Greens won’t give Chalmers what he wants until RBA cuts rates. Or he forces it to

The Greens will not support Jim Chalmers’ overhaul of the Reserve Bank until the institution cuts official interest rates or is forced to do so by the treasurer.

Ahead of the Reserve Bank’s latest two-day meeting, which starts on Monday, the Greens have challenged the treasurer to directly interfere in the RBA’s decision-making process to win its immediate support for the reforms or to play a waiting game that could stretch into next year.

Greens economic justice spokesman Nick McKim is prepared to wave through the government’s RBA revenues when interest rates fall.Credit: Dion Georgopoulos

But it also gives Chalmers, whose reforms include the creation of a committee that will oversee the setting of interest rates, the opportunity to deliver the most wide-ranging changes to the bank’s operation since its inception in 1959.

Despite initially backing the changes, the Coalition now refuses to support the reforms as it claims Chalmers is trying to “sack and stack” the RBA’s existing board. The Coalition this month attacked the treasurer for saying current interest rate settings had “smashed” the economy.

Greens economic justice spokesman Nick McKim said a quarter percentage point cut in interest rates would save a person with the average mortgage of $641,000 about $100 a month in reduced repayments.

He said the Greens would back the changes once rates were cut and if existing, but never used, powers allowing a treasurer to overrule RBA decisions and the bank to direct money into “productive parts of the economy” were retained.

“For weeks, the treasurer has acknowledged the economy is being smashed, and that mortgage-holders are being smashed by high interest rates. Yet to date, he’s done nothing about it despite having the power to reduce interest rates,” McKim said.

“Mortgage-holders are struggling to cover their bills, with the RBA’s governor admitting some will need to sell their homes.

“The Greens won’t support these reforms until either the RBA cuts interest rates or Dr Chalmers forces [it] to.”

Chalmers has made clear he had wanted Coalition support for the reforms, but the Greens offer of support without any changes to existing legislation paves the way for the changes to be put in place ahead of next year’s expected federal election.

Financial markets believe there’s just a 10 per cent chance of a rate cut on Tuesday following this week’s meeting. But the same markets believe there is an 84 per cent chance the bank will use its December meeting to cut the cash rate to 4.1 per cent.

Those expectations could change, as monthly inflation data to be released on Wednesday is expected to show a fall in overall prices. Economists are tipping an annual inflation rate of around 2.7 per cent, the lowest level in almost three years.

Some of the drop in inflation will be due to government energy subsidies. Prices for a range of goods including petrol and clothes have also started to fall. The stronger Australian dollar also reduces the price of imported products.

Soon after this week’s inflation data, the government will release the final details of the 2023-24 budget, which Chalmers said would show a surplus about $15 billion. In May, Chalmers had forecast a surplus of $9.3 billion.

Jim Chalmers delivers the 2023-24 budget. It is expected to show a surplus around $15 billion, the second successive surplus.Credit: Alex Ellinghausen

When the 2023-24 budget outcome was first forecast in 2020-21, then treasurer Josh Frydenberg tipped a deficit of $66.9 billion and that gross government debt would be at a record high of more than $1.1 trillion.

Chalmers will reveal gross debt at $906.9 billion, with a $4 billion saving in interest costs in 2023-24 and $80 billion over the coming decade.

It follows a surplus of $22.1 billion in the 2022-23 budget year, which is the largest nominal surplus on record.

Chalmers said total tax revenue was lower than had been forecast in May, but there had been an improvement to the budget because of a “big improvement” in spending.

Some of the savings are expected to have come out of the National Disability Insurance Scheme.

“What that final budget outcome will show is that we have turned two big Liberal deficits into two big Labor surpluses,” he told Sky News.

Last week, the US Federal Reserve cut its key lending rate by half a percentage point to a range between 4.75 per cent and 5 per cent. Chalmers said he believed Australia’s inflation rate was a little higher than comparable nations as their inflation levels, and interest rates, had peaked earlier than here.

He said the trajectory of Australian inflation was “a couple of months” behind other nations.

“Here in Australia, inflation has come off really substantially. Interest rates aren’t as high as they are in some of those other countries, but the shape broadly of this inflation challenge has been pretty similar around the world,” he said.

Cut through the noise of federal politics with news, views and expert analysis. Subscribers can sign up to our weekly Inside Politics newsletter.