RBA reforms in limbo amid opposition

The Australian government’s planned reforms of the Reserve Bank of Australia (RBA) hang in the balance after the opposition said yesterday (September 10) that it would not back the changes.

Jim Chalmers, the treasurer (chief finance minister) from the ruling Labor party, has been pushing for a bill to overhaul the bank’s governance structure based on recommendations by a government-appointed review panel last year.

One of the most contentious changes would involve replacing the RBA’s existing board with two boards covering monetary policy and governance respectively.

Angus Taylor, the shadow treasurer, told a press conference yesterday that he had written to Chalmers to say that the Liberal-National coalition would not support the legislation.

Taylor said the opposition had deep concerns over the government’s motives in pushing for the bill. He accused it of trying to use legislation to exert greater control over the RBA and shift the blame for its own economic failures on to the central bank.

The RBA has already adopted some of the reforms recommended by the review panel. These include having fewer but longer policy meetings, holding press conferences after each interest rate decision, and appointing its first chief operating officer.

The panel originally recommended that other reforms requiring legislative changes should take effect from July 1, 2024.

Composition of monetary policy board

The Liberal-National coalition initially supported the RBA reforms. However, discussions stalled in recent months over Chalmers’ proposal that the board’s six external members would not be immediately transferred to the monetary policy board. The minister proposed that any member who wished to join the new rate-setting board would have to submit a letter to him expressing their wish to be included.

The opposition was concerned that such an arrangement would allow the government to stack the proposed nine-member board with Labor-friendly appointees, thereby compromising the RBA’s independence.

Chalmers has made some concessions since then. He said last month that all members of the current board would be transferred to the monetary policy board unless they had indicated in writing a willingness to switch to the governance board.

Taylor, however, is not happy with the compromise and has called for all six external board members to be moved on to the rate-setting board.

He said yesterday that “the government’s amendments leave open the option for a stitch-up of the RBA board.

“Recent public comments from not only the treasurer, but other senior Labor figures in an attempt to blame the RBA for their own economic failures, are deeply unsettling.”

On September 2, Chalmers said successive interest rate hikes by the RBA had been “smashing the economy”. Later that week, the Australian Bureau of Statistics released figures showing Australia’s economy had grown by only 1.5% in the 2023–24 financial year. This was the weakest level of growth since 1991–92, excluding the 0.3% contraction during the pandemic year of 2019–20.

On August 6, the RBA board had kept the policy rate at 4.35%, its highest level since 2011.

RBA governor Michele Bullock said this month that reducing inflation remained the bank’s “highest priority” and that any talk of rate cuts was “premature”. Consumer price inflation was 3.8% year on year in Q2, and therefore still above the RBA’s 2–3% target.

“The Reserve Bank now needs to be able to get on with the job,” Taylor said. “It needs stability, it needs certainty, and now is not the time to be pursuing these reforms, given what we’ve seen from the government over recent times.”

Chalmers’ response

On September 10, Chalmers said the opposition’s position was “irresponsible” and “disappointing”.

He said that over the past 18 months he had agreed to several changes in the bill to accommodate Taylor’s views.

“I even started to consult him on possible appointments to the boards, and so he knows I have absolutely no intention of making political appointments to these boards,” he added.

Chalmers added that the RBA governor also supported the reforms.

The treasurer said he would be open to negotiating with the minority Greens party to help the bill pass through the Senate (upper chamber). The government holds a majority in the House of Representatives (lower chamber) but not in the Senate.

Chalmers said he would still prefer a bipartisan outcome between the two main parties in the upper chamber. “That’s because I think that these changes, which are all about enhancing not diminishing the independence of the Reserve Bank, should endure beyond changes of government,” he said.