Helen Coonan (NSW, Liberal Party, Shadow Minister for Human Services) Share this | Link to this | Hansard source

Unfortunately, the Reserve Bank Amendment (Enhanced Independence) Bill 2008 is, in the opinion of the opposition, a poorly thought out bill that highlights what a fiasco the government’s spin machine has become. The bill is all about politics, with a very thin veneer of policy. Unfortunately, it is becoming all too clear that this is a classic approach by Labor: all glossy on the surface but, when you dig a bit deeper, you see that it is all a public relations exercise and not a contribution to sound economic policy. In December last year, the Prime Minister announced that this bill would lead to ‘a new era of independence for the Reserve Bank’. I do not agree with that. The bill will do nothing of the sort. All that the bill will do is take us backwards to the position that we were in in 2001. This is not a new era; it is simply a return to the past.

I will speak on the issue of the Labor government’s grandstanding on this matter in more detail in a moment. But first I would like to take the opportunity to discuss very briefly the history of Reserve Bank independence and how we got to the stage of the government now reverting to the past to solve a problem that never existed in the first place. When it comes to Reserve Bank independence, Labor’s record is distinctly lacking. When the Labor Party were last in government, they made absolutely no attempt to make the Reserve Bank independent. We all recall very well the former Prime Minister Mr Keating famously boasting that ‘they do as I say’—they being the Reserve Bank.

It took the foresight of a hardworking and economically diligent coalition government to move to install Reserve Bank independence, which we all now universally agree is a very good thing. In 1996, the then Treasurer, the member for Higgins, Mr Costello, issued a statement on monetary policy which clarified the bank’s role and the government’s commitment to respect its independence. In an extraordinary move, the then Leader of the Opposition, Mr Kim Beazley, sought legal advice, because Labor did not support the reforms. So, in 1996, the Labor Party did not even support an independent Reserve Bank.

By 2002, though, they had changed their tune completely. The Prime Minister and Treasurer both supported the Financial Sector Legislation Amendment Act No. 1 2002, which amended the Reserve Bank Act so that the Treasurer appointed officers and board members to streamline the appointment and termination process. Yet now they want to undo the 2002 legislation and go back to the old system of the Governor-General making appointments. This is at odds with their statements in 2002.

We have a Prime Minister and a Treasurer who were at one stage opposed to Reserve Bank independence. Back then, they supported a streamlined appointments and removals process. But now they want to turn back the clock, while at the same time telling the media that this is the beginning of a new era of independence. You get the idea that this is all spin and no substance. Quite clearly, the government are confused as to their motives—although I am not surprised, because these are the same people who promised to put maximum downward pressure on inflation and then proceeded to increase government spending in their first budget.

The real reason that Labor are moving this bill is that they are desperate to appear to be economic conservatives. A trick which Labor seem to have picked up from their counterparts in the United Kingdom is creating a non-existent problem and then claiming credit for solving it. This again is classic Labor. There was no problem with Reserve Bank independence under the coalition, but Labor are desperate to appear to be doing something—anything—to fill in the gaps while these innumerable committees dither and report. They want to build up an air of economic competence. The Treasurer thought: ‘I know; I’ll talk about making the Reserve Bank more independent. That’ll make me look like I know what I’m doing.’ Sadly, though, the problem is that Labor are contradicting their own past behaviour and criticising the forward-looking Howard government when it was, in fact, the Howard government that pioneered Reserve Bank independence.

There are some very substantial problems with this bill. Currently, the Treasurer is required to terminate the appointment of the Governor or Deputy Governor of the Reserve Bank on the essentially objective grounds of paid employment outside the Reserve Bank, bankruptcy and permanent incapacity. A major fault in this bill is that it would make this optional in two degrees. Firstly, the parliament would need to agree to the termination. Secondly, the Governor-General in Council would need to agree. This would all take time. If, for example, the Governor of the Reserve Bank were to have an accident or become gravely ill and parliament were in recess, then parliament would need to be recalled. This would not only take time but also be very costly. Delay could cause considerable economic damage and damage to Australia’s reputation. If the Governor of the Reserve Bank were to become bankrupt, for example, it would take weeks to replace him or her under the new legislation. Under existing arrangements, the Treasurer could move quickly to shore up financial market support of the bank and to protect the reputation and credibility of the bank and Australia’s broader economy.

