David Bradbury (Lindsay, Australian Labor Party) Share this | Link to this | Hansard source

I move:

That the House:

(1)

takes note of the 50th anniversary of the Reserve Bank of Australia (RBA);

(2)

recognises the important role of the RBA in Australia’s economic policy direction; and

(3)

reaffirms its support for the independence of the RBA.

I rise to take note of the 50th anniversary of the Reserve Bank of Australia. The RBA is one of the cornerstones of economic stability in this country. It came into existence on 14 January 1960. It was established to conduct the central banking functions of the Commonwealth Bank of Australia, which had reached a point where it could no longer perform its dual role as a central bank and a market participant in the commercial banking sector.

Given its powers to operate under the Reserve Bank Act 1959, the RBA is granted the autonomy to set monetary policy and is given the powers to implement this policy. Section 10(2) of the act sets out the bank’s charter, and it underscores the importance of the role it plays in ensuring the integrity of the Australian financial system. It says:

It is the duty of the Reserve Bank Board … to ensure that the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia and that the powers of the Bank … are exercised in such a manner as … will best contribute to:

(a)

the stability of the currency of Australia;

(b)

the maintenance of full employment in Australia; and

(c)

the economic prosperity and welfare of the people of Australia.

It has the responsibility for issuing the nation’s currency, managing our gold and foreign exchange reserves and overseeing our payment system. The RBA also had responsibility for supervising the banking system until the creation of the Australian Prudential Regulation Authority in 1998.

But, of course, the RBA’s most significant and public role is that of directing monetary policy. While the finer details of the operations of the RBA are often not the subject of conversations at backyard barbecues, the monthly meetings of the board are arguably some of the most watched and keenly anticipated events on the monthly calendar, particularly in communities like mine. The movement of interest rates up or down is the stuff of news that stops a nation, even on the first Tuesday of November, when the nation stops for other reasons.

We now have more insight into how the RBA board makes its decisions, with the release of a statement by the governor announcing the decision followed by the release of board minutes one week later. The RBA’s approach to monetary policy is underpinned by inflation targeting. Since the early 1990s, the RBA has adopted a policy of maintaining inflation within the target band of two to three per cent and adjusts monetary policy accordingly. Inflation targeting was endorsed by the former government in 1996, and it continues to have the support of the Rudd government.

In executing its duties to maintain the stability of the Australian financial system, the RBA has also played a major role in steering the country through the global financial crisis. From late 2008, as the global financial crisis began to unfold, Australia faced a loss of revenue equal to the entire health budget and stared at the very real prospect of a job-destroying recession. Here in Australia, the Rudd government acted quickly and decisively to stimulate the economy by investing in nation-building infrastructure. Our actions to stimulate demand had the effect of not only slowing the rise of unemployment but actually creating jobs at a time when the United States and other advanced economies experienced double-digit unemployment figures.

At the same time, the RBA led the world’s advanced economies by being the first central bank to start aggressively loosening monetary policy. In concert with the fiscal policy of the Rudd government, the RBA’s swift action proved to inject further stimulus at the household level, eventually slashing interest rates by four per cent between September 2008 and April 2009. The rapid easing of fiscal and monetary policy to stimulate the economy has arguably been the deciding factor in Australia’s relatively swift recovery from the crisis and is one of the reasons we were able to avoid recession.

The key to the long-term effectiveness of the role the RBA plays in maintaining the stability of our economy is in its independence. Maintaining the independence of the RBA is a policy that continues to have bipartisan support. Importantly, the Rudd government introduced legislation to enhance the independence of the positions of governor and deputy governor by ensuring that the termination of these positions can only be made with a resolution of each house of the parliament.

I would like to offer my congratulations to the current governor, Glenn Stevens, and all of the staff and members of the board, past and present, for reaching this important milestone. It is a significant anniversary not only for the RBA itself but for the stability and maturity of the Australian financial system. Tonight I wish to acknowledge the collective contributions of those who have made the RBA a great Australian institution.

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

Does the member for Dobell second the motion?

Craig Thomson (Dobell, Australian Labor Party) Share this | Link to this | Hansard source

I second the motion and reserve my right to speak.

Stuart Robert (Fadden, Liberal Party, Shadow Parliamentary Secretary for Defence) Share this | Link to this | Hansard source

I rise to support the motion by the member for Lindsay. Perhaps I do not support some of his words, but indeed the motion is worthy of respect. The Reserve Bank of Australia was slated under the Reserve Bank of Australia Act 1959, coming into being in the following year. Its charter, as has been stated, is about stability of the currency, creating full employment and, of course, acting for the best welfare of Australia and its people. The bank, of course, does a lot more than that. It also issues currency and provides a range of select banking services and manages our foreign currency reserves.

The true potential of the bank—the true realisation of all that the bank could achieve for the nation—came in the Howard years, when it was made independent and when, in the setting of monetary policy, it was unshackled from the rules of government and the executive and was able to set monetary policy in its own right. That is when we saw the Reserve Bank become one of the four great pillars that have stood us in such good stead, in concert with ASIC, APRA and the ACCC. Those four pillars of our financial system have ensured that we remain one of the powerhouses of financial management globally.

There is no clearer example of this than the value of the Reserve Bank that we saw in the global financial crisis. It is interesting that with over 200 banks now failing across the world not a single bank has failed in Australia even though in the late eighties quite a number of banks failed, including credit unions. I think the Labor Party has realised that the Labor Party running state banks is not such a good idea.

