Australian Greens' Dissenting Report

1.1The Reserve Bank Review, and the legislation that followed, are a lost opportunity to democratise and modernise the RBA, and position it to respond to the great societal and ecological challenges of our time.

1.2The proposal to remove section 11 from the RBA Act would remove the government’s power to protect mortgage holders and renters from unreasonable interest rate rises. It is a breathtaking attack on an essential democratic safeguard.

1.3The Review did not acknowledge the perversity that monetary policy intentionally and deliberately keeps certain groups of Australians out of work and mired in poverty.

1.4It did not acknowledge the yawning chasm that separates monetary and fiscal decision making in Australia, nor address the resultant policy incoherence that facilitates significant economic inequality.

1.5Neither did the Review grapple with the role of central bank credit in driving extreme land price inflation and the consequent emergence of neo-feudalism. The defining class factor in Australia is now whether a person’s or a person’s parents own real property, and home ownership has become an impossible dream for far too many. This has been driven by the structure of the RBA, its legislative framework, the decisions it has made, and the failure of successive governments to ensure that monetary and fiscal policy work coherently.

1.6The Review rejected the suggestion that ensuring climatic and ecological stability should be one of the Bank’s objectives, despite the fact that we are already experiencing profound supply-side shocks caused by the breakdown of the earth’s climate system. The climate and ecological crises hover ominously over “the economic prosperity and welfare of the people of Australia”.

Section 11 - political accountability for political decisions

1.7Independence does not, and should not, equal freedom from accountability.

1.8The RBA makes decisions that are of massive consequence for the lives of all Australians.

1.9Section 11 makes it clear that the ultimate responsibility for monetary policy lies not with unelected, unaccountable technocrats, but with a democratically elected government accountable to the people of Australia.

1.10Monetary policy should be conducted in accord with other economic policy and in a way that is accountable to our democratic institutions. Without an anchor in accountability, it cannot be guaranteed that “the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia”.

1.11As the Australia Institute raised in their submission to the inquiry into the Bill:

Who should prevail if there is a serious disagreement between an elected government and an unelected board. Almost without exception, our Australian system believes that the elected government should prevail because it is ultimately responsible to the people.[1]

1.12However, rather than critique the framing of monetary policy as a detached, technocratic pursuit that should be above the messy business of politics, the RBA Review reinforced the fairytale.

1.13Monetary policy is not and never has been a neutral mathematical exercise. The myth sustained by the RBA Review is that interest rate decisions are just a matter of getting the right data to the right people so they can, free of political influence, come up with the right number.

1.14The Treasurer’s enthusiasm to rid himself of the power to overrule an RBA decision is because he does not want to be blamed for massive increases in rents and mortgage repayments.

1.15It makes life far easier for the Treasurer if people believe that interest rate rises are the fault of the invisible hand of the market or the all-knowing RBA. It reduces pressure on him to act to reduce inflation and redistribute wealth to make our economy fairer.

1.16It also insulates the RBA from accountability and allows it to pursue a narrow agenda that serves the interest of corporations and the financial sector over the broader welfare of the Australian people.

1.17The idealisation of independent central banking has meant that public debate about monetary policy - much like the review itself - is constrained and self-censoring, and there is rarely a holistic consideration of how monetary policy and other economic policies are being coordinated in order to achieve the RBA’s objectives.

1.18The prioritisation of independence over accountability inherent in the removal of section 11 is rooted in the great neoliberal fallacy that monetary policy is an empirical exercise that should be divorced completely from democratic politics.

1.19Former Treasurer and Prime Minister Paul Keating, former Treasurer Peter Costello, and two former Reserve Bank Governors Ian Macfarlane and Bernie Fraser, have all supported the retention of section 11.

1.20Many credible and experienced practitioners, including Mr Fraser and Mr Macfarlane, submitted that section 11 actually enhances the independence of the Reserve Bank as it provides a clear pathway to resolving policy disagreements between the government of the day and the board of the RBA.

1.21If section 11 were removed, and the government and RBA board were to have a policy disagreement, Mr Fraser, indicated to the inquiry that “it would be a matter of ad hoc process; whereas, what we have in the Act is something very determined and clear to everybody.”[2]

1.22Mr Costello stated in evidence to the inquiry that the RBA should have more scrutiny, not less:

You'll never hear this from central bankers, but they do have enormous powers. If anything, I think they probably don't get enough scrutiny. There's this idea that we should remove them from all scrutiny, but they're not infallible. They make mistakes.[3]

1.23Mr Costello also submitted that:

I don’t see any problem with the section [s11] as it currently stands. I certainly don’t think it compromises the independence of the [Reserve] Bank.[4]

1.24Even the current Governor Michelle Bullock has not endorsed the removal of section 11.

Senator McKIM: …does the RBA have a view as to whether or not the section 11 powers should be removed from the act?

Ms Bullock: I think I'm reasonably agnostic about it... I don't believe it does impact on the way the board operates. It was recommended by the review, and I think the reason it was recommended by the review panel was that it was somewhat unusual internationally. But I think I'm reasonably agnostic.[5]

1.25The proposal to remove section 11 has no policy rationale and had no advocates at all during the entire review process.

