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Monday, 23 June 2008
Page: 3005

Senator BUSHBY (1:49 PM) —I rise today to speak on what I believe to be a highly flawed bill. The Reserve Bank Amendment (Enhanced Independence) Bill 2008 is nothing more than a stunt to create the impression that the Labor government is doing something to address the terrible lack of independence in the Reserve Bank, something it never revered as special or noted as lacking whilst in opposition. Worse, the fact that the bill is replete with holes that are likely to have perverse consequences highlights the Treasurer’s rush to bring this very thin bill to parliament when there was absolutely no reason for haste. It is an example of Labor’s symbolism at its worst.

The need for legislative change to deliver greater independence to the Reserve Bank is not one that has been pressing those who follow financial matters. On the contrary, it is fairly well settled that the Reserve Bank is extremely independent, and this was demonstrated in practice in extremity only last year during the election campaign, when the bank took the unprecedented move of raising the official rate mid-campaign. And on the international rankings of central bank independence—and, yes, such rankings do exist—Australia ranks highly in terms of economic independence but lower in terms of political independence. Why is it lower in terms of political independence? Is it to do with the process involved in removing a board member or the governor, or is it even related to this? Not at all. The only reason the Reserve Bank’s political independence does not rank as highly as its economic independence is that it has the Secretary of Treasury on its board as of right. And, prior to promising to increase the bank’s independence in the lead-up to the election, Labor had never raised its independence as an issue. In fact, the Labor Party is very much a Johnny-come-lately to Reserve Bank independence.

In 1996 Labor criticised the coalition’s reforms to enhance the independence of the Reserve Bank, with the then Leader of the Opposition, Kim Beazley, stating that he was seeking legal advice because Labor did not support the statement on the conduct of monetary policy that then Treasurer Peter Costello signed with then Governor Ian Macfarlane. Remember, this is a Labor Party where Paul Keating said to the Canberra press gallery, as Senator Hurley has already acknowledged today:

I have Treasury in my pocket, the Reserve Bank in my pocket, wages policy in my pocket, the financial community both here and overseas in my pocket.

That was in December 1990, when the CPI was 6.9 per cent, the RBA’s weighted median was six per cent and its trimmed mean was 6.2 per cent and the unemployment rate was 7.2 per cent—all this in an economy still experiencing the disastrous effects of Mr Keating’s ‘recession that we had to have’. The Treasurer also seems to have had little regard for independence, as he showed in an interjection to comments by the then member for La Trobe in the other place on 7 June 1994. The member for La Trobe said:

What does that amount to if it does not amount to an attempt to interfere in international document making by an independent international authority, the OECD?

Mr Swan replied:

So what?

Such commitment to central bank independence! Now we have Labor experiencing a new enlightenment, which sees them promoting the idea of an independent central bank—something the coalition strongly legislated for, enforced and backed throughout the last 11 or so years it was in government. I put it to you, Mr Acting Deputy President, that their conversion is a charade—a public relations exercise, a sham.

On 30 October 2007 Mr Swan said:

A Rudd Labor Government will improve the transparency of future Reserve Bank Board appointments and remove political considerations from the selection of candidates. It will also improve procedures to ensure only the best qualified candidates are appointed.

From the perspective of the Labor Party, making appointments to the Reserve Bank, such a statement is highly desirable because Labor’s track record is a little concerning. Bob Hawke, a well-known political independent, was put on the board. Why? Because he was ACTU president. Bill Kelty, a party president and financial controller, was on the board. Brian Quinn was on the board, and later went to jail. All were Labor appointments. And there are many other examples, and all of them ‘independent’. I ask you!

So how will Labor move to improve their record in this regard? Mr Swan said they would ask the Reserve Bank governor and Treasury secretary to advise on new procedures to safeguard against candidates with partisan political commitments being shortlisted for consideration by the Treasurer. Prior to these new procedures starting—in April this year, I believe—the governor and secretary would provide a list to the Treasurer, who would make a decision but not necessarily from the list provided. At budget estimates I asked the Secretary to the Treasury, Dr Ken Henry, how their new procedures would play out in practice. He said the primary difference from the previous situation was that they would still provide a list but that the Treasurer had agreed that he must select from that list. This sounds fine but when I asked him how the parliament or the people of Australia could verify that any new appointees had been selected from those included on the list—given that the list would never be made public—he could not provide an answer. So, in the absence of such an answer, there is absolutely no assurance available that the new process is any different from that which was instituted by and worked well under the previous government. Once again, it is spin over substance.

