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Monday, 23 June 2008
Page: 2998


Senator MURRAY (1:19 PM) —The Reserve Bank Amendment (Enhanced Independence) Bill 2008 is welcome from at least one point of view, and that is that it opens up for debate and consideration the entire status and nature of the appointment and termination of the governor and deputy governor and, indirectly, of the board. I differ from the shadow minister in that I believe there is a problem with the Reserve Bank Act. I think it is in need of an overhaul and review, and I think there are fundamental weaknesses in the act. That is not to say, of course, that we have not been singularly well served by both the present governor and previous governors and, indeed, their deputies. Nor is it to say that the coalition were not quite right to have enhanced the independence of the Reserve Bank governor and the Reserve Bank itself, as they did when they made that determination in 1996 which the shadow minister referred to in her speech.

I thank the government for producing this bill, because it does open up a debate that we need to have. I thank the coalition for referring the bill to the committee, because the result is that the committee process, as it usually does, exposed, aired and made more apparent some of the real issues and problems that apply to our existing act. I had thought initially that the bill was a very modest one that did not do much harm, and I think the coalition did us a service, in fact, by indicating its weaknesses. I am pleased to see they will be following up with some amendments to reflect their point of view.

The other point I want to make in my opening remarks is that nothing much hangs on this bill. If it does or does not pass, it is not going to alter the fate of Australia much, but it does make a perfect double dissolution trigger as a result. I can envisage a situation where the coalition put forward their amendments, the government refuse them, the coalition insist on them and you can pop a double dissolution trigger into your pocket, as governments like to do. We will see if that is what in fact results from this process. But it is the first bill I have seen which has the genuine potential to be a double dissolution trigger.

The Reserve Bank Amendment (Enhanced Independence) Bill 2008 amends the Reserve Bank Act 1959 to allow the Governor-General—instead of the Treasurer—to appoint, suspend and terminate the Governor and the Deputy Governor of the Reserve Bank, and incorporates parliament in the suspension and termination of those positions. As usual, of course, the Governor-General acts on the advice of the federal Executive Council, which means that cabinet still makes the decision. In reality, nothing changes much. This is a modest bill that does not do much. It marginally increases the independence of the appointment process by going one step further and putting a little more at arms length the present process where the Treasurer appoints the Governor of the Reserve Bank of Australia after the approval of cabinet, to one which ensures the Governor-General—on the advice of the cabinet—appoints the Governor of the Reserve Bank. And when last did we ever see in the last quarter of a century or so a Governor-General refuse to do what the government wants him to do?

Clause 25(8) of the bill amends the act so that the termination of the appointment of the governor or deputy governor would be by the Governor-General in Council, following parliamentary approval. This replaces section 25 of the act, which entrusts this task to the Treasurer. The bill specifies three grounds for the termination of appointment where a governor or deputy governor:

(a) becomes permanently incapable of performing his or her duties; or

(b) engages in any paid employment outside the duties of his or her office; or

(c) 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 government have missed an opportunity to review this 50-year old act, including governance matters, to bring Australia’s central bank legislation up to date with international and domestic law. The present system needs modernising, and the bill is not sufficiently comprehensive. However, I will not deal with the act as a whole; I will just deal with appointment and dismissal issues.

With respect to board appointment and dismissal, by far the greatest criticism in the last decade or two has not been with reference to the governor and deputy governor, but to the Reserve Bank’s board—its composition, its skill set, and its function. That is not to say there have not been good appointments to the board—in some cases, they have been outstanding. But not all board members have passed what I would describe as the ‘excellence’ test. The Democrats are concerned that, whenever appointments are made to institutions set up by legislation, independent statutory authorities, or quasi-government agencies, the processes by which these appointments are made should be—and be seen to be—transparent, accountable, open and honest. It is still the case that appointments made to public authorities are left largely to the discretion of ministers with the relevant portfolio responsibility. It is important that the public have confidence that appointments by the executive are made against core principles of merit, probity and transparency. Indeed, there is a widespread perception that government appointments made through a secret process against unknown criteria at the discretion of the minister or the cabinet can, and do, result in partisan patronage.

