Malcolm Turnbull (Wentworth, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

This Reserve Bank Amendment (Enhanced Independence) Bill 2008 is one of the most sloppy and misconceived pieces of legislation I have ever seen. It was the result of a statement by the Treasurer in December 2007 when he said:

To enhance the independence of the Reserve Bank, the positions of Governor and Deputy Governor will be raised to the same level of statutory independence as the Commissioner of Taxation and the Australian Statistician.

What this bill seeks to do is effectively create a bizarre parliamentary farce associated with circumstances for the termination of the Reserve Bank governor’s or deputy governor’s role which, at the moment, are automatic grounds for termination. Section 25 of the Reserve Bank Act at present states:

If the Governor or the Deputy Governor:

(a)

becomes permanently incapable of performing his or her duties; or

(b)

engages in any paid employment outside the duties of his or her office; or

(c)

becomes bankrupt

…            …            …

the Treasurer shall terminate his appointment.

It is mandatory. There are positions where a statute states that a condition like that results in the automatic vacation of the office. But one can readily understand when the Reserve Bank Act was drafted in 1959 it was obvious that it was important to know the precise time at which a governor, faced with those unpleasant circumstances, ceased to be the governor and so it was better from a drafting point of view to state that the termination was mandatory, but because the Treasurer would be obliged to do it, we would know at what day and what hour the governor, whether he or she was incapable or bankrupt or had an outside job, had actually ceased to hold that office.

The 1959 Reserve Bank Act also states in section 24:

(1)

The Governor and the Deputy Governor:

(a)

are to be appointed by the Treasurer; and

(b)

shall be appointed for such period, not exceeding 7 years ... and

(c)

hold office subject to good behaviour.

Although that is a term that is not used with respect to any other public office under the Commonwealth, so I understand, that gives the Treasurer under the existing legislation the ability, almost a reserve power you could say, to remove the governor or the deputy governor if they cease to conduct themselves with what could be called ‘good behaviour’, in other words, if they misbehave.

What the government is seeking to do in the amendment bill is quite extraordinary. It takes in a new section 25 the three circumstances which currently give rise to automatic termination and makes them the only grounds upon which a governor or deputy governor may be dismissed. Furthermore, it requires that for that dismissal or termination to take place, both houses of parliament must meet, each of them resolve that the governor should be dismissed because of incapacity, perhaps, or bankruptcy, and then request the Governor-General to effect that dismissal. We can imagine the completely absurd situation where a governor or a deputy governor is, perhaps due to an unfortunate accident, physically incapable of doing their job or has become bankrupt or has an outside job. In any of those three cases there would be no question that the appointment should be terminated, and the sooner the better for the sake of the institution and the country.

What the Treasurer, this very inexperienced Treasurer, is presenting to us is a bill that would then take those three facts—which are not contentious facts: somebody is either incapable or they are not, or they are bankrupt or they are not, or they have got an outside job or they have not—and make them the subject of what could be a highly contentious and political debate before both houses of parliament, which could take some considerable time. And in the event of one house of parliament not voting to support the removal of the governor, a bankrupt governor or a governor with an outside job or a governor who is mentally or physically incapable would remain in office. It is an absurd amendment, and it is being presented as an effort to improve the independence of the Reserve Bank.

That is an unfortunate, misconceived, sloppy piece of drafting. But it actually gets worse—much worse. Where the Treasurer has a discretion in the appointment of the governor or the deputy governor, the amending bill replaces the term ‘Treasurer’ with ‘Governor-General’. That in itself is just a reversion to what the law had been some time before, and of course the Governor-General would act on the advice of the government of the day, which would no doubt be guided by the opinions of the Treasurer. So one could say it is a distinction without a very great difference. But because of the way in which the amending section 25 has been introduced, it is very arguable that the only grounds for terminating the governor or the deputy governor are those three I have mentioned—incapacity, bankruptcy, outside employment; all of which are unarguable automatic grounds for termination—and that in fact the consequence of this amending bill is that the Treasurer or, indeed, the government—the Governor-General acting on the advice of the government—has lost the right to terminate a governor or a deputy governor for bad behaviour. I refer the House to the library’s Bills Digest on the Reserve Bank Amendment (Enhanced Independence) Bill 2008 and I will read the relevant section:

