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

Prior to the intervention of question time, I was speaking about how the Reserve Bank Amendment (Enhanced Independence) Bill 2008 will produce the result of two dismissal procedures with absurd results, the first being as to parliament, for the factual determination of incapacity, paid employment or bankruptcy, and the second as to the Governor-General, for the more controversial determination of misbehaviour. I was also comparing this with the Reserve Bank Act as it currently stands, which reads that a Treasurer must terminate the appointment of a governor or a deputy governor on three factual grounds. The bill takes this and makes it an optional decision for the parliament. As I mentioned prior to the intervention of question time, this means that the parliament might decide to let a bankrupt governor continue in office or it might decide to let a governor who was permanently incapacitated continue in office or it might even decide to let a governor who was working on the side continue in office. This could very well be the result of the present bill, a bill that has been rushed forward without due consideration and is designed to meet a political need, a bill that could produce a number of perverse outcomes, such as allowing a bankrupt to continue in office as governor of the Reserve Bank, and a bill that would leave unclear the method of dismissing a misbehaving governor.

Australians deserve better from their government. This bill is a symbolic sham. Accordingly, I indicate that I will be supporting the amendments to the bill to be moved by Senator Coonan. One of the results of these opposition amendments would be to require that the governor testify before the particular House of Representatives committee four times a year. This is an important reform. Transparency, accountability and independence are closely allied. At present the governor meets informally with the parliamentary committee twice a year, but he could choose not to. The coalition’s amendments would mandate the governor’s appearance four times a year, for the Reserve Bank is accountable to parliament and, through it, to the people of Australia for the administration of its monetary policy role. This frequency would be closer to world practice. For example, the Chairman of the US Federal Reserve testified to Congress seven times last year. The Governor of the Bank of England typically testifies before parliament three or four times a year, and the President of the European Central Bank appears five times a year before the European Parliament. So the coalition’s amendments are an important advance in the accountability and independence of the Reserve Bank. The amendments would reverse the very perverse outcomes that could possibly arise out of the bill in terms of the potential need to terminate the appointment of a member of the Reserve Bank board and would work to add to the already substantial independence of the board. The bill as it stands serves only to highlight a government in disarray, a government that is prepared to rush ill thought out legislation into parliament and to stand by it despite its obvious deficiencies, all to avoid exposing the fact that the whole thing is a public relations stunt.

Mitch Fifield (Victoria, Liberal Party) Share this | Link to this | Hansard source

I also rise to speak on the Reserve Bank Amendment (Enhanced Independence) Bill 2008. The bill seeks to amend the Reserve Bank Act 1959 to allow the Governor-General in Council rather than the Treasurer to appoint or suspend the Governor and Deputy Governor of the Reserve Bank. The bill also allows the Governor-General, on motion of both houses of parliament, to terminate the governor or deputy governor on certain grounds rather than the Treasurer. This would indeed mark a shift away from the arrangements introduced by the coalition—with Labor support, I should add—through the Financial Sector Legislation Amendment Act (No. 1) 2002. That legislation amended the Reserve Bank Act 1959 to grant the Treasurer the power to appoint and terminate officers and board members, and was designed to streamline the employment process.

Currently, the Treasurer is obliged to terminate the appointments of either the governor or the deputy governor if they are permanently incapable of performing their duties, engage in any outside paid employment or become bankrupt. This bill proposes that, before a governor or a deputy governor could be sacked on these grounds, there would first need to be a motion carried by both houses of parliament calling on the Governor-General to do so. The current legislation’s section 25 uses the word ‘shall’—that is, the Treasurer must terminate the appointment of the governor or deputy governor if they meet any of the three criteria. It is mandatory.

The bill before the Senate makes termination on these grounds optional in two ways: firstly, the parliament must agree to termination, then the Governor-General in Council must agree to execute the termination. Additionally, the bill is drafted in such a way that a mechanism for termination on the grounds of poor behaviour is not present—that is, if a governor or deputy governor behaves dishonestly or in a way that seriously undermines public confidence, neither the government nor the parliament has any capacity to remove them. Clearly, this is a flawed bill.