In order to address what we perceive as some of the serious deficiencies with this bill, the coalition is proposing to move amendments to ensure that this bill really does reform the governance arrangements of the Reserve Bank. We have looked to see whether or not there could be some improvements—and they are not the improvements that have been proposed under the bill. The opposition amendments would insert a new section 24C into the Reserve Bank Act 1959, which would require the Governor of the Reserve Bank to appear before the House of Representatives Standing Committee on Economics at least four times a year. Presently, the Governor of the Reserve Bank generally appears before the House economics committee twice a year, and this is optional. The coalition considers that it would increase the accountability of the Reserve Bank if the hearings were conducted four times a year, in line with best practice overseas. The coalition considers that this amendment would enhance the independence of the Reserve Bank.

The opposition amendments would omit schedule 1, item 3, page 3, which I will come to when we move these amendments in the Committee of the Whole. That would have the effect of leaving extant section 25 of the Reserve Bank Act 1959. That is, it will remain mandatory for the Treasurer to terminate the appointment of the Governor or Deputy Governor of the Reserve Bank on the essentially objective and easy to ascertain grounds of permanent incapacity, paid employment outside the Reserve Bank and bankruptcy. As I said, these are objectively based and, if they occur, the consequences should be both mandatory and prompt.

However, I think a different and perhaps more subtle response is necessary when it comes to the possibility of misbehaviour and what should be done about potentially removing the governor in the event of misbehaviour. The opposition amendments would insert, then, a new section 25AA to the Reserve Bank Act 1959 which provides for parliamentary approval for the termination of the Governor or Deputy Governor of the Reserve Bank on the ground of misbehaviour. It is much more difficult, of course, to get agreement in relation to misbehaviour. Perhaps some of the more egregious forms of misbehaviour might not cause this kind of concern, but I can envisage circumstances where it may be difficult to come to a view as a parliament as to whether or not the misbehaviour is of the kind that would call for the dismissal of the governor.

These clauses have been essentially modelled on those applying to judges, under section 72 of the Constitution; the Australian Statistician, under the Australian Bureau of Statistics Act 1975; the Commissioner of Taxation and Second Commissioner, under the Taxation Administration Act 1953; and the Ombudsman, under the Ombudsman Act 1976. All of these offices require parliamentary approval to terminate their appointments on the ground of misbehaviour, sometimes described as ‘proved misbehaviour’. That probably should be ‘proven’ misbehaviour. In other words, the coalition amendments would achieve the stated intent of the government of raising the statutory independence of the governor to that of the Australian Statistician and the Commissioner of Taxation. The proposed new section 25AA would provide that the Governor-General in Council may terminate the appointment of the governor or deputy governor if each house of parliament, in the same session of the parliament, presents an address to the Governor-General praying for the termination of the appointment on the ground of misbehaviour.

The proposed section also provides that the Treasurer may suspend the governor or deputy governor from office on the ground of misbehaviour—and I think that is absolutely critical—but must lay before parliament within seven sitting days a statement identifying the office holder suspended. The section also outlines the method in which the parliament would consider the termination of the governor or deputy governor, following the suspension order by the Treasurer. It also provides that the suspension of the governor or deputy governor for misbehaviour does not affect their entitlements. The amendments also provide that the governor or deputy governor may only be terminated for misbehaviour by following the procedure outlined in the new proposed section 25AA.

When we come to these amendments, I might have a few more words to say about them, but I did think it was appropriate to set out in my second reading remarks where we think this bill can be improved in a constructive way. Unlike the government’s bill, I think our amendments will ensure that the Reserve Bank is more effective and accountable. The amendments ensure effective measures to provide for the removal of the governor in the event of misbehaviour. They give parliament, and not a court, the power to remove the governor immediately if ever a governor were to misbehave. They also seek to make the governor more accountable. I think they are real reforms, and in due course I will be commending these amendments to the Senate. Otherwise, we will be supporting the substance of the bill.

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

The Reserve Bank Amendment (Enhanced Independence) Bill 2008 is welcome from at least one point of view, and that is that it opens up for debate and consideration the entire status and nature of the appointment and termination of the governor and deputy governor and, indirectly, of the board. I differ from the shadow minister in that I believe there is a problem with the Reserve Bank Act. I think it is in need of an overhaul and review, and I think there are fundamental weaknesses in the act. That is not to say, of course, that we have not been singularly well served by both the present governor and previous governors and, indeed, their deputies. Nor is it to say that the coalition were not quite right to have enhanced the independence of the Reserve Bank governor and the Reserve Bank itself, as they did when they made that determination in 1996 which the shadow minister referred to in her speech.