New subsection 25(9) provides that the termination of the Governor or the Deputy Governor can only be terminated on a specified ground and by the means specified by new section 25. This limits termination to the grounds specified and in a manner specified by the section. As noted earlier, the Governor and Deputy Governor hold office ‘subject of good behaviour’, which is an on-going requirement and a prerequisite for holding office. The Reserve Bank Act is the only Commonwealth Act which has this particular expression. Under the changes proposed by the Bill, in the event the position holder is not of good behaviour there is no mechanism for termination as this requirement is not specified as a ground under new subsection 25(8).

So if this piece of drafting by the Treasurer were to be adopted as an act of parliament, what scenario would have been created in the event of the governor engaging in dishonest or corrupt conduct or acting in a way which undermined public confidence in the securities markets or acting in a disgraceful way? Sure, that is only a theoretical situation, but there have been incidents of this kind in other countries where central bank governors have acted in an improper way, and I can come to that in a moment. But what we would have, courtesy of this amendment bill, would be the appalling scenario that there would be no power to sack the governor. There would be no accountability. The parliament could not act, the Treasurer could not act, the Governor-General could not act—all courtesy of this shocking drafting.

The government may well take on board these observations and the observations of the library in the Bills Digest and make some appropriate amendments of its own. But, pointing to the incompetence that has been shown by the Treasurer here, honourable members will recall that I noted that back in December the Treasurer had said that he wanted to put the governor in the same position as the Commissioner of Taxation or the Australian Statistician. Well, did he know what he was talking about? The Australian Commissioner of Taxation falls under the Treasury portfolio, so one would assume that he did. Indeed, the Commissioner of Taxation and a Second Commissioner of Taxation may be removed by the Governor-General under the Taxation Administration Act 1953, section 6C, if there has been a vote of each house of parliament calling for the removal of either the commissioner or the second commissioner ‘on the ground of proved misbehaviour or physical or mental incapacity’. Of course, honourable members will be familiar with that language because it has a counterpart, in relation to federal judges, in the Constitution itself, where section 72 states that they:

Shall not be removed except by the Governor-General in Council, on an address from both Houses of the Parliament in the same session, praying for such removal on the ground of proved misbehaviour or incapacity ...

The Taxation Administration Act section 6C provides that if the commissioner or a second commissioner of taxation becomes bankrupt or engages in paid employment outside the duties of his or her office or is absent from duty, except on leave of absence, for 14 consecutive days or 28 days in any 12 months then the Governor-General shall remove the commissioner or second commissioner. So those circumstances—dereliction of office, outside paid employment, bankruptcy—are automatic grounds for termination. Where a discretion is given to the parliament to sack the Commissioner of Taxation it is limited to physical or mental incapacity and, most importantly, proved misbehaviour. The provisions for the Australian Statistician are very similar.

The Treasurer was not able to do that which he said he would do in December—in other words, to change the Reserve Bank Act so that the ability to remove the governor or deputy governor was vested in the parliament. We have the authority of the Library’s analysis that, if these amendments are carried into law, we will have a situation where we have a Reserve Bank governor that is effectively unsackable. The governor would be unsackable on any ground other than incapacity—comatose after a car accident or some unfortunate medical incident—bankruptcy or having an outside job. All three are factual conditions which are either right or wrong, which either exist or not. They would not be contentious—it is hard to imagine them being contentious—and they would in many other circumstances be in and of themselves a ground for automatic vacation of the office.

In the event of the Reserve Bank governor acting in a way which is corrupt, dishonest or reckless or which brings the bank into disrepute or which brings our whole financial system into disrepute, there is no power under the amendments proposed to remove that governor or deputy governor, and there is certainly no power for the parliament to do so. One could well imagine that the Treasurer might have replicated substantially the provisions with respect to the Commissioner of Taxation and said, ‘We will give the parliament the power to remove the governor or the deputy governor on the grounds of misbehaviour, but the other three grounds’—the factual qualifications, if you like—’will remain where they are as mandatory grounds for termination.’ That would have been perfectly reasonable and a change that would have been consistent with other legislation and consistent with his public remarks.

