Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
 Download PDFDownload PDF   View Parlview VideoWatch ParlView Video

Previous Fragment    Next Fragment
Economics Legislation Committee
27/10/2020
Estimates
TREASURY PORTFOLIO
Reserve Bank of Australia

Reserve Bank of Australia

[13:59]

ACTING CHAIR: I welcome the Reserve Bank of Australia, represented by Dr Guy Debelle and Ms Michele Bullock. In welcoming the RBA, the committee recognises the central bank's independence under the Reserve Bank Act 1959, particularly in regard to its setting of monetary policy. The committee is cognisant that, while the RBA does not receive annual appropriations, it does provide the parliament with opportunities to discuss its insight and performance, which the committee greatly welcomes. As such, no government minister will be in attendance with the committee while representatives from the RBA are present. As chair, I'm looking to ensure that the usual considered restraint is applied by senators, as we have a limited amount of time available to us. It's my understanding that you do not wish to make an opening statement. Is that correct? Perhaps you're on mute there, Dr Debelle.

Dr Debelle : Apologies.

ACTING CHAIR: Don't worry. We've had far more serious technical issues than that today. I will just confirm that you don't have an opening statement.

Dr Debelle : That's correct. I said that while muted.

ACTING CHAIR: Thank you. Senator Scarr, you have the call.

Senator SCARR: I want to ask some very limited questions about the ASX CHESS replacement project. First, by way of introduction, I really congratulate the RBA and ASIC for the recent announcements they made, in October 2020, about the supervisory engagement that the two regulators responsible for ASX are undertaking. I think it was an excellent document. I just have one line of questions in relation to the document that was released. To whom should I address these questions?

Dr Debelle : To Michele. She has full carriage of this.

Senator SCARR: Okay. Lucky you, Michele! It's a big project, and I can only pretend to understand how complicated it is. It's a huge project but also an absolutely vital project. I just want to refer to page 30 of the document. I'll quote the paragraph to you, and I'm sure you'll be across it. It says:

The Bank expects ASX to demonstrate that the CHESS replacement system is operationally resilient before going live. This will include ASX providing external assurance that the 'non-functional' business requirements outlined above have been met.

I note that the non-functional business requirements are listed on the previous page and include items such as availability, recovery, performance and scalability, and information security. The particular question I have is: given how important that independent assurance is, what is the RBA's expectation for how the independent expert would be appointed, the scope of work for the independent expert, whether or not the independent expert would be permitted to engage on a confidential basis with key stakeholders, including users of the systems, and how the independent expert will report to the regulators. Just to give you some context, from my perspective I think it would provide confidence to the market if the independent expert is not just named 'independent expert' but everything related to the appointment of the independent expert, their scope of work et cetera is seen by the market to be truly independent. I'm just wondering if you could comment on that, please.

Mr Bullock : Sure. Let me say upfront that ASX isn't in a position yet for us to examine the production system, because it isn't ready yet. Having said that, on the sorts of things that you have talked about, I will talk quickly about appointment. I would envisage that ASX would work with ASIC and the bank to get someone who is acceptable to the regulators. It wouldn't just be up to ASX; we would need to make sure we were involved and would approve of the appointment, for the reasons you suggest—that they're independent and that they're not checking their own homework.

The second point, on scope, I would also suggest that when the time comes, as we have done with previous—we have previously worked with ASX to get an operational review done, and we worked with them to get the scope done as well. So the Reserve Bank and ASIC would be working with ASX to make sure the scope was appropriate.

As to engaging with the stakeholders, I would have thought that that would be part of it. As I said, having not actually got a project up to do this at the moment, an actual external review, I would have thought that engagement of stakeholders would be important, because you want to understand if the system is meeting the requirements of the stakeholders. Finally, yes, when we have done these things in the past, that's exactly what has happened. The independent expert has provided a report to the regulators, then we have engaged with the independent expert, heard directly from the expert. So all of those things seem like very sensible steps to me and in fact are the sort of steps we have carried out in the past.

Senator SCARR: Excellent. I think that should give everyone a lot of confidence.

Senator ROBERTS: Thank you for attending today. I've seen reports that the Reserve Bank has printed an extra $12 billion in banknotes this year to keep up with demand. Do you have the accurate figure, please?

Dr Debelle : I do. I can provide you with an accurate figure. Yes, we have printed extra bank notes because there has been additional demand. Between 16 March and 6 August we printed 220 million banknotes worth $12.5 billion and they were issued into circulation. I don't have the most up-to-date information to hand, but I can provide that.

Senator ROBERTS: If you could, that would be appreciated.

Dr Debelle : I don't have it completely to hand. I may have it before we finish this line of questioning.

