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Tuesday, 18 September 1973
Page: 1131

Mr McMAHON (LOWE, NEW SOUTH WALES) - I ask the Prime Minister a question relating to answers he gave in the House last week about official- and bank interest rates, that is of banks which are covered by section 51 of the Constitution. Will the honourable gentleman tell me when he consulted with State Premiers, or Treasurers if that were necessary, in order to obtain their approval for open market operations by the Reserve Bank of Australia with the approval of the Government by which the price of bonds was forced down and the yields on those bonds was forced up, remembering as he will - and as the House will remember too - that he said that interest rates were fixed by the Australian Loan Council. Secondly, can the Prime Minister tell me whether in the case of open market operations by the Reserve Bank there is any precedent whatsoever for consultation with the States before the Reserve Bank engages in these operations? Thirdly, can he also tell me whether he has ever known of any precedent by which interest rates in the trading bank system of the Commonwealth were fixed by other than the Commonwealth Government itself in fact or by a committee of the Government, and not notionally with the approval of the Treasurer?

Mr WHITLAM - I did not discuss with the State Premiers the relations between the Australian Government and the Reserve Bank of Australia. I have had 3 discussions with the Reserve Bank, on the last 2 Thursdays and on the intervening Sunday. The first discussion took place in Sydney and the second and third took place in Canberra. I had several discussions with all the Premiers except one who were at the Australian Constitutional Convention. They readily accepted that items of economic management such as currency, tariffs and interest rates, which were mentioned by the right honourable member, were matters within the exclusive responsibility of the Australian Government.

The second question which the right honourable gentleman asked me was whether there had been any precedent for the action of the Reserve Bank without consultation with the States. I understand that the States are not consulted on these occasions. They were not this time as I have said and they have not been consulted on previous occasions. The right honourable gentleman then asked me, thirdly, whether there had been any instances of a government or, to use his phrase, a com mittee of the government in effect determining matters of interest rates. I shall quote an instance to which he was not a party but which occurred in March 1970. I will read from the report and financial statements of the Reserve Bank of Australia for 1969-70.

Mr McMAHON (LOWE, NEW SOUTH WALES) - It is always the Government itself - that is the Cabinet or a subcommittee of the Cabinet - which fixes bank interest rates and, for that matter, deposit rates.

Mr WHITLAM - I was just giving a good precedent from the time the right honourable gentleman was in high office. The report, having referred to March 1970, states: the Prime Minister, the Deputy Prime Minister and the Treasurer -

I think that was the right honourable member for Higgins, the former right honourable member for Murray and the honourable member for Wentworth - had consulted the Governor of the Bank about the impact of the higher interest rates on rural producers. The Ministers had stated the Government's view that having regard to the special difficulties suffered by a number of rural industries at present, and the financial problems facing many rural producers, it would not be appropriate that there should be a general increase in trading bank lending rates on loans to rural producers.

The report of the Reserve Bank went on to say what the Bank did. I believe that this was a precedent for the action taken in this respect last Thursday morning after question time. I hope that right honourable and honourable gentlemen will understand that when I was asked questions about this last Thursday I was not able to reveal that the Governor and Deputy Governor of the Reserve Bank were waiting to consult with me after question time about this very matter of interest rates.

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