Indeed, at the point right now at the end of the GFC, and from our point of view as our economy kicks back into growth again, there are only eight banks in the world that have an AA or higher rating—only eight. And four of them are the big four in Australia, so well has our banking system been regulated and so well have the four pillars stood us in good stead.

It is interesting that the Treasurer and I would fail to agree on many things, but I agree with him on one point: that fiscal policy must work in concert with monetary policy. In the lead-up to the global financial crisis there is no better example of the two hand in hand. We entered the global financial crisis in a far better position than any other country in the OECD, if not the world. We were debt-free, we had money in the bank and lots of it—in the tens of billions. We had a Future Fund of something like $60 billion. It is not unreasonable to suggest that the sovereign wealth of the nation, if I could use that term, was something like $100 billion in the bank. It actually meant Australia had the 10th largest sovereign fund in the world. That is how we went into this crisis.

Inflation was in the band of two to three per cent over the economic cycle, and had been 2.5 per cent from 1996 to 2007. We had an incredibly flexible labour market. Unemployment was at four per cent and, indeed, dropped lower than that nationally. That flexible labour market and everything that went with it allowed us to take advantage of and to capitalise on a resources boom that made us a country on par with, if not better than, Brazil to invest in when it came to resources and energy.

This was the position of the nation when we went into the global financial crisis. Parties would have us believe that economic stimulus alone pulled us out; it was wise decisions made by the executive. But I think sound economists look at the shape we went in with, the shape of our banking system and the oversight provided by the four pillars—especially the Reserve Bank.

The state of our economy, the state of the money in the bank, our inflation band and our flexible labour market meant that when the GFC hit and the crisis was imported into Australia, the Reserve Bank had room to move. It dropped interest rates down to three per cent of the cash rate, a four per cent drop, whereas other economies like Europe, the US and the UK dropped interest rates down to zero because they had no choice and they had nowhere else to go. Our cash rate only went to three per cent because of the strength of the economy going into the crisis. No other nation in the world had prepared as well as Australia. So whilst I support the motion, and recognise the 50th year since the establishment of the Reserve Bank of Australia, I think that, importantly, I respect and acknowledge the independence of the Reserve Bank and what it did during those great Howard years to ensure we could ride the shock of the global financial crisis to the degree that we have done.

Craig Thomson (Dobell, Australian Labor Party) Share this | Link to this | Hansard source

It is a shame that in relation to a motion that is about recognising 50 years of the Reserve Bank that the member for Fadden tries to claim credit for the Howard government for the entire operation of the Reserve Bank. We need to take a longer view of history and to look at the actual role that the Reserve Bank has played under successive governments. You really need to go right back to the start of Federation to see the evolution of what has now become the Reserve Bank.

With the federation of the Australian states into the Commonwealth of Australia, the first Australian parliament assumed power to make laws with respect to banking and currency. In 1911, the first Commonwealth Bank Act gave the Bank only the ordinary functions of commercial and savings banks. In 1920, responsibility for the note issue was transferred from the Treasury to a Notes Board, consisting of four members, appointed by the government. The governor of the Bank was an ex officio member of the Notes Board. The administration of the note issue was undertaken by the Bank, although the Bank and the Notes Board were formally independent of each other.

By 1924, the Commonwealth Bank Act was amended and the Bank was given control over note issue. Management was then vested in a board of eight directors, including ex officio the governor and the Secretary to the Treasury. From this time until 1945, when there were major changes in the legislation, the Bank gradually evolved its central banking activities, initially in response to the pressures of the Depression in the early 1930s and later by formal, albeit temporary, expansion of its powers under wartime regulation. May I point out that this was well before the Howard government came into office.

The new Commonwealth Bank Act and the Banking Act, both of 1945, formalised the Bank’s powers in relation to the administration of monetary and banking policy and exchange control. Under the 1945 legislation, there ceased to be a board, which was replaced by an advisory council of six comprised entirely of officials from the Bank and Treasury. The legislation specified that the governor was responsible for managing the Bank. However, legislation in 1951 established a new board—at that time of 10 members, including the governor, deputy governor and the Secretary to the Treasury—and maintained the responsibility of the governor for managing the Bank. With minor variations in the number of members this has been the structure of the Bank’s board since that time.

As indicated by previous speakers, the Reserve Bank Act 1959 preserved this original corporate body under the new name of the Reserve Bank of Australia to carry on the central banking functions of the Commonwealth Bank, which has evolved over time. Other legislation separated the commercial banking and savings activities into the newly created Commonwealth Banking Corporation. The Reserve Bank Act 1959 took effect from 14 January 1960, and that is what we are talking about today in terms of celebrating 50 years since then.

There were no major changes in the functions of the RBA until the abolition of the exchange control and the floating of the Australian dollar in 1983 under the Hawke Labor government. There had, however, been a gradual movement to market orientated methods of implementing monetary policy away from a system of direct controls on banks, and in the five years following the appointment of a major financial system inquiry, the Campbell inquiry in 1979, the Australian financial landscape was transformed to a virtually fully deregulated system. At the same time, the RBA gradually built up a specialised banking supervision function.

The Reserve Bank’s board, with respect to the formulation and implementation of monetary policy, is laid out in section 10(2) of the Reserve Bank Act, which is often referred to as the bank’s charter. It says that it is the duty of the Reserve Bank board within the limits of its powers to ensure that the monetary and banking policy of the—

Debate interrupted.