Senator ROBERTS: That's impressive. The Reserve Bank's written answer to my question on notice from the February estimates—it's reference AET93—included this response—I'm slightly paraphrasing: 'While cash is used less frequently in Australia, it is still widely held for precautionary purposes and some members of the community rely very heavily on cash for their daily lives. Cash remains an important payment method for older households, those with disabilities and those living in rural and remote areas where electronic banking may not function reliably.' Do you consider that people are voting with their feet and withdrawing cash to get ahead of the cash ban bill?

Dr Debelle : What we have seen is increased demand for banknotes, as you just highlighted in your previous question. I think that is mostly as a store of value. What we've seen is around 50s and 100s in particular; actually mostly 50s. I think it is primarily as a store of value, particularly in a world where interest rates are as low as they are.

Senator ROBERTS: So people have an alternative in cash. People need that alternative. Does the Reserve Bank support withdrawal of the widely criticised cash ban bill and instead support the development of a bill that actually addresses money laundering and tax compliance? In other words, is it time to kill the cash ban bill?

Dr Debelle : We're part of the Black Economy Taskforce and we're comfortable with the recommendations of that.

Senator ROBERTS: Item 1.27 of the Economics Legislation Committee's report on the bail-in bill includes this statement:

The Reserve Bank of Australia … indicated the information provided by the Treasury to the committee's inquiry was consistent with their views.

Is this correct?

Dr Debelle : I have no reason to suspect otherwise.

Senator ROBERTS: How did the RBA communicate with the committee? Because my office saw no submission.

Dr Debelle : I will have to take that on notice. I did not have direct involvement with this. Michele, I don't know if you can answer this?

Ms Bullock : I didn't have. I know we had someone on the Black Economy Taskforce but I'm not aware of this particular bill.

Senator ROBERTS: Could you also send me the full comments that you made to the committee.

Dr Debelle : Sorry, the committee on the bail-in bill?

Senator ROBERTS: Yes, please. Your views to the committee include this statement: 'The Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Act 2018 did not include a statutory power for APRA to write down or convert the interests of depositors as unsecured creditors of a failing ADI.' Is this correct?

Dr Debelle : Yes. Michelle, I think you can confirm that.

Ms Bullock : Yes, our view is that it does not include those sort of provisions.

Senator ROBERTS: The G20 Financial Stability Board's Key attributes of effective resolution regimes for financial institutions, adopted by Australia in October 2011, states: 'Powers to carry out bail-in should enable authorities to convert into equity'—meaning shares of the bank in this case—'all or parts of unsecured creditor claims.' And elsewhere it says that means deposits. We have a clear obligation, then, under this agreement, to provide a bank bail-in mechanism. If the 2018 act did not do that, where else is that provision?

Dr Debelle : We have depositor preference, as you may be aware, and a deposit guarantee—sorry, we have a deposit guarantee scheme, which guarantees bank deposits.

Senator ROBERTS: I understand the timing of that doesn't quite back up what you're saying. Let me look at that more closely. New Zealand responded to the Financial Stability Board's instruction to pass bail-in laws with their open bank resolution system. The New Zealand Reserve Bank explains this is a follows: 'If a bank fails, it is placed under statutory management and closed. If losses cannot be covered by shareholder funds, then a proportion of depositors' funds are set aside and frozen for the purpose, then the bank reopens.' That could not be clearer. New Zealand has a bail-in l   aw. The UK and Canada have the same bail-in laws. I ask you again, if the crisis resolution act did not establish bail-in laws, where are ours?

Dr Debelle : As I just said, we have a depositor protection scheme in Australia. Michele, do you want to add anything to that?

Ms Bullock : No, only that our understanding of the bail-in laws, and I think APRA's understanding of the bail-in laws, is that they apply to certain hybrid instruments which may be bailed in, not depositors. Depositors have depositor preference and also the Financial Claims Scheme. My understanding, and I think it's the common understanding, is that bail-in does not apply to deposits in Australia.

Senator ROBERTS: I put it to you that it is our obligation under the G20 agreement to conduct a bail-in if a bank fails, that the 2018 act was specifically written to allow a bank bail-in, and that the wording chosen in the 2018 act was deliberately obtuse to hide that fact.

Dr Debelle : I'd like to confirm that we have depositor protection. You can take this issue up with APRA when they come later on, but that's the state of play in Australia.

Senator ROBERTS: Thank you. I have some more questions to put on notice.

Senator McKIM: I have a couple of questions on two topics. The first is to allow the committee to understand any work that the RBA has done around the value of Australia's fossil fuel impacts, and if there is a decline in that value, what the impact on the Australian economy might be. Can I firstly ask, is that something the RBA has done some work on?

Dr Debelle : Yes. As you note, obviously, coal is a reasonably large export for Australia. We have done some thinking about what would happen if the value of those coal exports were to decline, taking into account the other opportunities in the energy space as well. But, yes, that is something we have done some thinking about.

