lay before parliament within seven sitting days a statement identifying the office holder suspended. The section also outlines the method in which the parliament would consider the termination of the governor or deputy governor, following the suspension order by the Treasurer. It also provides that the suspension of the governor or deputy governor for misbehaviour does not affect their entitlements. The amendments also provide that the governor or deputy governor may only be terminated for misbehaviour by following the procedure outlined in the new proposed section 25AA.

When we come to these amendments, I might have a few more words to say about them, but I did think it was appropriate to set out in my second reading remarks where we think this bill can be improved in a constructive way. Unlike the government’s bill, I think our amendments will ensure that the Reserve Bank is more effective and accountable. The amendments ensure effective measures to provide for the removal of the governor in the event of misbehaviour. They give parliament, and not a court, the power to remove the governor immediately if ever a governor were to misbehave. They also seek to make the governor more accountable. I think they are real reforms, and in due course I will be commending these amendments to the Senate. Otherwise, we will be supporting the substance of the bill.