I now come to the specific provisions of this bill. On 6 December 2007, Mr Swan signed and released a statement on the conduct of monetary policy that was essentially the same as that signed by Peter Costello and the governor previously. The statement and associated media release also contained the following statement:

To enhance the independence of the Reserve Bank, the positions of Governor and Deputy Governor will be raised to the same level of statutory independence as the Commissioner of Taxation and the Australian Statistician.

The appointments of Governor and Deputy Governor will be made by the Governor-General in Council and their terminations will require parliamentary approval. Currently the Governor and the Deputy Governor are appointed by the Treasurer and their appointment can be terminated by the Treasurer.

The bill proposes to amend the Reserve Bank Act 1959 so that the Governor-General, rather than the Treasurer, will be responsible for the appointment of the governor and deputy governor of the bank. This is a return to the situation that existed before the commencement of the Financial Sector Legislation Amendment Act (No. 1) 2003, which, supported by Labor in opposition, amended the RBA Act so that the Treasurer appointed officers and board members so as to streamline the appointment and termination process. Appointments to the Reserve Bank board and payment system board, however, would remain under the administration of the Treasurer. In addition, the bill would require a vote of both houses of parliament on specified grounds to dismiss the governor.

The bill has a separate provision for the suspension of the governor or deputy governor, so the bill would lead to the governor and deputy governor being appointed by the Governor-General, with appointments to the two boards remaining in the purview of the Treasurer.

The Treasurer claims that the bill would lead to the RBA governor having the same status appointment-wise as the Australian Statistician and the Commissioner of Taxation, but—and this is a crucial difference—the ATO and ABS do not have a board of directors and the matters that go to parliament when considering termination are quite different.

Section 24(1)(c) of the RBA Act provides that a governor and deputy governor hold office subject to good behaviour, yet Labor’s amendments provide that the parliament may only pray for their removal on one of three grounds:

(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 ...

That means that, if Labor’s bill is enacted, the parliament would not be able to remove a governor or deputy governor for misbehaviour. The parliament would only be able to remove a governor or deputy governor on three grounds: incapacity, paid employment or bankruptcy—three grounds that are essentially matters of fact.

Section 24(1)(c) of the RBA Act would remain as it is, so the Treasurer would, presumably, still have authority to terminate a governor on grounds of misbehaviour, although this would be less clear should this bill pass. That would be a very tricky situation. Although a Reserve Bank governor has never been dismissed, laws are written to address extreme cases—and a misbehaving governor is one such case. Imagine if you will a governor whose behaviour was of such an appalling nature that the credibility and reputation of the Reserve Bank was suffering. Imagine the potential effects on the confidence of the financial market and the consequences if, in such a circumstance, the unclear nature of the amended RBA Act meant that the Governor-General in Council was unsure about his or her power to terminate the governor for misbehaviour and the misbehaving governor had strong grounds to challenge his or her attempted dismissal. Do not think this is some arcane debate, as suggested by Senator Hurley. Australia has been well served by our Reserve Bank governors and deputy governors, present and past, but a rampaging, misbehaving or irrational governor could cause untold damage to the economy in short order, unlike, say, a tax commissioner or statistician.

Look at the example of the then governor of the Bank of Italy, Antonio Fazio. The scandal with regard to Italy’s central bank governor lasted over six months and badly damaged the reputation of a once august institution. Are we so precious to think that it is impossible for such an event to happen in Australia? The bill produces the absurd result of two dismissal procedures: to the parliament for the factual determination of incapacity, paid employment or bankruptcy and to the Governor-General for the more controversial determination of misbehaviour. Compare this with the RBA Act as it stands, which reads that a Treasurer must terminate the appointment of a governor or deputy governor on the three factual grounds. The bill takes this and makes it an optional decision of parliament. So the parliament might decide to let a bankrupt governor continue in office or it might decide to let a governor who is permanently incapacitated—

Debate interrupted.