There is a very pertinent international example of a difficulty with removing a governor and the resultant damage to reputation. Antonio Fazio was the Governor of the Bank of Italy when a scandal broke in July 2005 over the sale of Banca Antonveneta, which involved allegations of corruption, nepotism and very poor policy by the Bank of Italy. He was called upon to resign, but no-one could sack him except his hand-picked board. He was called on to resign by the Prime Minister, by the press and by most market economists. He ignored them and held onto his position. The affair dominated the media in Europe for months. Finally, in December 2005, he resigned after six months of highly publicised damage to the reputation of the Bank of Italy. There was at least a means of removing Governor Fazio by his board, but he had the numbers on his own board to stop that.

We would never expect that to happen, but if we were to have a governor who was in a similar situation and these amendments were passed into law there would be no means of removing that governor, not by the parliament, the board, the Treasurer or the Governor-General. I cannot believe that the Treasurer seriously intended this outcome. I can only believe that this is sloppiness and I ask him to come into the House and explain how on earth this extraordinary set of amendments could be justified. If parliament is to have a role, then it should have a role to determine whether the governor has engaged in misbehaviour. That is the precedent with High Court judges, with the Australian Statistician and with the Commissioner of Taxation. That is the model that the Treasurer said he was going to undertake, but he has done nothing of the sort.

On the other hand, if he feels that, contrary to the interpretation that the Library has proffered and other lawyers have suggested and notwithstanding the changes to section 25, there remains a discretion on the part of the Governor-General to remove the governor or the deputy governor of the bank for misbehaviour, what possible justification is there in leaving that very subjective issue in the hands of the executive government but then giving to the parliament the ability to terminate the governor or the deputy governor only in circumstances where three non-contentious factual binary circumstances have arisen? Is the governor bankrupt? Look at the order of the court. Is the governor physically incapable? Look to the medical certificate. Does the governor have an outside job? Look to the contract of employment. These are matters which quite properly in the legislation are extant at the moment and are grounds for automatic dismissal. To put them into the hands of the parliament is, frankly, absurd.

This bill is just an exercise in Labor spin. Back in 1996 when Peter Costello made the Reserve Bank truly independent, he was threatened with legal action from the then Leader of the Opposition, Kim Beazley. Mr Beazley thought it was appalling and harked back to those days when Paul Keating as Treasurer could say, ‘I’ve got the Reserve Bank in my pocket.’ Keating was proud of it. To his great credit, Peter Costello said, ‘No, we should have an independent Reserve Bank, an independent central bank.’ He set that up and the Reserve Bank is thoroughly independent. This bill adds nothing to the independence of the Reserve Bank but creates an extraordinary situation where, in the extreme circumstances in which one may want to be able to consider the termination of the Governor of the Reserve Bank, he is completely immune from termination.

I will foreshadow an amendment that I will move to the Reserve Bank Act 1959 in due course which speaks to what is really at the heart of independence. What we will move is an amendment that requires the Governor of the Reserve Bank to present himself or herself up to four times a year before the House of Representatives Standing Committee on Economics. In other words, instead of attending twice a year, which is the current arrangement, they will be required to attend four times a year, which would doubtless be after the publication of the quarterly statements on monetary policy.

The most important element in the independence of public office holders is accountability. The greatest protection for the independence of the judiciary is the fact that they have to be accountable for all of their decisions. They have to publish their decisions. They are accountable for them. It is all out there in the public domain. All of the rest of the protections that we have for the judiciary are vitally important, too. But accountability and transparency are the keys to this.

The Reserve Bank publishes a great deal of material. Many people would say that it is the finest—or at least one of the finest—central banks in the world. We are very fortunate to have such a strong central bank here in Australia. But when the Governor of the Reserve Bank and his deputy governor and the rest of his senior team come before the House of Representatives Standing Committee on Economics, they are being accountable to the people of Australia. The important economic and financial issues of the day are discussed and debated and the governor and his colleagues have to take questions from the House economics committee, which is composed of members of this House, each and every one of them directly elected by the people of Australia.