A main failing of the present system is that there is no legislation which sets out a standard process to regulate the procedures for making appointments to statutory authorities and other agencies. Perhaps more importantly, there is no external scrutiny or analysis by an independent body of the procedure and merits of appointments. This entrenches the public perception of what is known as ‘jobs for the boys’—and also for the girls, since we stopped discriminating.

The issue of appointment on merit was comprehensively examined by the Nolan committee appointed by the United Kingdom parliament in 1995. The following principles were set out to guide and inform the making of such appointments:

  • A minister should not be involved in an appointment where he or she has a financial or personal interest;
  • Ministers must act within the law, including the safeguards against discrimination on grounds of gender or race;
  • All public appointments should be governed by the overriding principle of appointment on merit;
  • Except in limited circumstances, political affiliation should not be a criterion for appointment;
  • Selection on merit should take account of the need to appoint boards which include a balance of skills and backgrounds;
  • The basis on which members are appointed and how they are expected to fulfil their roles should be explicit; and
  • The range of skills and backgrounds which are sought should be clearly specified.

The UK government fully accepted the Nolan committee’s recommendations. The Office of the Commissioner for Public Appointments in the United Kingdom was subsequently created, with a similar level of independence from the government as the Auditor-General in the United Kingdom, to provide an effective avenue of external scrutiny. Present Prime Minister Brown in the United Kingdom has announced that even better scrutiny will be introduced for appointments in particular areas, including involving parliament’s select committees in the appointment of key officials.

For the health and integrity of Australian democracy, the public must have trust and confidence that the government will not allow improper or irrelevant considerations, political interest or political obligation, to influence public appointments. Yet again, I will test the chamber with an appointment on merit amendment. I have had that turned down around three dozen times by the coalition so far. They would not know an appointment on merit process if they saw one. It is to their great discredit that they were absolutely and implacably opposed to taking up the initiative by the previous conservative government in the United Kingdom, which introduced the Nolan reforms. They were then fully adopted by the Labour government in the United Kingdom.

To a minimal amount of credit—and it is only a minimal amount—the Labor Party in opposition did accept one or two of those appointment on merit amendments of ours, so that was a good sign. But, you have yet to be tested. We will test you, and we will see if you will finally support appointments on merit, or if you will continue to ascribe to the wonderful heritage that you have of eternal appointments that are at your discretion. We will see.

Turning to the governor, the removal or replacement of the Governor of the RBA can be looked at from an objective and subjective basis. Objective issues are those that rest on fact, not opinion, and subjective issues are those that rest on opinion, not fact. I agree with the coalition that dismissal should be mandatory for bankruptcy. I believe the board should have a greater role than they do at present, and one of the weaknesses of the Reserve Bank board is that they do not behave, or are not allowed to behave, as a normal board should. Let us go through those issues.

If we turn to the objective issues—those that rest on fact, not opinion—death, resignation, bankruptcy, physical incapacity, mental incapacity and outside employment, these are issues that should not be the province of the Governor-General, the executive or the parliament. We have no business dealing with those issues. For me, a clean approach to these issues should be, or could be, as follows. For death, the Deputy Governor of the Reserve Bank steps in, the board approves final settlement of terminated employment and the appointment of the successor governor is as per the act. For resignation, the Deputy Governor of the Reserve Bank steps in, the board approves final settlement of terminated employment and the appointment of a successor governor is as per the act. For bankruptcy, the board must suspend the governor as soon as bankruptcy proceedings begin and the Deputy Governor of the Reserve Bank stands in. If the bankruptcy is confirmed then the governor is automatically dismissed, the Deputy Governor of the Reserve Bank stands in, the board approves final settlement of terminated employment for the previous governor and the appointment of the successor governor is as per the act.

For physical incapacity, on the governor being incapacitated, the Deputy Governor of the Reserve Bank steps in. Subsequently, on objective, independent medical opinion, the board can decide that the governor cannot be expected to recover sufficiently or quickly enough to fulfil the governor’s duties. The Deputy Governor of the Reserve Bank stands in, the board approves final settlement of terminated employment and the appointment of the successor governor is as per the act. For mental incapacity, on the governor being incapacitated, the Deputy Governor of the Reserve Bank should step in. Subsequently, on objective and independent medical opinion, the board can decide that the governor cannot be expected to recover sufficiently or quickly enough to fulfil the governor’s duties, the Deputy Governor of the Reserve Bank stands in, the board approves final settlement of terminated employment for the previous governor and the appointment of the successor governor is as per the act.

