Labor has opened a rift with the coalition with the appointment of two new Reserve Bank board members after a landmark review.
The federal government on Thursday released the first external review of Australia’s central bank and the operation of monetary policy in four decades.
With the Greens arguing the changes are a “backwards step”, Labor will need to work with the coalition to legislate the review’s proposals with the aim of getting new settings in place to start on July 1, 2024.
A key recommendation is for the RBA to have two boards instead of one.
A monetary policy board with greater economic expertise would meet eight times a year instead of monthly to allow more time to consider issues and data.
A governance board with an external chair would be appointed to oversee the bank’s organisational strategy, finances, staff planning and risk management, with no role in monetary or payments policy or financial stability.
Treasurer Jim Chalmers has named former Fair Work Commission president Iain Ross and businesswoman Elana Rubin as new board members, in a bid to diversify the RBA’s range of expertise.
Both have past links with the Australian Council of Trade Unions.
Opposition treasury spokesman Angus Taylor said the coalition was disappointed with the appointments, despite agreeing with the need for intellectual diversity on the board.
“The review laid that out plainly and I endorsed the need for that,” he told ABC News.
“There is a clear process, a rigorous merit-based process that is laid out … and the government hasn’t followed it with its first two appointments.”
Despite his concerns about the new board members, Mr Taylor has signalled his willingness to cooperate as much as possible on the RBA reform.
For the Greens, the government’s commitment to remove the treasurer’s power to overrule the RBA’s decisions on interest rates was cause for concern.
Greens treasury spokesperson Nick McKim said it was “fundamentally anti-democratic” to scrap the override power in section 11 of the RBA Act and his party would oppose it in parliament.
“If the section 11 safeguards are removed the government would have no recourse over an RBA board that goes rogue,” he said.
Senator McKim also criticised the review for missing an opportunity to develop a holistic approach to economic policy, including using taxes and price caps to help manage inflation.
The treasurer said a broader consideration of economic policy as suggested by the Greens was outside the scope of the review.
“The review was really all about how do we get the best processes and structures and objectives and people to make these decisions, which have such a massive impact on the lives of ordinary people,” Dr Chalmers said on Friday.
Another key recommendation was ensuring the central bank gives equal consideration to the objectives of price stability and full employment.
As well, board members and officials will be encouraged to provide more information to the public following concerns of a lack of transparency.
The review called for the inflation target of two to three per cent to be retained, despite other central banks around the world having lower targets.
The government aims to introduce laws to parliament by the end of the year to remove the government’s right to veto its decisions, create the monetary policy and governance boards and clarify the dual objectives of keeping inflation down and full employment.
Dr Chalmers plans to release a new statement on the conduct of monetary policy before the end of 2023, which would reaffirm the bank’s independence, support the inflation target and set out commitments on transparency and accountability.
© AAP 2023