Senator McKIM: You probably would be aware the Office of the Chief Economist has put the value of Australia's fossil fuel exports in 2019 at $120 billion. Has the RBA done any work to understand what the value of Australia's fossil fuel exports will be in the 2020 year?

Dr Debelle : No, not off the top of my head, but I would take it that the amount of exports hasn't materially changed. What will be the main change will be the value of them, reflecting changes in the price between 2019 and 2020.

Senator McKIM: But the RBA has not done any specific work on that value; is that your advice?

Dr Debelle : I'll have to get back to you on that. Do we have a value for our coal exports? Yes, we do. I don't have it off the top of my head, sorry.

Senator McKIM: Perhaps you could take that on notice and deliver that, if possible, in terms of our entire fossil fuel exports and then break it down into categories, including a breakdown between metallurgical coal and thermal coal.

Dr Debelle : Sure.

Senator McKIM: And whatever other categories you're able to break it down into.

Dr Debelle : Yes.

Senator McKIM: Within the last month, we've had Japan, China and South Korea all pledging to reach net zero emissions by 2050.

Dr Debelle : Yes.

Senator McKIM: Those three countries collectively make up 87 per cent of Australia's LNG exports, 75 per cent of our thermal coal exports and 52 per cent of our metallurgical coal exports. Obviously, the further we project into the future, the more difficult it is to have a level of certainty around what's going to happen. Would the RBA accept the principle that fossil fuel exports from Australia are likely to be in structural decline and, if so, what would that mean for our long-term economic outlook in Australia?

Dr Debelle : We have been doing some thinking about that. There are obviously other opportunities in terms of other energy exports as well, so to determine what energy demand is like, one question is: what is energy demand in those countries likely to be and the emissions content of that energy demand? Those are some of the things we are devoting some time to thinking about, certainly.

Senator McKIM: When you say that you're devoting some time to thinking about that, is there a project, or a body of work, or has something been let out to consultants in this space? What is the nature of the work that the RBA is doing on this issue?

Dr Debelle : We have some analysts who focus particularly on the resource side of things, and some of the analytical thinking that they are doing is around those exact sorts of questions that you've just posed.

Senator McKIM: Would that work that's being done by the analysts be likely to result in presentation to the board, or how would that work be factored into the decision-making processes of the RBA?

Dr Debelle : We published something on this general area, particularly around the coal side of things, off the top of my head, I would say 18 months or maybe two years ago, but some time in the last two years. That was, I think, in one of our statements of monetary policy or an RBA Bulletin article. Again, I can provide that directly to you. Those are the sorts of outlets that we put some of this sort of analysis in, and the analytical work that our staff do generally also feeds into the Reserve Bank Board, obviously. On this sort of area, we have, in the past, put our analytical work in the public domain, and in all likelihood will do so in the future.

Senator McKIM: The central recommendation of the IMF's latest World economic outlook is that governments should simultaneously aim to mitigate climate change and bolster the recovery through things like sizeable green public infrastructure investment, a price on carbon and compensation for lower-income households. Does the RBA agree with the general thrust of the IMF's recommendations in its latest World economic outlook report?

Dr Debelle : It's primarily an issue for you the government, in terms of energy policy. Energy policy is not our bailiwick, clearly. That's very much in the government's domain or the parliament's domain, more generally.

Senator McKIM: Okay, but do you or the RBA think that a failure to do what the IMF is calling for would have an impact on Australia's economy more broadly?

Dr Debelle : I'll provide you the article. Previously, it was in September 2019 on the changing global market for Australian coal. Someone has just, helpfully, provided me with the answer. We are looking at the impact of climate on the Australian economy, more generally, including on the financial system, and working to that end, working with APRA, around the impact of that on the Australian financial system. We have some work that has been underway for a little while now, in terms of a climate vulnerability risk assessment of the Australian financial system, which we are taking forward in the new year.

Senator McKIM: Thank you. Would the intention be to publicly release that, at some stage?

Dr Debelle : Yes, absolutely.

Senator McKIM: That's great, thank you. That leads, I guess, to the second topic I had, which is about climate risk. Through the climate and recovery initiative we've got Australian businesses, unions and government officials working on an agreed approach to a transition to zero emissions, which includes integrating climate risk assessments into policymaking. From the RBA's perspective, do you have any view on what might be the most useful next step for Australia to take on climate risk? For example, do you think we should develop a standard reporting framework for climate risk?

Dr Debelle : That's something ASIC is looking at, in terms of disclosure. I'm sure they'll be happy to answer questions on that particular aspect later. In terms of a more standardised—that's one thing they've been providing a fair bit of focus on over the last 12 months now, I suppose. From our point of view, what we are looking at is having a standard framework to assess the climate vulnerability risk of the financial sector and trying to do that in a fairly uniform way, as much as is possible in this space, at least to provide some consistency to the reporting and to the analysis.

