Gary Gray (Brand, Australian Labor Party, Parliamentary Secretary for Regional Development and Northern Australia) Share this | Hansard source

I rise to speak on the Reserve Bank Amendment (Enhanced Independence) Bill 2008. I welcome the opportunity to make a contribution to the debate on this bill. The independence of the Reserve Bank of Australia is critical to the process of settling monetary policy in Australia. Transparent deliberation by the Reserve Bank of Australia gives the public and business confidence in the Reserve Bank. This bill strengthens the independence of the Reserve Bank of Australia, the RBA, while it and other measures support transparency. With the important role the RBA plays and the impact its decisions, warnings and commentary have on business and everyday working families, this bill improves the bank’s operation and allows investors, business and the general public to have even greater confidence in the Reserve Bank.

Having a central bank that is not independent and free from political interference creates a dangerous situation in which monetary policy decisions are potentially tainted rather than suiting the needs of the economy. It is argued—and this is an argument that I agree with—that an independent central bank provides better advice, insights and warnings to government and business. An independent central bank operates a more credible monetary policy because it is expected to stay the course despite short-term political winds. It is also critical that, from time to time, the Reserve Bank gives advice to the government, and of course it is assumed that the government considers the advice.

In their last term, the RBA gave no fewer than 20 warnings to the previous government on the need to combat capacity constraints by investing in infrastructure, workforce skills and innovation. There were 20 occasions when the Reserve Bank’s warnings were ignored: in August 2007, Reserve Bank Governor Glenn Stevens to the House Standing Committee on Economics, Finance and Public Administration; in August 2007 in their statement on monetary policy; again in June 2007 and prior to that in May 2007 in their statement on monetary policy; twice in February 2007; also in November 2006, and so on and so on. There were 20 warnings over a period of three years. They were simply ignored.

From these warnings we see the growth of the very taproot of inflation. Inflation is real and, no matter how imaginary, fanciful or fairytale-like members opposite claim it to be, Australian working families know that prices keep going up. Families in Rockingham, Kwinana and Mandurah have seen vegetable prices going up by more than 10 per cent; bread by nearly 20 per cent; and milk, eggs and fresh fruit all by double digits over just the past few years. In the south of my electorate, in the city of Mandurah, we see much media coverage on the incredible growth and associated rise in house prices and property values. According to Real Estate Institute of Western Australia data for September of 2007, Mandurah’s median house price is $424,000. My constituents living in the new suburbs of Mandurah live the daily impact of the inflation and rate rises and expect all of us in this place to do all we can to take the pressure off inflation, which takes the pressure off interest rates.

This amendment bill brings Australia up to speed with the rest of the world’s developed economies that already have fully embraced independent monetary policy as best practice. This bill raises the statutory independence of the governor and deputy governor to the same level as the Commissioner of Taxation and the Australian Statistician. Their appointments will be made by the Governor-General in Council and can only be terminated with the approval of the parliament.

The calls for more open and transparent operations have been gathering momentum over the years. In December 2000, an editorial in the Australian Financial Review stated:

... private-sector decision making is helped by regular information ... Whether it is monthly statements, the release of minutes or more public hearings, it is a legitimate and important subject for debate.

It has taken eight years but we are finally having the debate and putting things into place to make the operations of the RBA more transparent, with better information created by the RBA and better information about RBA views, warnings and insights.

In a statement on the conduct of monetary policy released by the RBA governor on 6 December 2007, the RBA committed to measures aimed at increasing the transparency and enhancing public understanding of the conduct of monetary policy. Now a statement will be replaced on the afternoon after each board meeting explaining board decisions on monetary policy, irrespective of whether or not there is a change in the cash rate target. As in the US, the minutes of meetings will be released publicly as soon as possible after the meeting.

The governor has said that the Reserve Bank will continue to extend the scope of the economic forecasts in its quarterly statement on monetary policy. Integral to best practice monetary policy is the importance of having high standards in the selection of members of the RBA board. This bill establishes a register of eminent candidates—to quote the Treasurer—‘of the highest integrity’. This register, maintained by the Secretary of the Treasury and the Governor of the Reserve Bank, will provide a much needed safeguard in the process of selection of members of the Reserve Bank board. It is, however, incumbent on the secretary and the governor to ensure that candidates for the board have the knowledge, the analytical skills and determination to govern our nation’s monetary policy. As such, I believe that a merit based system of selection of candidates for the RBA board is good practice and adds to the already significant measures introduced by this government.

