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Reserve Bank Amendment (Enhanced Independence) Bill 2008

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2008

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

(Circulated by the authority of the

Treasurer, the Hon Wayne Swan MP)



T able of contents

General outline and financial impact……………….... …………………..3

Chapter 1          Amendments ..….…......... …………………………………5

Index                  ………………………………............. ……... .........................9

 



G lossary

The following abbreviations and acronyms are used throughout this explanatory memorandum.

Abbreviation

Definition

RBA

Reserve Bank of Australia



G eneral outline and financial impact

Amendments

Schedule 1 of the bill amends the Reserve Bank Act 1959 to enhance the independence of the Board of the Reserve Bank of Australia (RBA), by removing the authority of the Treasurer to appoint, suspend and terminate the positions of the Governor or Deputy-Governor of the RBA, and placing this authority in the hands of the Governor-General.

Schedule 1 of the bill also outlines that, in the case of the termination of the positions of the Governor or the Deputy-Governor of the RBA, the Governor-General exercises this authority at the discretion of the Parliament.

Schedule 1 of the bill also amends the Reserve Bank Act 1959 , such that the Governor or Deputy-Governor of the RBA, should they resign from office, provide a written letter of resignation to the Governor-General.

Date of effect The amendments to the Reserve Bank Act 1959 contained in this bill will commence the day after it receives Royal Assent.

Proposal announced This measure was announced in a joint press release between the Prime Minister and the Treasurer on 6 December 2007.

Financial impact Nil.

Compliance cost impact Nil.



C hapter 1     

Amendments

Outline of chapter

1.1                   Schedule 1 of the bill amends the Reserve Bank Act 1959 to enhance the independence of the Board of the Reserve Bank of Australia (RBA), by removing the authority of the Treasurer to appoint, suspend and terminate the positions of the Governor or Deputy-Governor of the RBA, and placing this authority in the hands of the Governor-General.

1.2                   Schedule 1 of the bill also outlines that, in the case of the termination of the positions of the Governor or the Deputy-Governor of the RBA, the Governor-General exercises this authority at the discretion of the Parliament.

1.3                   Schedule 1 of the bill also amends the Reserve Bank Act 1959 , such that the Governor or Deputy-Governor of the RBA, should they resign from office, provide a written letter of resignation to the Governor-General.

Context of amendments

1.4                   These amendments respond to the model of central bank independence in implementing monetary policy that is now regarded as international best practice.

1.5                   The amendments contained in this bill form part of the Government’s commitment to enhancing the independence of the RBA.

1.6                   The Prime Minister and the Treasurer jointly announced on 6 December 2007 that the appointments of Governor and Deputy-Governor will be made by the Governor-General in Council and their terminations will require Parliamentary approval .

Summary of new law

1.7                   The amendments provide that the authority to appoint, suspend and terminate the Governor or Deputy-Governor of the RBA will be transferred from the Treasurer to the Governor-General, and that the decision to suspend or terminate either the Governor or Deputy-Governor of the RBA will be made on the grounds of the following conditions.  [Item 3, subsection 8 of the Reserve Bank Amendment (Enhanced Independence) Bill].

If the Governor or Deputy-Governor:

•        becomes permanently incapable of performing his or her duties; or

•        engages in any paid employment outside the duties of his or her office; or

•        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.

1.8                   The amendments also provide that both Houses of Parliament must resolve, in the same sitting, to address the Governor-General praying for the termination of the Governor or Deputy-Governor, based solely on the above conditions.   [Item 3, subsection 8 of the Reserve Bank Amendment (Enhanced Independence) Bill] .

1.9                   These amendments also provide that should the Governor or Deputy-Governor of the RBA resign from office, they are to provide a written letter of resignation to the Governor-General.

Comparison of key features of new law and current law

New law

Current law

The Governor-General will have the authority to appoint, suspend or terminate the Governor or Deputy-Governor of the RBA, subject to the conditions specified in Item 3, subsection 8 of the Reserve Bank Amendment (Enhanced Independence) Bill.

The appointment of the Governor or Deputy-Governor can be terminated, at the request of both Houses of the Parliament; however, both Houses of Parliament must concede that the Governor or Deputy-Governor has failed in their duties, based solely on the above specified conditions.

Should the Governor or Deputy-Governor of the RBA resign from office, they are to provide a written letter of resignation to the Governor-General

The Treasurer has the authority to suspend, or terminate the Governor and/or Deputy-Governor of the RBA, on the grounds specified in section 25 of the Reserve Bank Act 1959 .

The Treasurer is not accountable to the Parliament in his or her decision to suspend or terminate the Governor and/or Deputy-Governor, should he or she choose to do so.

Should the Governor and/or Deputy-Governor of the RBA resign from office, they are to provide a written letter of resignation to the Treasurer.

Detailed explanation of new law

1.10               This bill provides for enhanced independence of the RBA by increasing the statutory independence of the positions of the Governor and Deputy-Governor of the RBA.

1.11               Greater protection will be provided to the positions of the Governor and Deputy-Governor of the RBA, as their appointments will be made by the Governor-General, and their removal will require the approval of both Houses of Parliament.

1.12               Under the current law, the Treasurer has the sole authority to appoint, suspend and terminate the Governor and/or Deputy-Governor of the RBA, and thus, may do so without reference to the Parliament.

1.13               This bill provides that the Governor-General may appoint the Governor or Deputy-Governor of the RBA, subject to the conditions outlined in section 24B of the Reserve Bank Act 1959.   [Item 2 of the Reserve Bank Amendment (Enhanced Independence) Bill] .

1.14               Currently, the Treasurer may terminate or suspend the positions of the Governor or Deputy-Governor of the RBA under the following conditions:

If the Governor or Deputy-Governor:

•        becomes permanently incapable of performing his or her duties; or

•        engages in any paid employment outside the duties of his or her office; or

•        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.

1.15               This bill will preserve these conditions for vacation of office, as outlined in the Reserve Bank Act 1959 , as grounds for termination.  However, the authority to suspend or terminate the Governor or Deputy-Governor of the RBA will belong to the Governor-General.   [Item 3, of the Reserve Bank Amendment (Enhanced Independence) Bill] .

1.16               This bill provides that the Governor-General may suspend the Governor or Deputy-Governor from office on a ground of vacation of office, as specified in [Item 3, subsection 8 of the Reserve Bank Amendment (Enhanced Independence) Bill] .

1.17               This bill provides that the Treasurer or Treasurer’s representative must identify, to each House of Parliament, within 7 sitting days of the suspension of either the Governor or Deputy-Governor the reasons for their suspension.

1.18               A House of Parliament may, within 15 sitting days, declare by resolution that the appointment of the office holder identified should be terminated.  Providing that this resolution is passed by each House of Parliament, in the same session of the Parliament, the Governor-General is obliged to terminate the appointment to which the resolution relates.

1.19               This bill provides that the suspension of the Governor or Deputy-Governor does not affect their entitlement to be paid remuneration and allowances.



I ndex

Schedule 1: Amendments

Bill Reference

Paragraph number

Item 2

1.13

Item 3

1.15

Item 3, subsection 8

1.7, 1.8, 1.16