Senator McKIM: And that's the work that you spoke about a moment ago—

Dr Debelle : Yes. We're looking to take forward that aspect of—

Senator McKIM: Thank you. So you'd be aware that New Zealand is set to mandate climate risk reporting for large financial institutions by 2023. I understand you're doing some work, at the moment, in this space but does the RBA have a view on whether large Australian financial institutions will be ready for such a step, and does the RBA think that, ultimately, mandatory climate risk reporting is inevitable for large financial institutions in Australia?

Dr Debelle : I suppose what I would note is we've seen, over the last 12 months, that at nearly every AGM this has been a common topic of questioning. To some extent, I would say the pressure from the marketplace, for want of a better term, has been there for exactly the sort of reporting that you're talking about. From our point of view, when we move ahead on this vulnerability assessment, we will be putting that in the public domain. My general sense is that larger financial institutions are reasonably well placed to be able to do that. I suppose we'll find out as we move forward over the course of next year, but I think they've got a reasonable degree of preparedness or readiness for this. A number of them have already moved, in this space, over the last couple of years. I'd say it's improved a lot from where it was even two years ago. I'll have a better sense of that over the next six or nine months or so. I think they've got a reasonable degree of preparedness. I suppose we'll learn more about that over the period ahead.

Senator McKIM: Thanks, Dr Debelle. I appreciate those responses to my questions.

Senator RENNICK: Who audits the RBA accounts?

Dr Debelle : Formally, it's the Australian National Audit Office. They are the formal auditor of our accounts. We tabled our annual report a few weeks ago, and the ANAO is the formal auditor. They employ an external auditor, which is KPMG, to assist them in that audit.

Senator RENNICK: Who audits Australia's gold holdings and how often is there a stocktake of those gold holdings?

Dr Debelle : We do that. Our internal audit department do that. They are at the Bank of England—the gold holdings—and we audit that every three years. I think it's every month—either every month or every quarter—we get an update on the serial numbers of the bars that we hold. We actually go in and formally audit that every three years. I'll confirm to you exactly the frequency, but that's my understanding.

Senator RENNICK: Great. So you've got the serial numbers of all the bars that add up to 80 tonnes worth.

Dr Debelle : Yes.

Senator RENNICK: And you do a stocktake of that as well. So you stocktake the entire 80 tonnes worth every time you do an audit?

Dr Debelle : Yes. It's an audit process. There's a sampling element to it. So they don't bring out every single bar.

Senator RENNICK: Do you know that the whole 80 tonnes is there, if you're only sampling part of it?

Dr Debelle : One of the reasons that they don't move every bar is that every time you move a bar a bit of gold flakes off. So they don't bring out every bar. With every audit, we do a sample approach. That's true of gold as it is with any other asset we hold.

Senator RENNICK: Since the RBA has gained independence—

Dr Debelle : Sorry; I can confirm that it is every three years that we audit the gold holdings.

Senator RENNICK: Thank you. Since the RBA has become independent, you have lowered interest rates to zero. That has inflated house prices in our major capitals to 13 times earnings. It has destroyed retiree incomes. We've got the second-highest household debt in the world. And we've allowed foreigners to come in and buy a lot of our infrastructure. Do you think the RBA has done a good job of managing monetary policy since you became independent?

Dr Debelle : Our objective is to maintain full employment for the Australian population and to ensure a low and stable rate of inflation. They are our stated objectives in the Reserve Bank Act. Prior to the pandemic, which has obviously severely disrupted the economy, we were close to full employment at the beginning of this year and we had inflation only marginally away from—

Senator RENNICK: House prices have risen by seven per cent on average for the last 30 years. Is there any reason why you don't include existing dwellings in the inflation figure—because, if you were to do that, you would never have been able to lower interest rates as low as you have.

Dr Debelle : We have a number of objectives, which includes full employment. I would put it to you that if we had higher interest rates, we would have lower employment over that period of time, which is something that directly affects the welfare of the Australian people. The Australian Bureau of Statistics is the one who compiles the consumer price index, not us. We don't compile the index that we target. They include in that a measure of the cost of building a house, but they don't include house prices per se.

Senator RENNICK: We have lowered interest rates to 0.25 per cent now. We have run out of petrol in the tank, and there's nowhere to go. We can't continue to lower interest rates and inflate asset prices—keeping our youth out of houses. A recommendation that was mentioned in the 1937 banking royal commission was that the central bank should control the volume of credit in the system. Had you controlled the volume of credit in the system, rather than letting foreign banks come in here and lend trillions of dollars to private investors, we could have built a lot of infrastructure instead of overinvesting into housing. I notice you now are going to go to quantitative easing. One of the things you have done is open up a term funding facility of up to $200 billion to buy mortgage bonds from banks. The question I've got is: why are you lending to private banks when section 27 of the 1959 RBA Act says that you're meant to be banker to the government and section 26C says that 'subject to this act, you shall not carry on business otherwise and as an central bank'? Shouldn't you just be lending to the government rather than to private banks, and shouldn't the banks themselves be looking after their own concerns, because, really, that's a form of rent seeking?