It is disappointing that the members opposite, when in government, demonstrated why this bill is so important. In a crude example of ‘jobs for donors’, Mr Robert Gerard was appointed to the RBA board on 20 March 2003 until he resigned in disgrace on 2 December 2005. What were Mr Gerard’s qualifications for his role on the board of the RBA? An article published in the Australian on 3 December 2005 states:

Robert Gerard’s political ties run deep in the Liberal Party.

Frankly, I do not think there is anything wrong with that. The article states:

He comes from Adelaide establishment stock..

I do not really see a problem with that either. It continues:

His father Geoff was a state Liberal Party president—

I certainly do not see anything wrong with that—

and through the years the electrical goods tycoon has poured up to $2 million into the party’s coffers.

On the face of it, there is no problem in making political donations in an open democracy and declaring those donations but, for some, such close ties to the party in government might be reason enough for Mr Gerard to not have a place on the board. If I have not made it clear, I do not agree with that. But it was not that that forced him out; it was tax evasion—tax evasion through a sham tax haven insurance scheme. The dodgy business dealings did not emerge subsequent to his appointment; almost unbelievably, the allegations were being aired as the former Treasurer appointed Robert Gerard to the board.

According to an article published in the Australian on 30 November 2005, Mr Gerard, the single-largest Liberal donor in South Australia, was battling the ATO in the Federal Court over the tax evasion allegations when the former Treasurer, Peter Costello, appointed him to the Reserve Bank board. So here is a bloke who was paying more in Liberal Party donations than he was in tax. What does that tell us about the previous government’s system of appointing people to boards—boards, I would like to add, that are crucial to the effective governance of our country? In this case, it is a board which makes decisions about interest rates; in this case, it is a board which makes forecasts, insights and observations about the state of our economy and the challenges and threats that we face.

Is this a case of high-quality members being selected for their skills and integrity, or was it the case that a more important selection criterion was the capacity to run a tax sham and the amount of money being donated to a political party? The appointment of Robert Gerard was an outrage and a travesty committed against one of the most important institutions in this country—the Reserve Bank—and against homebuyers and businesses, who have to pay the interest rates that are determined by the Reserve Bank. It was a travesty in so many different ways. Mr Gerard voted to raise interest rates—something that has an impact on hundreds of thousands of people’s lives—at the same time as he was in dispute with the ATO over his tax bill. In an article in the Age on 1 December 2005 it was revealed that the tax commissioner had:

… lodged a charge with the Australian Securities and Investments Commission in September 2003 with a maximum liability of $250 million, effectively preventing—

Gerard—

from selling any assets without settling his liability to the ATO.

And still he was appointed, and still he stayed there. The article continued:

The claim was not lifted until February 2004.

An out-of-court settlement of … $150 million in late 2003 ended a 14-year Tax Office investigation into Mr Gerard’s involvement in a Caribbean tax haven … its investigators labelled a “sham”.

I do not think the point can be overemphasised. Mr Gerard was a member of a board making decisions that affected the budgets of hundreds of thousands of hard-working taxpaying families in our country. Between September 2003 and February 2004, while the claim against Mr Gerard was still in place, the RBA raised interest rates twice. I note that the member for Wentworth is concerned about the sacking of incompetent and ineffective Reserve Bank governors. Well, I did not see the former government jumping to hang their hand-picked member. He was not pushed; he jumped, while the government sat claiming ignorance as their only defence.

It is fortunate that not all members of the board were appointed in such controversial circumstances. The RBA has presided over unprecedented economic growth under the stewardship of Bernie Fraser, Ian Macfarlane and the current governor, Glenn Stevens. Mr Stevens and the other ex-officio members, Deputy Governor Ric Battellino and Secretary to the Treasury Ken Henry AC, are not just well qualified but brilliantly qualified to steer Australia through the current time of global uncertainty. All of those governors—all of those members of the board—have been appointed by two or three different governments. All three of them have exemplary qualifications, including high levels of academic achievement, as well as extensive experience working with and for governments of all political persuasions. It would take me 20 minutes just to list the qualifications of the current RBA board members. This bill puts a structure in place to ensure the independence of the RBA. It ensures high-quality members of the board, and I believe it ensures that the RBA board’s decisions reflect the often complex needs of our economy.

Over the past decade, the former government often unfairly placed the RBA at the focal point of economic policy. This was because of sloppy fiscal policy—out-of-control spending and pork-barrelling. One thing has been made clear on numerous occasions: the pork-barrelling approach to government spending driven by short-term political interests does not create a stable and prosperous nation. The former government’s spending on programs was often determined and prioritised according to the margin in a particular electorate. We cannot afford to have pork-barrelling distorting decisions that should be made in the long-term national interest.

I believe that this bill not only provides greater independence and supports transparency for the Reserve Bank but also signifies the belief held by this government that the donors—sorry, that the doors—of government need to be opened—

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