I thank the government for producing this bill, because it does open up a debate that we need to have. I thank the coalition for referring the bill to the committee, because the result is that the committee process, as it usually does, exposed, aired and made more apparent some of the real issues and problems that apply to our existing act. I had thought initially that the bill was a very modest one that did not do much harm, and I think the coalition did us a service, in fact, by indicating its weaknesses. I am pleased to see they will be following up with some amendments to reflect their point of view.

The other point I want to make in my opening remarks is that nothing much hangs on this bill. If it does or does not pass, it is not going to alter the fate of Australia much, but it does make a perfect double dissolution trigger as a result. I can envisage a situation where the coalition put forward their amendments, the government refuse them, the coalition insist on them and you can pop a double dissolution trigger into your pocket, as governments like to do. We will see if that is what in fact results from this process. But it is the first bill I have seen which has the genuine potential to be a double dissolution trigger.

The Reserve Bank Amendment (Enhanced Independence) Bill 2008 amends the Reserve Bank Act 1959 to allow the Governor-General—instead of the Treasurer—to appoint, suspend and terminate the Governor and the Deputy Governor of the Reserve Bank, and incorporates parliament in the suspension and termination of those positions. As usual, of course, the Governor-General acts on the advice of the federal Executive Council, which means that cabinet still makes the decision. In reality, nothing changes much. This is a modest bill that does not do much. It marginally increases the independence of the appointment process by going one step further and putting a little more at arms length the present process where the Treasurer appoints the Governor of the Reserve Bank of Australia after the approval of cabinet, to one which ensures the Governor-General—on the advice of the cabinet—appoints the Governor of the Reserve Bank. And when last did we ever see in the last quarter of a century or so a Governor-General refuse to do what the government wants him to do?

Clause 25(8) of the bill amends the act so that the termination of the appointment of the governor or deputy governor would be by the Governor-General in Council, following parliamentary approval. This replaces section 25 of the act, which entrusts this task to the Treasurer. The bill specifies three grounds for the termination of appointment where a governor or 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, applies to take the benefit of any law for the relief of bankrupt or insolvent debtors, compounds with his or her creditors or makes an assignment of his or her salary for their benefit.

The government have missed an opportunity to review this 50-year old act, including governance matters, to bring Australia’s central bank legislation up to date with international and domestic law. The present system needs modernising, and the bill is not sufficiently comprehensive. However, I will not deal with the act as a whole; I will just deal with appointment and dismissal issues.

With respect to board appointment and dismissal, by far the greatest criticism in the last decade or two has not been with reference to the governor and deputy governor, but to the Reserve Bank’s board—its composition, its skill set, and its function. That is not to say there have not been good appointments to the board—in some cases, they have been outstanding. But not all board members have passed what I would describe as the ‘excellence’ test. The Democrats are concerned that, whenever appointments are made to institutions set up by legislation, independent statutory authorities, or quasi-government agencies, the processes by which these appointments are made should be—and be seen to be—transparent, accountable, open and honest. It is still the case that appointments made to public authorities are left largely to the discretion of ministers with the relevant portfolio responsibility. It is important that the public have confidence that appointments by the executive are made against core principles of merit, probity and transparency. Indeed, there is a widespread perception that government appointments made through a secret process against unknown criteria at the discretion of the minister or the cabinet can, and do, result in partisan patronage.

A main failing of the present system is that there is no legislation which sets out a standard process to regulate the procedures for making appointments to statutory authorities and other agencies. Perhaps more importantly, there is no external scrutiny or analysis by an independent body of the procedure and merits of appointments. This entrenches the public perception of what is known as ‘jobs for the boys’—and also for the girls, since we stopped discriminating.

The issue of appointment on merit was comprehensively examined by the Nolan committee appointed by the United Kingdom parliament in 1995. The following principles were set out to guide and inform the making of such appointments:

• A minister should not be involved in an appointment where he or she has a financial or personal interest;
• Ministers must act within the law, including the safeguards against discrimination on grounds of gender or race;
• All public appointments should be governed by the overriding principle of appointment on merit;
• Except in limited circumstances, political affiliation should not be a criterion for appointment;
• Selection on merit should take account of the need to appoint boards which include a balance of skills and backgrounds;
• The basis on which members are appointed and how they are expected to fulfil their roles should be explicit; and
• The range of skills and backgrounds which are sought should be clearly specified.