We would seek to enhance the accountability of the Reserve Bank. That will genuinely improve its independence. That will enhance its already considerable independence in a way that is transparent and accountable to the people. It is not spin; it is not this sloppy, misconceived nonsense proposed by the Treasurer. It will mean that the people and the parliament of Australia will see more of the Reserve Bank and understand more about their work. The Reserve Bank will know that it is accountable four times a year. That increase in frequency will underline and emphasise the independence of that institution.

We all have to suffer from the spin of the Labor Party. It is a constant outpouring from the government benches nowadays. We heard today about this budget, which the Treasurer thinks cuts spending but which in fact increases spending. The spin is endless. But what we have here is not only the spin of Labor claiming to be interested in or seeking to enhance the independence of the Reserve Bank but a level of incompetence which is frankly breathtaking. I do not know whether the Treasurer in this context is a fool or a knave. To put this up seriously is a truly misguided, malign exercise. To seriously believe that those three factual disqualifying circumstances should be the subject of lengthy parliamentary debate but, in the event of the governor engaging in conduct such as that by Governor Fazio in the—

Bill Shorten (Maribyrnong, Australian Labor Party, Parliamentary Secretary for Disabilities and Children's Services) Share this | Link to this | Hansard source

I rise on a point of order, Madam Deputy Speaker, under standing order 90. The member for Wentworth, I believe, imputed an improper motive to the Treasurer when he used the term ‘knave’. ‘Knave’ has a very clear meaning in the English language. I would seek your guidance, because I do not think that personal reflections are appropriate. While I understand that the member for Wentworth has been in this place longer than I have, I expect a better standard of argument from him.

Malcolm Turnbull (Wentworth, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

A knave is defined in the Macquarie Dictionary as ‘an unprincipled or dishonest fellow’. What I am saying is that the Treasurer has behaved in an unprincipled fashion.

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

The member for Wentworth has probably taken his point too far. I probably would have allowed ‘knave’ to stand, because it has on previous occasions. But, if you are going to impute that meaning, then you must withdraw.

Malcolm Turnbull (Wentworth, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

Madam Deputy Speaker, I will withdraw ‘knave’. Thank you for that instruction. Restating it, the question then is: is the Treasurer a fool or—in line with the dictionary—an unprincipled or misguided fellow? If he intended the consequences of this amendment, he is seeking to put this country in a position in which if the Governor of the Reserve Bank engaged in corrupt or dishonest conduct he or she would be immune from dismissal. It is difficult to believe that any responsible or competent Treasurer would seriously suggest that was an appropriate outcome. On the other hand, if that is not the case—if the Treasurer is not behaving in a deliberately unprincipled fashion—then one can only say that this is incompetence of a very high order. What it does is add nothing to the independence of the Reserve Bank. What it does is discredit the integrity of the Reserve Bank and demonstrate the extraordinary ineptitude of the Treasurer of the Commonwealth of Australia.

Shayne Neumann (Blair, Australian Labor Party) Share this | Link to this | Hansard source

Unlike the member for Wentworth I rise today to speak in support of the Reserve Bank Amendment (Enhanced Independence) Bill 2008, which deals with the Reserve Bank and monetary policy. Monetary policy, and the goals of it, are set out in the Reserve Bank Act 1959, which requires the Reserve Bank to conduct monetary policy in a way which, in its opinion, best contributes to the stability of the currency of Australia, the maintenance of full employment in Australia and the economic prosperity and welfare of the people of Australia.

Both the Reserve Bank and the Rudd government agree on the importance of low inflation and low inflation expectations. In pursuing the goal of medium-term price stability, both the Reserve Bank and the Rudd government agree on the objective of keeping consumer price inflation between two and three per cent on average over the cycle.

This bill is a key component of the Rudd government’s commitment to enhance the independence of the Reserve Bank of Australia, and it demonstrates the government’s commitment to putting downward pressure on inflation. The bill seeks to enhance the independence of the governor and deputy governor of the bank, and through them, the independence of the Reserve Bank of Australia. The bill will achieve this by raising the positions of governor and deputy governor to the same level of statutory independence as the Commissioner of Taxation and the Australian Statistician.

Under the existing legislation, the Treasurer has the authority to appoint and terminate the Governor and the Deputy Governor of the Reserve Bank of Australia. The Rudd government is committed to improving the transparency of future Reserve Bank appointments and to removing overt political considerations from appointments and terminations. The current arrangement could be said to potentially undermine the principle of an independent Reserve Bank. It is paramount to protect this principle to ensure that the Reserve Bank can be guided by what it believes is in the best interests of the operation of monetary policy.