Dr Debelle : We are still the banker for the government. The government has around $80 billion on deposit with us at the moment. So we still absolutely are the banker as we have been and continue to be—the banker for the government. We provide funding for the banking system to try to achieve those objectives that I was talking about earlier. We're in the middle of a large recession in the country at the moment, and we're doing our best to support the government in trying to get the economy back to full employment. This mechanism of lowering funding costs and keeping interest rates low across the economy is trying to support lending to businesses and to households. That lending to businesses and households goes through the banking sector. They are the providers of the credit to businesses and households. We are trying to assist that process by lowering the funding costs of the banking system so that they in turn can lower the funding cost to businesses and households.

Senator RENNICK: Okay. I'll just finish with one statement more than a question, really. If I were to end up on a desert island, would I go to a bank or would I go and look to control the means of production? The problem with monetary policy is that we've always focused on the markets and we haven't actually used our credit to build enough infrastructure. We've now got a situation where we've got foreign-owned sovereign wealth funds coming in and buying our infrastructure rather than an Australian-owned sovereign wealth fund building infrastructure. If we're going to get out of COVID, we've got to build infrastructure. You can shuffle paper in the financial markets all you want, but that is not going to get us out of COVID. The only thing that is going to get us out of COVID is by building infrastructure and making sure that it's actually Australian owned. We need to stop foreign sovereign wealth funds and other foreign investors coming in here and preventing Australians from controlling their own means of production.

ACTING CHAIR: Senator Gallagher, are you seeking the call?

Senator GALLAGHER: Yes, I have a few questions. Dr Debelle and Ms Bullock, thank you for your time today. What is the bank's view of the government's revised fiscal strategy settings? I'm particularly interested in using the comfortably below six per cent unemployment as the benchmark to start returning to normal fiscal settings?

Dr Debelle : Sorry; is your question about the fiscal—

Senator GALLAGHER: Yes. In the government's revised fiscal strategy, they have set the benchmark as a term which they're calling 'comfortably below six per cent' before starting the fiscal repair or returning to a more normal fiscal setting. I'm just asking you what the bank's view of that is.

Dr Debelle : I think that's a reasonable position. As I understand it, the government's position is that the primary goal is to get the economy back to a position where unemployment is below six per cent before they look to materially change the stance of fiscal policy, which I think is a very reasonable approach.

Senator GALLAGHER: I have a few questions around the employment data. What's the bank's view about official employment data using one hour a week of work as constituting enough work to be counted by the ABS as employed in the monthly surveys?

Dr Debelle : That's a standard international definition—it is what it is—and it at least allows comparability across countries. The ABS also provides a large amount of data on underemployment, and we utilise that in trying to inform our assessment of the state of the labour market. Obviously that is particularly relevant in circumstances like at the moment, where the unemployment rate is affected by the various support programs out there and also people's behaviour, given their ability to work around lockdown. One of the measures we're focusing on at the moment particularly is around hours worked in the economy, which gives a reasonable—

Senator GALLAGHER: Sorry?

Dr Debelle : Hours worked.

Senator GALLAGHER: So you are focusing on that. So, using the one-hour definition, which you say is what's used internationally, you would supplement that with other data, like hours worked?

Dr Debelle : Yes, we do, and have done for quite some time—yes, absolutely—and various measures of underemployment as well.

Senator GALLAGHER: In the bank's view—prior to the pandemic—to what extent has underemployment been a factor in low wage growth across the economy?

Dr Debelle : There were a number of factors in low wage growth prior to the pandemic, and that was probably one of them. We—

Senator GALLAGHER: For underemployment?

Dr Debelle : Underemployment was probably a contributor, yes. It was one of a number of contributors to low wage outcomes prior to the pandemic.

Senator GALLAGHER: If that's one of them, what would the others be?

Dr Debelle : The unemployment rate itself was clearly higher than what was necessary to generate upward pressure on wages. The other point I'd note is the phenomenon we've seen right around the world over the past decade, or decade-plus now. There's been a lot of time spent trying to understand what's been driving that, to be frank, a huge amount of work—beyond the fact that I think in our case in Australia, as you said, we definitely had more capacity to employ more people and for more people to be working more hours in Australia prior to all this happening. If we had been able to have those people employed then I do think we might have seen higher wage growth.

Senator GALLAGHER: It was essentially because there was some room in the labour market that wages remained low?