The UK government fully accepted the Nolan committee’s recommendations. The Office of the Commissioner for Public Appointments in the United Kingdom was subsequently created, with a similar level of independence from the government as the Auditor-General in the United Kingdom, to provide an effective avenue of external scrutiny. Present Prime Minister Brown in the United Kingdom has announced that even better scrutiny will be introduced for appointments in particular areas, including involving parliament’s select committees in the appointment of key officials.

For the health and integrity of Australian democracy, the public must have trust and confidence that the government will not allow improper or irrelevant considerations, political interest or political obligation, to influence public appointments. Yet again, I will test the chamber with an appointment on merit amendment. I have had that turned down around three dozen times by the coalition so far. They would not know an appointment on merit process if they saw one. It is to their great discredit that they were absolutely and implacably opposed to taking up the initiative by the previous conservative government in the United Kingdom, which introduced the Nolan reforms. They were then fully adopted by the Labour government in the United Kingdom.

To a minimal amount of credit—and it is only a minimal amount—the Labor Party in opposition did accept one or two of those appointment on merit amendments of ours, so that was a good sign. But, you have yet to be tested. We will test you, and we will see if you will finally support appointments on merit, or if you will continue to ascribe to the wonderful heritage that you have of eternal appointments that are at your discretion. We will see.

Turning to the governor, the removal or replacement of the Governor of the RBA can be looked at from an objective and subjective basis. Objective issues are those that rest on fact, not opinion, and subjective issues are those that rest on opinion, not fact. I agree with the coalition that dismissal should be mandatory for bankruptcy. I believe the board should have a greater role than they do at present, and one of the weaknesses of the Reserve Bank board is that they do not behave, or are not allowed to behave, as a normal board should. Let us go through those issues.

If we turn to the objective issues—those that rest on fact, not opinion—death, resignation, bankruptcy, physical incapacity, mental incapacity and outside employment, these are issues that should not be the province of the Governor-General, the executive or the parliament. We have no business dealing with those issues. For me, a clean approach to these issues should be, or could be, as follows. For death, the Deputy Governor of the Reserve Bank steps in, the board approves final settlement of terminated employment and the appointment of the successor governor is as per the act. For resignation, the Deputy Governor of the Reserve Bank steps in, the board approves final settlement of terminated employment and the appointment of a successor governor is as per the act. For bankruptcy, the board must suspend the governor as soon as bankruptcy proceedings begin and the Deputy Governor of the Reserve Bank stands in. If the bankruptcy is confirmed then the governor is automatically dismissed, the Deputy Governor of the Reserve Bank stands in, the board approves final settlement of terminated employment for the previous governor and the appointment of the successor governor is as per the act.

For physical incapacity, on the governor being incapacitated, the Deputy Governor of the Reserve Bank steps in. Subsequently, on objective, independent medical opinion, the board can decide that the governor cannot be expected to recover sufficiently or quickly enough to fulfil the governor’s duties. The Deputy Governor of the Reserve Bank stands in, the board approves final settlement of terminated employment and the appointment of the successor governor is as per the act. For mental incapacity, on the governor being incapacitated, the Deputy Governor of the Reserve Bank should step in. Subsequently, on objective and independent medical opinion, the board can decide that the governor cannot be expected to recover sufficiently or quickly enough to fulfil the governor’s duties, the Deputy Governor of the Reserve Bank stands in, the board approves final settlement of terminated employment for the previous governor and the appointment of the successor governor is as per the act.

For outside employment—the last of my objective categories—the governor should be prohibited from outside employment but not from receiving some outside payment, such as royalties from book sales or minor payments. All grey areas should be determined by the board. The board can decide that the governor must be dismissed on outside employment grounds, the Deputy Governor of the Reserve Bank stands in, the board approves final settlement of terminated employment and the appointment of the successor governor is as per the act. None of those objective considerations should have anything whatsoever to do with the Governor-General, the executive or the parliament. What are we doing with this Reserve Bank Act? We are not attending to any of those obvious reforms.