Senator McKIM: …Not a single one of the published submissions to the review called for the removal of section 11. What evidence do you have to substantiate your view that there is a need to further enhance the independence of the RBA? What evidence do you have? What submissions did you receive? Where did this idea of removing section 11 come from in the first place? I've been through the 78 published submissions. It's not in any of them. I don't understand where it came from.

Dr de Brouwer: It arose in the conversations that we had as a panel.[6]

1.26It is clear that the Review Panel’s recommendation came only from Panel members’ discussions with each other. This is nothing less than a group of unaccountable neoliberal technocrats conspiring to further empower another group of unaccountable neoliberal technocrats. This is a perilously unsound foundation for such a consequential change to Australia’s democratic structures.

1.27Repealing Section 11 would be our democracy’s final surrender of monetary policy to the forces of neoliberalism.

1.28Section 11 of the Reserve Bank Act 1959 should not be repealed by this legislation.

Section 36 - Directing the flow of credit

1.29The current power under section 36 of the Banking Act 1959 allows the Reserve Bank to direct how advances paid to commercial banks should be used.

1.30The basis of this recommendation was that APRA is now responsible for regulating the banking sector. However, the direction of central bank credit is not a regulatory issue within APRA’s purview. The power conferred by s36 relates to money the RBA creates and therefore has agency over.

1.31Removing this power would further entrench the neoliberal ideology that commercial banks are the best arbiters of where capital should be directed. Unfortunately, as recent history shows us, this has turbocharged asset price inflation (particularly in speculative property and stocks) and substantially failed to support or advance productive economic activity.

1.32This was demonstrated clearly by the money printing and quantitative easing measures put in place during Covid. We have no productive infrastructure or industries to point to as a result of the $188 billion provided to commercial banks via the Term Funding Facility. What we got was astronomical increases in property values as banks provided more money to more people to bid up the limited supply of housing.

1.33Commercial banks will not direct credit to where it best enhances society. They will direct it to where the risk is lowest, the returns are highest and the work is easiest - in other words, into property.

1.34As my submission to the Reserve Bank Review outlined:

House prices have gotten so out of control as a result of tax policies biased to landowners, most notably tax concessions that give property investors a public subsidy to outbid would-be homeowners; and the retreat of governments of all stripes and at all levels as a provider of housing.

But house prices also have gotten out of control as a result of the structural decline in interest rates and a monetary policy regime that is agnostic about the flow of credit. The financialisation of housing is one of the defining features of the period that current monetary policy arrangements have been in place.

Banks went all-in on increasingly speculative property lending after monetary and prudential regulation was loosened or removed. Thirty years ago, Australian banks lent twice as much to business as they did for housing. Now they lend twice as much for housing as they do for businesses. (Emphasis added)

1.35The government should want a central bank that can direct credit to parts of the economy that will grow the jobs and industries needed, for instance to fund the rapid transition to a low emissions economy.

1.36Central banks should be able to direct the credit they create to parts of the economy that are productive, and away from those parts that are speculative. This is central to delivering economic prosperity and welfare to the people of Australia.

1.37Section 36 of the Banking Act 1959 should not be repealed by this legislation.

The maintenance of a stable ecology and climate

1.38Our current economic framework is rendering the planet uninhabitable for human life. It is the greatest market failure in human history. Every public institution should have the maintenance of stable climatic and ecological systems as a primary objective. The Reserve Bank should be no different.

1.39The Greens acknowledge the RBA did assert its independence through their advocacy for better incorporation of climate risk into economic policy during the depths of a climate-denying government. We commend the RBA for taking and holding a position outside the comfort zone of the government of the time.

1.40This demonstrates that the RBA can speak about economic policy beyond monetary policy, for social good, and in advance of government policy when it is willing to. However, the breakdown of the planet’s climate and ecological systems will also require changes to monetary policy that collide with current ideology.

1.41That is why the primacy of the climate crisis should be inserted as one of the objectives of the RBA. This would also encourage future Governors and Boards to agitate for fiscal responses as part of their statutory duties, particularly with the tendency of climate damage to cause supply-side shocks which monetary policy is ill-equipped to manage on its own.

1.42The RBA needs to be able to identify the episodic inflation impact of climate change related disruptions to supply, and explain why trying to squash such inflation with interest rates alone is not the best policy response.

1.43Insert an additional objective of the Reserve Bank Act to be “the maintenance of a stable ecology and climate”.

1.44The Bill should not be passed in its current form.

Senator Nick McKim

Member

Greens Senator for Tasmania

Footnotes

[1]The Australia Institute, Submission 7, p. 3.

[2]Mr Bernard Fraser, Private capacity, Committee Hansard, 22 February 2024, p. 18.

[3]Mr Peter Costello AC, Private capacity, Committee Hansard, 22 February 2024, p. 15.

[4]Mr Costello AC, Committee Hansard, 22 February 2024, p. 16.

[5]Ms Michelle Bullock, Governor, Reserve Bank of Australia, Senate Economics Legislation CommitteeEstimates Committee Hansard, 15 February 2024, p. 11.

[6]Dr Gordon de Brouwer, Panel Member, Review of the Reserve Bank of Australia, Committee Hansard, 22 February 2024, p. 24.