Dr Debelle : That was definitely a contributing factor—probably the main contributing factor.

Senator GALLAGHER: I've just been talking about this with Revenue Group. They're forecasting wages going backwards for a while and then essentially flat wages growth over the medium term. Is there any way of addressing that to support wages growth more than what's happening at the moment? Is there anything specific governments could be doing?

Dr Debelle : The main objective is to try and get people back into employment to support the economy. The government has its fiscal package designed to do that. We are doing our best to try and support that with our monetary policy settings as well. In the end, that's the main game.

Senator GALLAGHER: Yes. In terms of recovery, I think you've spoken in speeches about an uneven recovery, as has the governor.

Dr Debelle : Yes.

Senator GALLAGHER: What are the sectors you've been most worried about, and are there geographic areas of the country that you're concerned about in terms of the recovery.

Dr Debelle : We have a widespread business liaison program right around the country, so we have been talking to a lot of businesses over the past eight or nine months. To your point, clearly it's been uneven because we've had different outcomes in different states. That's been a major driver of the unevenness, for Victoria most obviously. The other thing is areas that are particularly affected where international tourism was a big market—Far North Queensland, again, is pretty obvious—and where the ability of domestic tourists to fill some of that hole has been compromised by the fact that it's a long way to drive to Cairns for most people. Parts of the tourism sector have been clearly affected. The education sector, with international students, is obviously another sector that has been affected. A lot of services sectors—anything entertainment is another one—where either the capacity or the willingness of people to gather in large numbers, where that's been restricted, has clearly had an impact.

That said, on the other side—on the other side of the country, literally—WA are reporting that in some areas, particularly around construction and the like, they're having trouble finding workers, because obviously you can't fly across the country to get a job there at the moment.

Senator GALLAGHER: Does the bank have a view about how long some targeted support might need to be maintained for those areas that have been particularly hard hit?

Dr Debelle : No, in the end that's a decision for the government. The measures that we provide affect everyone. But in the end, that sort of decision is for the government.

Senator GALLAGHER: Is there a risk that withdrawing support too early could stall the recovery?

Dr Debelle : Definitionly, if you withdraw it too early then that isn't good for recovery. You want to do that in an appropriate and targeted way. As best I can tell, it has been acknowledged by the government that it's appropriate to do that.

Senator GALLAGHER: Sorry, I just missed that last bit you said. There's a bit of noise in the room so I couldn't hear your last bit. Did you say that it's for the government to decide when to do that?

Dr Debelle : Yes. But, as best as I can tell, the government is aware of the impact of its measures and the effect of withdrawing them or not on particular sectors of the economy.

Senator GALLAGHER: Okay. I want to ask about your annual report. I'm not sure if this is actually a question you can answer, but I'm going to ask it and you can decide how you handle it. Why do the assistant governors have quite different salary levels when it seems to me that their titles—there are five of them—are all at the assistant governor level?

Dr Debelle : It's mostly to do with when they were appointed. It's slightly awkward with one of them sitting on the call here! I think she's aware of the answer. They have different levels of experience; some of them have been in the job longer than others—

Senator GALLAGHER: Right. So there are increments attached for length of service, are there?

Dr Debelle : No, there's a base level for that salary and there are small increments, but, mostly, it's if you've been—Michele is the longest-serving assistant governor, I think.

Ms Bullock : Chris Kent is, I think

Dr Debelle : There you go—

Ms Bullock : Oh, no, you're right—it's probably me.

Dr Debelle : So it's the length of time they've been in that position, basically. We have a base level for that and some of them have been there longer than others. But it's basically experience.

Senator GALLAGHER: Okay. Would remuneration or awards, or anything over and above that, be included in this table?

Dr Debelle : Yes. And, partly, going back to your question: those numbers are reported in our annual accounts. They're audited by the ANAO.

Senator GALLAGHER: Okay—thank you.

Senator McKENZIE: Thank you, RBA. My questions relate to your statement on monetary policy released in August 2020. You stated that the:

… restrictions in Victoria are likely to offset the pick-up in GDP growth in other parts of the economy in the September quarter.

…   …   …

The baseline scenario assumes the heightened restrictions in Victoria are in place for the announced six weeks and then gradually lifted …

I'm interested in an update of your perspective, given the level of restrictions and the length of restrictions in Victoria.

Dr Debelle : We're releasing some forecasts next week. We're mindful of the fact that we have a monetary policy decision between now and then, so I can answer in broad—

Senator McKENZIE: Can you talk in generalities and broad terms?

Dr Debelle : Yes. Our best guess at the moment is that the September quarter for the country looks like it probably recorded positive growth rather than negative. As best as we can tell—and this will be confirmed when we see the national accounts—the strength of the growth elsewhere in the country was more than the drag from Victoria. And, possibly, the drag from Victoria was a little less than what we guessed back in August.