On the subjective grounds, we, the parliament, should be involved. Subjective issues are those that rest on opinion and not fact. There are three possible grounds, but there may be more—performance, misconduct or misbehaviour. And they can mean different things. In my view, the approach should be that, with respect to a governor who loses the confidence of the Reserve Bank board, he or she must go, and that is the end of it. The Deputy Governor of the Reserve Bank would then step in, the board would approve the final settlement of terminated employment and the appointment of the successor governor would be as per the act. You cannot have a governor who does not enjoy the confidence of the board, in the same way as you cannot have a managing director who does not enjoy the confidence of the board.

With respect to the executive, the cabinet, a governor who loses the confidence of the executive should have the matter referred by the executive to the parliament. This is because it may be a partisan political issue. That is a process which already the act is concerned with. Such a person should have his or her future decided by the parliament, which is broadly the intent of the bill and is definitely the intent of the coalition’s amendment. While that process is underway, the deputy governor steps in. If termination is recommended by the parliament, the Deputy Governor of the Reserve Bank stands in, the board approves final settlement of terminated employment and the appointment of the successor governor is as per the act. Frankly, in a situation where the matter is referred to the parliament, I cannot see any governor being willing to go through that. I am sure they would resign, because once it goes through you know it is over, red rover, frankly. That, nevertheless, should be the process.

For the parliament, a governor who loses the confidence of the parliament must also go. While that process is underway, the deputy governor should step in. If termination is recommended by the parliament, the Deputy Governor of the Reserve Bank stands in, the board approves final settlement of terminated employment and the appointment of the successor governor is as per the act. In practice, again, I cannot see any governor being willing to go through this, and I am sure they would resign.

During the committee hearings, there was a fair bit of interesting questioning and answering, and Senator Brandis, who has considerable experience of legal and litigation matters, exposed the difficulty of these matters going through the courts. It is highly undesirable that we have the courts involved in issues to do with the appointment or termination of the Reserve Bank governor or deputy governor—not because it is wrong in principle, which of course it is not, but because the dragged-out process would be dangerous to the financial markets and the security of our country. I would, frankly, try and keep the courts out of all these matters if at all possible.

In my additional remarks to the committee report, I did say that I thought the bill should be amended in at least one respect: to keep bankruptcy a mandated ground for dismissal. But of course anyone who knows anything about Corporations Law—hopefully not as a respondent—would know that the application for bankruptcy takes considerable time; it is not a quick process. So you have to have a process measure in there as well. I really do think bankruptcy is one of those objective grounds which should be simply mandated grounds for dismissal.

So where do I get to at the end of my speech in this second reading debate? I decided not to try to carry through my thoughts into a series of amendments, because I think what the government should do is recognise what the coalition partly recognised when this bill came up—which has, I think, also been more broadly recognised—and that is that this act really does need an overhaul and that it should go back for review, a proper modernisation process and a much cleaner process. And I think the board should be more involved than they have been. I only wish the coalition had had the sense to address this issue and reform the board when they were in power.

I have been pleased to see greater transparency measures emerging with Reserve Bank board practices in recent times, particularly with their greater explanation of their views immediately after their monthly meeting and then the publication of the minutes. I remember that being raised in academic and media debate some years ago. In fact, I remember the journalist who was involved in much of that discussion—Paul Cleary, who eventually went off and did work in East Timor. There should be far greater transparency and far more modern governance arrangements than there have been in the Reserve Bank.

I for one, by the way, am not at all satisfied yet that they have proper procedures for dealing with conflict of interest issues. Members of the chamber who have a political memory of the last decade will know why I make those remarks. I will conclude my speech in the second reading debate on that note.

Annette Hurley (SA, Australian Labor Party) Share this | Link to this | Hansard source

The Reserve Bank of Australia is a very important part of our financial institutions. Its independence is valued and has been valued by all political parties in Australia and, I believe, by the other financial institutions in Australia. There is increasing independence and autonomy rested in the Reserve Bank of Australia. This leads to a great deal of stability and confidence in the financial markets in Australia and it is something that, quite rightly, all sides of politics have supported in our quest for greater transparency in our financial systems.