For outside employment—the last of my objective categories—the governor should be prohibited from outside employment but not from receiving some outside payment, such as royalties from book sales or minor payments. All grey areas should be determined by the board. The board can decide that the governor must be dismissed on outside employment grounds, the Deputy Governor of the Reserve Bank stands in, the board approves final settlement of terminated employment and the appointment of the successor governor is as per the act. None of those objective considerations should have anything whatsoever to do with the Governor-General, the executive or the parliament. What are we doing with this Reserve Bank Act? We are not attending to any of those obvious reforms.

On the subjective grounds, we, the parliament, should be involved. Subjective issues are those that rest on opinion and not fact. There are three possible grounds, but there may be more—performance, misconduct or misbehaviour. And they can mean different things. In my view, the approach should be that, with respect to a governor who loses the confidence of the Reserve Bank board, he or she must go, and that is the end of it. The Deputy Governor of the Reserve Bank would then step in, the board would approve the final settlement of terminated employment and the appointment of the successor governor would be as per the act. You cannot have a governor who does not enjoy the confidence of the board, in the same way as you cannot have a managing director who does not enjoy the confidence of the board.

With respect to the executive, the cabinet, a governor who loses the confidence of the executive should have the matter referred by the executive to the parliament. This is because it may be a partisan political issue. That is a process which already the act is concerned with. Such a person should have his or her future decided by the parliament, which is broadly the intent of the bill and is definitely the intent of the coalition’s amendment. While that process is underway, the deputy governor steps in. If termination is recommended by the parliament, the Deputy Governor of the Reserve Bank stands in, the board approves final settlement of terminated employment and the appointment of the successor governor is as per the act. Frankly, in a situation where the matter is referred to the parliament, I cannot see any governor being willing to go through that. I am sure they would resign, because once it goes through you know it is over, red rover, frankly. That, nevertheless, should be the process.

For the parliament, a governor who loses the confidence of the parliament must also go. While that process is underway, the deputy governor should step in. If termination is recommended by the parliament, the Deputy Governor of the Reserve Bank stands in, the board approves final settlement of terminated employment and the appointment of the successor governor is as per the act. In practice, again, I cannot see any governor being willing to go through this, and I am sure they would resign.

During the committee hearings, there was a fair bit of interesting questioning and answering, and Senator Brandis, who has considerable experience of legal and litigation matters, exposed the difficulty of these matters going through the courts. It is highly undesirable that we have the courts involved in issues to do with the appointment or termination of the Reserve Bank governor or deputy governor—not because it is wrong in principle, which of course it is not, but because the dragged-out process would be dangerous to the financial markets and the security of our country. I would, frankly, try and keep the courts out of all these matters if at all possible.

In my additional remarks to the committee report, I did say that I thought the bill should be amended in at least one respect: to keep bankruptcy a mandated ground for dismissal. But of course anyone who knows anything about Corporations Law—hopefully not as a respondent—would know that the application for bankruptcy takes considerable time; it is not a quick process. So you have to have a process measure in there as well. I really do think bankruptcy is one of those objective grounds which should be simply mandated grounds for dismissal.

So where do I get to at the end of my speech in this second reading debate? I decided not to try to carry through my thoughts into a series of amendments, because I think what the government should do is recognise what the coalition partly recognised when this bill came up—which has, I think, also been more broadly recognised—and that is that this act really does need an overhaul and that it should go back for review, a proper modernisation process and a much cleaner process. And I think the board should be more involved than they have been. I only wish the coalition had had the sense to address this issue and reform the board when they were in power.

I have been pleased to see greater transparency measures emerging with Reserve Bank board practices in recent times, particularly with their greater explanation of their views immediately after their monthly meeting and then the publication of the minutes. I remember that being raised in academic and media debate some years ago. In fact, I remember the journalist who was involved in much of that discussion—Paul Cleary, who eventually went off and did work in East Timor. There should be far greater transparency and far more modern governance arrangements than there have been in the Reserve Bank.

I for one, by the way, am not at all satisfied yet that they have proper procedures for dealing with conflict of interest issues. Members of the chamber who have a political memory of the last decade will know why I make those remarks. I will conclude my speech in the second reading debate on that note.