Senator McKENZIE: When you spoke about the baseline scenario that you constructed, you said that, yes, it was around restrictions in place and the types of restrictions but you also mentioned border closures. Was that around international border closures or did you also look at the impact of state border closures?

Dr Debelle : We're primarily looking at the impact of international border closures.

Senator McKENZIE: When you say 'primarily'—

Dr Debelle : Yes, that was in the end—

Senator McKENZIE: do you mean only?

Dr Debelle : No. We did some thinking about the impact of that, but, in the end, I just note that this is a really imprecise science at the moment. What matters is the effect of the restrictions, and what also matters is the behavioural response to those restrictions. Each of those two things has been working in different ways from what we might have anticipated. But, no, our forecasts were, I'll say primarily, but may have been entirely, based on looking at the international border restrictions and what they implied for tourism and education.

Senator McKENZIE: I was going to go to the regional question and look at impacts on regions within Australia, rather than simply the whole picture. I'm looking at the impact being felt by the community, For example: a region like Albury-Wodonga, servicing a quarter of a million citizens and with a state border slicing it in half, effectively, for the majority of this year—is the impact being felt by that community something you would be looking at?

Dr Debelle : That is something we looked at. We talked to businesses in the Albury-Wodonga area, and that's part of the information we get in terms of how it's affecting different businesses. In the end, we're looking at examining things at the national level.

Senator McKENZIE: You foreshadowed that you have something coming out shortly, and that is the remodelled impact of Premier Andrews' restrictions in Victoria.

Dr Debelle : We will be reporting on the data we have—

Senator McKENZIE: Good. Yes, we want that.

Dr Debelle : We're not doing precise modelling on the impact of state border closures. As I said, the range of uncertainty around the numbers at the moment is basically as large as it's been in my career, which spans a reasonable length of time. We're having a lot of trouble trying to understand where we are, let alone where we're going at the moment.

Senator McKENZIE: In the same statement you talked about rural exports being higher over the forecast period, particularly in New South Wales and Victoria. Do you have any further detail on that—the impact of the lockdown in Victoria and, again, the impact of the border closure between Victoria and New South Wales on the workforce to assist farmers? You rightly said in your statement that there was a bumper season, a great harvest, on its way in August.

Dr Debelle : Yes.

Senator McKENZIE: And grain growers have said they're short of 3,000 workers in New South Wales as a result of state border closures and international border closures. I'd be interested in your thinking around that.

Dr Debelle : As you said, primarily that upgraded forecast reflects the weather, and the better weather—

Senator McKENZIE: Yes, in August.

Dr Debelle : Yes, and subsequent continued better weather as well. The forecast is, in part, informed by the Bureau of Meteorology's forecast for the rest of the season, which is actually reasonable. I will have to take on notice as to how much we're taking into account the ability of farmers to get the crop out of the ground, in terms of our forecast, but it's mostly driven by the weather.

Senator McKENZIE: I might suggest that farmers do need something other than rain to actually fulfil our export task.

Dr Debelle : Yes.

Senator McKENZIE: And whilst you do say manufactured exports are expected to be lower et cetera, it was very pleasing to see that rural exports are expected to be higher. But, given other inputs will affect this more than the weather, I'd love to see some more data around that.

Dr Debelle : Yes, and, as I said earlier, we are talking to a number of people in the sector to try to get a handle on how much of an issue that is. And that will inform the numbers we put out next week.

Senator McKENZIE: Thank you.

Senator BRAGG: I just have a few questions to ask you, Deputy Governor. Firstly, some comments were made by former Prime Minister Paul Keating that referred to the RBA as 'the high priests of the incremental'. Do you know what that means?

Dr Debelle : The high priests of the? I mean, I'm familiar with the Prime Minister's comments, but—

Senator BRAGG: Former Prime Minister.

Dr Debelle : Yes, former Prime Minister—sorry!

Senator BRAGG: Yes, thank goodness. Do you know what that means?

Dr Debelle : High priests of the—I didn't quite hear the last bit.

Senator BRAGG: Of the incremental?

Dr Debelle : No. I would guess that we move in small steps, I suspect—maybe that is what he's referring to. I don't know—it's probably easier to ask him.

Senator McKENZIE: [inaudible]

Senator BRAGG: Interesting. Okay, thank you. I want to take you to this quantitative easing proposal that's been floated. How expensive would it be for the RBA to prepare a QE program?

Dr Debelle : I'm mindful that we have a policy decision next Tuesday which is pretty market sensitive, so I don't want to be providing too much commentary around whether or not that will or won't go ahead, if that's okay.

Senator BRAGG: Okay. The NAB economists have put out a figure of $163 billion.