This of course does not mean that there has not been a bit of political grandstanding from time to time by those political parties concerned. I think that political grandstanding could have been responsible for Paul Keating’s famous statement about the Reserve Bank being in his pocket—a statement that has been repeated very many times and which has been described, I think quite rightly, as demonstrably untrue. The Reserve Bank was not in Paul Keating’s pocket, and I think it was a little political grandstanding on his part. But I think it was also a bit of political grandstanding by the Howard-Costello government when they came in claiming responsibility for the independence of the Reserve Bank on the back of that statement. I think that is demonstrably untrue as well and was very much political grandstanding. The Reserve Bank of Australia has been slowly gaining in independence and autonomy over many years. Indeed, the Reserve Bank Amendment (Enhanced Independence) Bill 2008 continues that process and follows on from a continual trend of giving the Reserve Bank, and necessarily the Governor of the Reserve Bank, far more independence.

Much has been made by the shadow minister and other members of the Liberal Party about the new involvement under this bill of the parliament in the process of appointing and dismissing the Reserve Bank governor and deputy governor. I think it is a step towards greater independence, and the public perception of greater independence, for the Reserve Bank governor and deputy governor to be included in a process whereby the Governor-General makes the appointment and, indeed, the dismissal. During the hearings of the Senate committee on this matter, much was made of the perceived difficulties in dismissal and what would happen if the Reserve Bank governor had dismissal proceedings instituted against him. But I really think that was very much overblown in the scheme of things. If the Reserve Bank governor were dismissed, the deputy governor would automatically step into his shoes. Our advice from Treasury is that that would be an automatic process and that it would not necessarily result in any hiatus of the markets, as has been described by the opposition. It is one of the extra steps that could be taken to enhance independence.

In the name of enhancing independence, the opposition have also called for more committee hearings to question the Reserve Bank of Australia. We had some very useful evidence in a written submission from Mr Saul Eslake, who described the processes as not being particularly useful. He said that the questions ran a line of political argument by whichever side was in opposition, which was generally not terribly successful, or otherwise various members tried to show how in touch or sensitive they were with key issues like interest rate rises, which did not get the committee anywhere at all. It is hard to believe that anything different would happen if the Senate economics committee were involved—although I do appreciate that senators are generally much more considered and wise than our counterparts in the other place. This line of argument is also a little misplaced and will go no further to enhancing any independence by the Reserve Bank. Indeed, I think this is a bit of an attempt by the opposition to try to regain the moral high ground in terms of the independence of the Reserve Bank of Australia, and I do not really think it is going to get them very far in that respect. I think there is genuine all-party agreement about the importance of the Reserve Bank of Australia and that this is a little bit of gilding around the edge.

I certainly support any legislation, such as the government’s bill, which goes towards increasing the authority of the Reserve Bank of Australia and its independence from the government. Since the time that Paul Keating was in government, particularly, the economic education of the Australian public has proceeded at quite an advanced level compared to before. The public of Australia do really understand, because of education not only from politicians but also from the media and because of the general increase in the efficiency of communication around the world, that we are part of a global financial system and that there are a lot of external influences which impact on Australia and which are longer and deeper than the political cycle. That is the particular reason why I support the autonomy of the Reserve Bank, because you have to have that body of people in charge of the financial system who not only are aware of international trends and international impacts and Australia’s impact on the financial system but also are prepared to take that kind of longer term view of the financial system. The Reserve Bank of Australia has shown in the past and just recently that it is prepared to take very hard decisions in the course of maintaining a good and strong financial system in Australia regardless of the political cycle. I think no-one here would say that that is a bad thing, and anything we can do to support the Reserve Bank of Australia in that role is welcome. I do indeed think that this bill supports and expands that role of the Reserve Bank of Australia.

That being said, I think that Senator Murray has a reasonable point in his consideration of not only the Governor and the Deputy Governor of the Reserve Bank of Australia but also the board. It is important, once we have finished this process, that there be some serious consideration of how board appointments are made and how they function. In the past, where there have been any queries over appointments, it has not been the Governor or the Deputy Governor of the Reserve Bank of Australia but the other board appointments that have tended to move more quickly, and, as it currently stands, of course, they move at the discretion of the government of the day. In going forward to the next step in increasing the Reserve Bank of Australia’s independence, that is possibly the most obvious place to look. I would not want to do it without long and deep consideration of the impacts of that—and consulting quite widely within the financial system—because it is important that any replacement, if a replacement is required for the current system, is done thoroughly and properly and does not create more problems than it solves.