At its core, the bill removes the responsibility for dealing with these important matters from the Treasurer and hands them to the parliament. I can understand why you would want to remove responsibility from this Treasurer. When you have a Treasurer who is struggling as much as Mr Swan, no doubt you might want to relieve him of some of his responsibilities. But the solution is not to go introducing poorly conceived amendments to legislation dealing with the Reserve Bank; the solution is to relieve Mr Swan of all of his responsibilities, put him out of his misery and try Mr Tanner, Mr Bowen or Ms Gillard. They are all ready, willing and able.

Why is the government abrogating its responsibilities? Why is the government touting another bill that places form over function? Why is the government seeking to take executive responsibilities away from the Treasurer? If you listen to Labor’s reasons for introducing this bill, they are dressing it up as reinforcing RBA independence. The notion is in the bill’s title. We on this side of the chamber welcome Labor’s new-found commitment to the independence of the Reserve Bank—the reason being: it was not always so. In 1996, it was the coalition that enacted its commitment to enshrining the independence of the Reserve Bank through exchange of letters between the governor and the Treasurer. It was a landmark moment in the history of financial markets in this country. We well remember Labor’s reaction. The then shadow Treasurer, Mr Evans, said that what the then government was doing was illegal, and he threatened to sue in the courts to endeavour to have it struck down. Kim Beazley, then Leader of the Opposition, put out a press release on 13 August 1996 headed, ‘Labor to seek legal advice on Costello bank letter plan’—no support there for the independence of the Reserve Bank. That release that I referred to said they would:

... be seeking further legal opinion on the legality of the Costello proposal, and the option of the Federal Opposition going to the High Court ...

So opposed to genuine RBA independence was the then opposition that they were proposing taking those letters to the High Court—something extraordinary.

As has been made reference to by earlier speakers, who can forget Mr Keating’s attitude to the independence of the Reserve Bank when he boasted that he had them in his pocket? That statement was the single greatest blow to the Reserve Bank’s independence up to that time. The former governor, Bernie Fraser, said of Mr Keating’s pocket jibe:

... it certainly did nothing to enhance the Bank’s standing in financial centres around the world.

So that is the history and extent of Labor’s support for an independent Reserve Bank. Now flash forward to 2002 when the coalition introduced—with support from the Labor, I should add—the Financial Sector Legislation Amendment Act (No. 1) 2002. That act enshrined both the independence of the Reserve Bank and the accountability of the Treasurer. It ensured that the Treasurer had the responsibility for hiring and firing the Reserve Bank office holders. It was sensible legislation, because it streamlined the appointment process.

So here we are today with Labor apparently in favour of an enhanced independence for the Reserve Bank. Yet, even with this apparent change of heart, their bill does nothing to make the Reserve Bank more independent. You cannot achieve this simply by putting the words ‘enhanced independence’ into the title of a bill, like you cannot bring interest rates down by signing a giant cardboard pledge. Labor have not made the case for this legislation. The bank has been independent for nearly 12 years now and has served Australia well. So the real reason for this legislation is clear: it is, not surprisingly, a stunt—a stunt from a government to try and demonstrate that they have genuine credibility as economic conservatives.

I wonder if Labor has considered some questions. Would an economic conservative abolish a streamlined process and replace it with a lengthy procedure requiring a debate and vote of both houses of parliament? No. Would an economic conservative leave open the possibility that a governor or deputy governor misbehaving could not be sacked? No. Would an economic conservative make it possible for a bankrupt to be in charge of the Reserve Bank of Australia, for any period of time? No. Would an economic conservative elevate political stunts over responsible economic management? No, of course they would not, because an economic conservative would be concerning themselves with good policy. An economic conservative is interested in tangible results, not stunts, not headlines.

This is a bill that allows the Treasurer to shirk his responsibilities. It will relieve the Treasurer of his accountability, something Mr Swan, despite his government’s rhetoric, no doubt considers a burden. We all know what the political reasons for this bill are, but what exactly is the substantial point in this legislation? Could any Treasurer get away with sacking independent Reserve Bank governors and deputy governors on a whim? I do not think so. It would be a decision with enormous ramifications, both economic and political. If an RBA governor is acting so improperly that a sacking is required then why can the issue not be dealt with swiftly by a Treasurer?