Dr Debelle : Again, I really can't comment. This is really pretty sensitive information. I don't really want to comment. I'm not trying to not answer your question, but it is a difficult time to be able to respond to questions like this.

Senator BRAGG: I understand. Okay, thank you. I want to take you—I accept this has been a bit of a cook's tour—to the review of retail payments. Can you answer some broad questions?

Dr Debelle : Yes, sure. Last time I turned up, I couldn't answer those questions. This time I have Michele Bullock here, who can correctly answer those questions for you.

Senator BRAGG: Okay, thank you, Ms Bullock. It's nice to see you again. I understand this review has been slowed because of the pandemic. Is that right?

Ms Bullock : Yes, that's correct. It was mainly to relieve the banks of a need to respond in the short term. But we are ramping it back up again.

Senator BRAGG: As we've discussed before here and at other committees, how are you going to balance innovation and competition here in your deliberations? As you know—and I commend the bank's work in driving a lot of innovation in the payment space—it is a very sensitive area. I guess I'm conscious that there's been quite a lot of good development, just from the market in this space, where, frankly, now Australian consumers, particularly younger people, are much more open to using things that didn't exist five years ago, like buy-now pay-later. Forgive me for asking you a long question, but could you perhaps give me some of the bank's thoughts on how you're going to preserve some of the market developments in this space, which I think have been quite positive in terms of choice and competition?

Ms Bullock : Sure. It's probably worth pointing out that we actually don't regulate a lot in the retail payments space. The only regulations we've actually really got there relate to some of the credit card schemes. And there are various reasons for that. But competition just doesn't really work as you expect it to work there. Our preference usually is to do as you suggest and let the market work it out. What we've seen over the past few years is the rise of debit cards; we've seen new innovations. When you go back 20 years, there were probably only two participants in the payments system. There was a card issuer and there was a merchant acquirer. Now there are a myriad of participants, and they've all grown up in our regulatory environment, and I would have to say, in many ways, we have facilitated them because we've made sure that the incumbents haven't been able to use their market power to force them out. I would say that's always at the centre of our work. In fact, our mandate is competition and efficiency, with an understanding that there might be risks that also have to be dealt with as well. Competition and efficiency is always right at the beginning there.

Senator BRAGG: Anecdotally, I've observed that some of the pronouncements that have been made around this particular review have had market impact. I understand that the review has to be delayed because of the coronavirus issues, but do you have a revised timetable for when you might be able to conclude that process?

Ms Bullock : At the moment we're thinking that it will be concluded in the first half of next year. We're just starting now to re-engage with financial institutions and all of those—we got about 50 submissions, so we're starting to re-engage with people. So I'd say, all up, it's probably going to be complete in the first half of next year.

Senator BRAGG: Is there anything else you can say about your agenda or your view on limiting damage through any potential regulation to products like buy-now pay-later?

Ms Bullock : I would say that we'll be very conscious of what we're doing there. But there are other issues. Let me just say with buy-now pay-later, our concern isn't about the consumer side of that. That's not our interest. Our interest is really in the payments system. So, not the consumer side, consumer protection and so on—the issue we're looking at is really based around no-surcharge rules, which is an issue to do with competition and level playing fields. So that's the issue we're focused on. We've made no decisions on it yet. We're just engaging with it. We've had discussions, and we've had submissions from the buy-now pay-later schemes themselves, as well as others. We haven't got a conclusion on it yet, so I can't give you a conclusion. All I can say is that we're engaging on the issue.

Senator BRAGG: My last question is: is there any evidence of market failure that you have discovered at this juncture?

Ms Bullock : In buy-now pay-later specifically or generally?

Senator BRAGG: In relation to surcharging and the like, as you just described.

Ms Bullock : What I would say with surcharging—and this was the issue with credit cards when we said they couldn't have no-surcharge rules—is that the issue here, the market failure here, is that merchants find it very difficult to say no to anything. They find it very difficult to say no to accepting anything. And what they tend to do—and we observed this with credit cards, and we're observing it now with buy-now pay-later—is they want to accept everything just on the off chance that the person who comes in wants to use it. They just build all those prices into their price level. That's the market failure—that the merchants don't have a little more leverage to say, 'Can you lower your prices, please?' They don't have leverage to be able to do that. And, in fact, what we've seen is that not allowing no-surcharge rules, or only allowing cost based recovery, actually puts a little bit of leverage back in the hands of the merchants. We've seen that with the credit card schemes. My question would be: is that market failure also evident in the buy-now pay-later space? And that's the question we're examining.

Senator BRAGG: We'll look forward to seeing your judgement on that important question. Thank you very much.

ACTING CHAIR: Thank you, Senator Bragg. As there are no further questions for the RBA, I thank you very much for your attendance and evidence before the committee today.

Pr oceedings suspended from 14:58 to 15:15