As former US President John F Kennedy once said: ‘In politics, perception is reality.’ Changes to the legislative status quo will improve perceptions in the public arena. The existing system gives the Treasurer the power to appoint partisan political candidates or those who have serious questions hanging over their characters, if the Treasurer so wishes. This position has the potential to seriously jeopardise the standing of the Reserve Bank and reduce its effectiveness, thereby lowering Australia’s long-term economic prospects. This is not something that the Rudd government will allow to happen. That is why we are introducing this bill.

I strongly support this bill because it is only by increasing the independence of the governor and the deputy governor that the Reserve Bank’s independence will be enhanced and we will have sound monetary policy in this country. This bill has at its core reform to bring Australia’s central bank governance arrangements in line with international best practice.

The Rudd government believes monetary policy must be conducted in an open and forward-looking way. It is critical that there be transparency and accountability in arrangements in the Reserve Bank so that the bank can continue to report on how it sees current and future developments in the economy affecting expected inflation outcomes.

The reforms outlined in this bill will enhance the effectiveness of monetary policy, but the Rudd government will not leave the burden of fighting inflation and higher interest rates to the Reserve Bank alone. The Rudd government is committed to relieving the financial pressure on Australian working families and individuals, and to keeping inflation in check. We went to the election with that commitment and we intend to honour it fully. We are determined to beat inflation and give Australians a helping hand. Inflation pushes up interest rates, eats away at family budgets, affects family domestic arrangements and threatens future prosperity. That is why we intend to tackle this problem head on. This legislative change is part of that whole process.

Currently we are tackling the skills shortages and capacity constraints in the economy. We are boosting capacity to allow the economy to grow further and support jobs growth without fuelling inflation. Fighting inflation is part of monetary policy. We are taking the responsibility for modernising our economy so we can sustain growth, create jobs and get inflation back in check.

My electorate office is in a shopping centre in Brassall in Ipswich. People come in my door all the time to talk to me. I often go into the Woolworths supermarket and have a chat with people and they tell me all the time about the rising cost of living. This government is committed to easing the burden on the Australian people. Inflation erodes the value of people’s savings and incomes and creates uncertainty for business and other investors. We are determined to help working families to ease the burden.

The coalition government failed to deal with inflationary pressures in the economy before they gathered pace. Instead they just ignored the problem and failed to invest in our productive capacity and left the Reserve Bank of Australia to shoulder the entire burden. Australian families are the victims of the coalition government’s policy failures, because of their recklessness. Because of that we inherited underlying inflation at a 16-year high, and 12 interest rises on the trot have been experienced by the Australian population. Elevated inflation is the Liberal Party’s parting gift to Australian families. We will not let it go. I am pleased to be part of a government that takes the fight against inflation seriously. This legislation is part of that fight.

The five-point plan that the Treasurer revealed last night is important. It includes disciplined financial restraint. We will deliver a surplus of more than 1.5 per cent of GDP in 2008-09; we will deliver 1.8 per cent of GDP. We are encouraging private savings through initiatives like first home saver accounts, which were delivered as part of our $2.2 billion affordable housing package. We are tackling the chronic skills shortages with measures that include 450,000 new training places. In fact we have delivered more than that; there are 630,000 additional training places for tackling the skills shortage. We are showing national leadership to tackle infrastructure issues, including broadband and Infrastructure Australia. And we have created the Building Australia Fund, the Health and Hospitals Fund and the Education Investment Fund. We are encouraging workforce participation through initiatives in child care, such as the childcare rebate and tax reform. And we have the most comprehensive tax review in Australia’s history since World War II.

Inflation has taken a long time to build up in our economy, as the Australian public knows. It has not emerged overnight, but it will take a considerable amount of time to deal with it. That is why we are going about it prudently, starting from day 1 to tackle this problem, in contrast to our opponents. The Leader of the Opposition told families in this country, who are facing the highest inflation in 16 years and 12 consecutive rate rises, that the economy was first rate.

Debate interrupted.