Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Disclaimer: The Parliamentary Library does not warrant or accept liability for the accuracy or usefulness of the transcripts. These are copied directly from the broadcaster's website.
RBA tells Treasurer 'no dividend this year' -

View in ParlViewView other Segments

ELEANOR HALL: It's been another busy morning for the Treasurer, Joe Hockey.

In one of the rituals for every new Government, he renewed his relationship with the Reserve Bank (RBA) board and reaffirmed that its main job is to keep the nation's inflation under control.

Yesterday Mr Hockey announced that the Government would pump almost $9 billion into the RBA's contingency fund. And today the central bank says it won't be paying the government a dividend this financial year because of its foreign exchange losses.

Also today, Mr Hockey released draft legislation for the repeal of the mining tax.

Joining us now in the studio is business editor Peter Ryan.

So Peter, any surprises in this relationship renewal with the Reserve Bank?

PETER RYAN: Well, no big surprises Eleanor otherwise we might have been leading the program. But as has been the case in 1996, the Reserve Bank does remain independent and arms length from government - in other words, the RBA makes decisions on monetary policy - whether to raise or lower interest rates regardless of the heat of politics of the day.

Although in today's document "Objectives of Monetary Policy" the Government does reserve the right to comment on monetary policy from time to time.

Now, as you said the RBA's key objective of keeping inflation between 2 and 3 per cent on average, over the cycle remains and of course, this time yesterday we were talking about the latest consumer inflation data, up 1.2 per cent in the September quarter.

Also the Government emphasises the role that it can play with fiscal policy; that is taxing and spending in managing the economy. And under this agreement the Treasurer will continue to nominate candidates for the Reserve Bank board.

The government has also recognised the need for the RBA to have a strong balance sheet which is in the news at the moment and the Treasurer says that the Government will "pay due regard" to that when deciding on the distribution of the RBA's earnings under the Act.

ELEANOR HALL: Well, Mr Hockey got a very direct message on the RBA's dividend when its annual report was released this morning, didn't he?

PETER RYAN: Yes, and the RBA says that it won't be paying the Government a cent of a dividend for the last financial year.

The RBA's governor Glenn Stevens says there had been "a notable decline" in the exchange rate of the Australian dollar in the year under review. Mr Stevens said the high dollar affected the RBA's balance sheet and earnings although it did report an accounting profit of $4.3 billion and its assets have grown in value by $3.6 billion.

But all of this underpins the Government's decision announced yesterday to pump $8.8 billion into the RBA's reserve fund - so it's prepared for any financial shocks. For example if the US budget and debt ceiling drama re-emerges as expected in February next year. And Mr Stevens, by the way, earned almost $987,000 over the year - a bit down on the previous year when he was on just a little bit over a million dollars.

ELEANOR HALL: Nice work if you can get it. Now also today, Mr Hockey moved closer to repealing the mining tax?

PETER RYAN: Yes, Mr Hockey this morning released draft legislation to abolish the Minerals Resource Rent Tax from the first of July next year. Now this is the watered-down tax introduced by Labor after the Super Mining Profits Tax sparked a major war with the big miners, and Labor had planned to use some of this tax revenue to raise the employer superannuation from 9.25 per cent, up half a percentage point each year until it reaches 12 per cent in 2019.

That's now off the agenda, the Coalition will be a bit slower in doing that. But Mr Hockey says the repeal of the mining tax will save $13 billion from the budget bottom line over four years, and once again Mr Hockey used this as an opportunity to refer to the quote "fiscal damage" done by Labor.

ELEANOR HALL: And looking at the global economy, there was news of higher interest rates in China. How did investors react?

PETER RYAN: Yes, well on that news which came out of the blue a bit, Wall Street closed a third of 1 per cent lower. That was after the People's Bank of China, China's equivalent of Australia's Reserve Bank raised short term interest rates in a bid to tame inflation.

There are concerns though that this tighter lending in China could restrict growth for the world's second biggest economy and when that hit late yesterday in Shanghai, the Shanghai Composite Index ended down more than 1 per cent.

This morning Tokyo's Nikkei Index is down around 0.6 of 1 per cent.

Australian shares are around about a third of 1 per cent higher however, but those concerns have hurt BHP Billiton, down a third of 1 per cent. Fortescue Metals down around about 1 per cent.

The Australian dollar just to conclude has fallen heavily on that news from China. This morning it's buying 96.36 US cents.

ELEANOR HALL: Peter Ryan, our business editor, thank you.