Government urged to abandon controversial RBA rule change

Qantas’ half-year profit drops to $1.25 billion

The federal government has been urged by senior economic figures from across the political spectrum to abandon a controversial change to the RBA that would see the treasurer lose the ability to overrule the central bank’s decisions.

Removing the oversight power was one of the recommendations from the review of the RBA released last year which is now in the process of being legislated.

But the government is facing significant backlash about plans to remove the safeguard, with former treasurer Peter Costello and ex-RBA governors Bernie Fraser and Ian Macfarlane telling a Senate hearing the power should be retained.

“You’ll always find economists still say parliament should give up its power, because they’re economists – they believe they should have the power,” Costello, who is chairman of Nine, the publisher of this website, told the hearing.

“I can only think that the parliament would give up its power if it doesn’t trust itself.

“I don’t think that’s a very good principle. So I don’t think we will improve things by getting rid of it.”

Costello also criticised the plan to create a second administrative RBA board, saying it would only add to the bureaucracy inside the central bank.

Fraser, the only man to head up both the RBA and Treasury, wrote that scrapping the powers “would do nothing to enhance the bank’s independence”, while Mcfarlane said he didn’t think there was “any deep thinking… behind the decision”.

Former treasurer and prime minister Paul Keating also spoke out against the proposed change last year, and the Greens will move an amendment to retain the power.

“Not one of the 78 public submissions to the review of the RBA recommended removing section 11 and yet bizarrely it seems to be (Treasurer Jim) Chalmers’ top priority,” senator Nick McKim said.

“The Greens will move an amendment in parliament to ensure that this power is retained.”

“We now have three current and former RBA governors who say that the bank is independent enough.”

The power has never been used in the history of the RBA, and acts as a safeguard measure of last resort.

Keating came closest to using the power when he threatened to do so to pressure the central bank to raise interest rates in the late 1980s.

Review authors Gordon de Brouwer and Renee Fry-McKibbin also appeared at the Senate hearing today, defending their recommendations as being based on “best practice” from the USA and UK.

They did, however, acknowledge the idea to get rid of the oversight power came from the review panel and not any of the submissions they received.