This is just a brief speech to reinforce my support of this current bill and rejection of the proposed opposition amendments. I think they are in response to an almost confected concern and, in other cases, do not really enhance the independence of the Reserve Bank of Australia. These first steps by the government are excellent ones to take.

David Bushby (Tasmania, Liberal Party) Share this | Link to this | Hansard source

I rise today to speak on what I believe to be a highly flawed bill. The Reserve Bank Amendment (Enhanced Independence) Bill 2008 is nothing more than a stunt to create the impression that the Labor government is doing something to address the terrible lack of independence in the Reserve Bank, something it never revered as special or noted as lacking whilst in opposition. Worse, the fact that the bill is replete with holes that are likely to have perverse consequences highlights the Treasurer’s rush to bring this very thin bill to parliament when there was absolutely no reason for haste. It is an example of Labor’s symbolism at its worst.

The need for legislative change to deliver greater independence to the Reserve Bank is not one that has been pressing those who follow financial matters. On the contrary, it is fairly well settled that the Reserve Bank is extremely independent, and this was demonstrated in practice in extremity only last year during the election campaign, when the bank took the unprecedented move of raising the official rate mid-campaign. And on the international rankings of central bank independence—and, yes, such rankings do exist—Australia ranks highly in terms of economic independence but lower in terms of political independence. Why is it lower in terms of political independence? Is it to do with the process involved in removing a board member or the governor, or is it even related to this? Not at all. The only reason the Reserve Bank’s political independence does not rank as highly as its economic independence is that it has the Secretary of Treasury on its board as of right. And, prior to promising to increase the bank’s independence in the lead-up to the election, Labor had never raised its independence as an issue. In fact, the Labor Party is very much a Johnny-come-lately to Reserve Bank independence.

In 1996 Labor criticised the coalition’s reforms to enhance the independence of the Reserve Bank, with the then Leader of the Opposition, Kim Beazley, stating that he was seeking legal advice because Labor did not support the statement on the conduct of monetary policy that then Treasurer Peter Costello signed with then Governor Ian Macfarlane. Remember, this is a Labor Party where Paul Keating said to the Canberra press gallery, as Senator Hurley has already acknowledged today:

I have Treasury in my pocket, the Reserve Bank in my pocket, wages policy in my pocket, the financial community both here and overseas in my pocket.

That was in December 1990, when the CPI was 6.9 per cent, the RBA’s weighted median was six per cent and its trimmed mean was 6.2 per cent and the unemployment rate was 7.2 per cent—all this in an economy still experiencing the disastrous effects of Mr Keating’s ‘recession that we had to have’. The Treasurer also seems to have had little regard for independence, as he showed in an interjection to comments by the then member for La Trobe in the other place on 7 June 1994. The member for La Trobe said:

What does that amount to if it does not amount to an attempt to interfere in international document making by an independent international authority, the OECD?

Mr Swan replied:

So what?

Such commitment to central bank independence! Now we have Labor experiencing a new enlightenment, which sees them promoting the idea of an independent central bank—something the coalition strongly legislated for, enforced and backed throughout the last 11 or so years it was in government. I put it to you, Mr Acting Deputy President, that their conversion is a charade—a public relations exercise, a sham.

On 30 October 2007 Mr Swan said:

A Rudd Labor Government will improve the transparency of future Reserve Bank Board appointments and remove political considerations from the selection of candidates. It will also improve procedures to ensure only the best qualified candidates are appointed.

From the perspective of the Labor Party, making appointments to the Reserve Bank, such a statement is highly desirable because Labor’s track record is a little concerning. Bob Hawke, a well-known political independent, was put on the board. Why? Because he was ACTU president. Bill Kelty, a party president and financial controller, was on the board. Brian Quinn was on the board, and later went to jail. All were Labor appointments. And there are many other examples, and all of them ‘independent’. I ask you!

So how will Labor move to improve their record in this regard? Mr Swan said they would ask the Reserve Bank governor and Treasury secretary to advise on new procedures to safeguard against candidates with partisan political commitments being shortlisted for consideration by the Treasurer. Prior to these new procedures starting—in April this year, I believe—the governor and secretary would provide a list to the Treasurer, who would make a decision but not necessarily from the list provided. At budget estimates I asked the Secretary to the Treasury, Dr Ken Henry, how their new procedures would play out in practice. He said the primary difference from the previous situation was that they would still provide a list but that the Treasurer had agreed that he must select from that list. This sounds fine but when I asked him how the parliament or the people of Australia could verify that any new appointees had been selected from those included on the list—given that the list would never be made public—he could not provide an answer. So, in the absence of such an answer, there is absolutely no assurance available that the new process is any different from that which was instituted by and worked well under the previous government. Once again, it is spin over substance.