Financial markets are fluid beasts. They react quickly to events, and impacts on markets are felt almost immediately all around the world. When events unfold that impact on financial markets, governments need to be able to react quickly. We need not leave ourselves open, as this bill would, to the enormous risks associated with having uncertain financial markets await the outcome of a potentially lengthy parliamentary debate on the future of an RBA governor. Any delay in a sacking could create huge threats to the stability and certainty of Australian markets—to say nothing of the impact on financial markets of an RBA governor misbehaving, with the government and the parliament powerless to do anything about it. Imagine the consequences if a Treasurer or a government loses confidence in an RBA governor but is unable to secure the support of parliament to dismiss, or, worse still perhaps, if the parliament refused to carry a motion to dismiss a bankrupt governor or a governor who is incapacitated. And the parliament cannot even consider a motion to dismiss on the grounds of misbehaviour; it can only consider dismissal on the grounds of incapacity, insolvency or outside employment. What about inappropriate behaviour, incompetence, mismanagement or other possible misdemeanours? Surely, such things remain grounds for dismissal?

Let us be absolutely clear. Not only does this bill strip power from the Treasurer to act in these, albeit, unlikely scenarios but the bill also leaves the parliament completely powerless to act. To this end, the coalition proposes that the existing section 25 of the act be maintained. This section ensures that termination on the grounds set out in that section remains mandatory and is to be performed by the Treasurer, who is empowered to act in a timely manner.

The coalition also proposes an additional accountability and transparency mechanism for the RBA governor, requiring him or her to appear before the House of Representatives Standing Committee on Economics at least four times a year. If the Rudd government are serious about its pledge to be more open and accountable, they will support this amendment. If not, they stand exposed as cryers of hollow rhetoric.

The coalition is also proposing a new section 25AA which would provide for parliamentary approval for dismissal of the RBA governor or deputy governor on the grounds of misbehaviour. This amendment would bring the RBA arrangements into line with those that apply to judges, the Australian Statistician, the Commissioner of Taxation and Second Commissioner of Taxation, the Auditor-General and the Australian Ombudsman. These amendments achieve the stated intent of the government to align the statutory independence of the RBA governor and deputy governor with that of the Australian Statistician and Commissioner of Taxation.

Governments must have some degree of flexibility to deal with circumstances as they arise. Yet this bill strips the Treasurer of the power to act in circumstances that, although very unlikely to present themselves, would require swift and decisive action. This bill says the Treasurer is not fit to do his job. On that issue, the coalition, and many Australians, would wholeheartedly agree. But that problem does not need legislation; it needs for Wayne Swan to be sent to a different role.

This bill is rushed, ill-founded and fundamentally flawed. It has the potential to cause havoc in financial markets by creating the possible scenario of a powerless Treasurer and a paralysed parliament unable to deal with a problem that would need to be dealt with quickly. We must not take these risks.

Steve Fielding (Victoria, Family First Party) Share this | Link to this | Hansard source

Family First agrees that the Reserve Bank needs to be independent, and enhancing independence makes sense as long as the detail backs that up. The issue for Family First is that you need independence but you also need accountability. We need to make sure that the accountability is not only to the government of the day but also to the parliament. If you look at the second reading speech of the Treasurer, Mr Swan, it says:

Inflation pushes up interest rates, eats away at family budgets, and threatens future prosperity—that is why the government is so determined to deal with it.

This is in regard to the Reserve Bank Amendment (Enhanced Independence) Bill 2008. This is something that affects every Australian through interest rates and therefore we need to make sure that we not only have independence but back that up with accountability. The coalition has moved to have some accountability with the Reserve Bank governor appearing before the House of Representatives Standing Committee on Economics. The coalition abused the Senate for three years and now they are ignoring it.