I now come to the specific provisions of this bill. On 6 December 2007, Mr Swan signed and released a statement on the conduct of monetary policy that was essentially the same as that signed by Peter Costello and the governor previously. The statement and associated media release also contained the following statement:

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.

The appointments of Governor and Deputy Governor will be made by the Governor-General in Council and their terminations will require parliamentary approval. Currently the Governor and the Deputy Governor are appointed by the Treasurer and their appointment can be terminated by the Treasurer.

The bill proposes to amend the Reserve Bank Act 1959 so that the Governor-General, rather than the Treasurer, will be responsible for the appointment of the governor and deputy governor of the bank. This is a return to the situation that existed before the commencement of the Financial Sector Legislation Amendment Act (No. 1) 2003, which, supported by Labor in opposition, amended the RBA Act so that the Treasurer appointed officers and board members so as to streamline the appointment and termination process. Appointments to the Reserve Bank board and payment system board, however, would remain under the administration of the Treasurer. In addition, the bill would require a vote of both houses of parliament on specified grounds to dismiss the governor.

The bill has a separate provision for the suspension of the governor or deputy governor, so the bill would lead to the governor and deputy governor being appointed by the Governor-General, with appointments to the two boards remaining in the purview of the Treasurer.

The Treasurer claims that the bill would lead to the RBA governor having the same status appointment-wise as the Australian Statistician and the Commissioner of Taxation, but—and this is a crucial difference—the ATO and ABS do not have a board of directors and the matters that go to parliament when considering termination are quite different.

Section 24(1)(c) of the RBA Act provides that a governor and deputy governor hold office subject to good behaviour, yet Labor’s amendments provide that the parliament may only pray for their removal on one of three grounds:

(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, applies to take the benefit of any law for the relief of bankrupt or insolvent debtors, compounds with his or her creditors or makes an assignment of his or her salary for their benefit ...

That means that, if Labor’s bill is enacted, the parliament would not be able to remove a governor or deputy governor for misbehaviour. The parliament would only be able to remove a governor or deputy governor on three grounds: incapacity, paid employment or bankruptcy—three grounds that are essentially matters of fact.

Section 24(1)(c) of the RBA Act would remain as it is, so the Treasurer would, presumably, still have authority to terminate a governor on grounds of misbehaviour, although this would be less clear should this bill pass. That would be a very tricky situation. Although a Reserve Bank governor has never been dismissed, laws are written to address extreme cases—and a misbehaving governor is one such case. Imagine if you will a governor whose behaviour was of such an appalling nature that the credibility and reputation of the Reserve Bank was suffering. Imagine the potential effects on the confidence of the financial market and the consequences if, in such a circumstance, the unclear nature of the amended RBA Act meant that the Governor-General in Council was unsure about his or her power to terminate the governor for misbehaviour and the misbehaving governor had strong grounds to challenge his or her attempted dismissal. Do not think this is some arcane debate, as suggested by Senator Hurley. Australia has been well served by our Reserve Bank governors and deputy governors, present and past, but a rampaging, misbehaving or irrational governor could cause untold damage to the economy in short order, unlike, say, a tax commissioner or statistician.

Look at the example of the then governor of the Bank of Italy, Antonio Fazio. The scandal with regard to Italy’s central bank governor lasted over six months and badly damaged the reputation of a once august institution. Are we so precious to think that it is impossible for such an event to happen in Australia? The bill produces the absurd result of two dismissal procedures: to the parliament for the factual determination of incapacity, paid employment or bankruptcy and to the Governor-General for the more controversial determination of misbehaviour. Compare this with the RBA Act as it stands, which reads that a Treasurer must terminate the appointment of a governor or deputy governor on the three factual grounds. The bill takes this and makes it an optional decision of parliament. So the parliament might decide to let a bankrupt governor continue in office or it might decide to let a governor who is permanently incapacitated—

Debate interrupted.