So Family First will be moving an amendment to the coalition’s amendment to make sure that the governor makes himself or herself available to give evidence before the Senate Standing Committee on Economics and the House of Representatives Standing Committee on Economics. This will ensure that we have full accountability to parliament, and the house of review can also make sure that the government of the day does not ignore warnings from the Reserve Bank—the Labor government has been saying that the government of the day ignored warnings from the Reserve Bank about inflation. Making the Reserve Bank accountable to the Senate, which has not got the control of the government of the day and has not got the control of the coalition, would make it even more accountable to the Australian people and to the Australian parliament. So Family First will be moving an amendment to the coalition’s amendment to make sure that the Reserve Bank Governor must make himself or herself available to give evidence before the Senate as well as the House of Representatives.

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Government in the Senate) Share this | Link to this | Hansard source

I would like to thank those senators who have taken part in the debate on the Reserve Bank Amendment (Enhanced Independence) Bill 2008. The measures contained in this bill implement the government’s election commitment to enhance the independence and transparency of the conduct of monetary policy by the Reserve Bank. This is an important component of the government’s strategy to tackle the inflation challenge and help reduce the financial pressures on working families. The independence of the Reserve Bank is crucial in enabling it to achieve its inflation target of two to three per cent over the cycle. The Reserve Bank’s independence in pursuing its inflation target is even more important at a time when the underlying inflation rate is running at a 16-year high. It is vital to the stability of the economy and the living standards of working families that inflation does not get away from us. Higher rates of inflation hurt families and businesses by pushing up interest rates, eroding the value of savings and reducing long-term economic growth.

This government is tackling the inflation problem head-on. The previous government was content to simply leave all the heavy lifting on fighting inflation to the Reserve Bank and higher interest rates. This resulted in eight rate rises in a little over three years. It has fallen to us to deal with inflation and get spending back under control so that fiscal policy is helping, not hindering, the Reserve Bank in the inflation fight. Our budget will put downward pressure on inflation by delivering a strong surplus, cutting wasteful spending and increasing the economy’s supply capacity for the future. That is why it is so important that the Senate pass the budget rather than blow a $22 billion hole in the surplus that is so vital to fighting inflation.

It is also why the Senate should pass this bill, which will strengthen the independence of the RBA. With RBA independence, you are either for it or not. Under this legislation, the positions of the governor and deputy governor will have their level of statutory independence raised to that of the Commissioner of Taxation and the Australian Statistician. As such, their appointments will be made by the Governor-General acting in council. At the moment they are simply appointed by the Treasurer. In addition, and more importantly, the termination of the governor and deputy governor may now only occur if each house of parliament in the same session of the parliament requests the Governor-General to do so. Presently, the Treasurer is able to carry out the termination of either of these positions without reference to parliament. The present situation could leave the governor and the deputy governor in a potentially vulnerable position. Put simply, this bill vests with the Governor-General the existing powers to appoint and terminate the governor and deputy governor that currently rest with the Treasurer.

It has been suggested during the debate that under this bill the governor and deputy governor would no longer hold office subject to good behaviour through the operation of paragraph 24(1)(c). This is not the view of the office of the Australian Government Solicitor. Paragraph 24(1)(c) has always pertained to the removal of a governor and deputy governor from office by a court should they no longer be of good behaviour. This bill in no way changes the clause or its intended effect. There has also been an amendment foreshadowed that would require the governor to appear before the House economics committee four times a year. The governor and his predecessor have regularly appeared before this committee, and at only his last appearance Governor Stevens indicated:

It is really in the hands of the committee how often you want me to come.

This amendment is unnecessary and is an unfortunate effort to score a political point, when the very intent of this bill is to put the positions of governor and deputy governor above partisan politics.

The increased independence of the RBA delivered by this bill is an important component of the government’s strategy to tackle the inflation challenge and help reduce the financial pressures on working families. From day one, the government has taken responsibility for tackling the inflation challenge. This bill supports the efforts outlined in the budget to meet the inflation challenge head-on. In doing so, the government will continue to honour its commitment to help reduce financial pressure on working families, who have made the Australian economy strong. I commend this bill to the Senate.

Question agreed to.

Bill read a second time.