Deal with Coalition brings faster rate of change for RBA 2.0

Jim Chalmers will retain the power to override Reserve Bank decisions and there will be continuity on the board that sets ­interest rates, under a compromise offered by the Albanese government to secure Coalition support.

Treasurer Jim Chalmers in question time on Thursday. Picture: NewsWire / Martin Ollman

Jim Chalmers will retain the power to override Reserve Bank decisions and there will be continuity on the board that sets ­interest rates, under a compromise offered by the Albanese government to secure Coalition support for a historic overhaul of the central bank.

The Treasurer on Thursday made two key concessions to the Coalition in an aim to secure a deal to reform the RBA, which would break up its board into one that sets interest rates and ­another that oversees the governance of the central bank.

In a break from the recommendations of the RBA review, Dr Chalmers has agreed to ­preserve the power of the Treasurer to override the interest-rate decisions of the board under special circumstances.

Dr Chalmers has also agreed to the Coalition demand that the six external members of the ­current RBA board be transferred to the new monetary policy committee, which would determine the cash rate.

Under Dr Chalmers’ proposal, the six government-appointed board members would only transfer to the governance board if they asked to do so in writing.

Reserve Bank governor Michele Bullock, deputy governor Andrew Hauser and Treasury secretary Steven Kennedy will sit on the interest rate-setting board as planned.

The offer comes after the ­Coalition raised concerns that Dr Chalmers could use the overhaul to stack the new rate-setting board with Labor-aligned appointments, up-ending the RBA’s inflation fight at a time when Ms Bullock continues to battle stubbornly persistent price pressures.

Fuelling those concerns was Dr Chalmers’ appointment of two former union officials, Elana Rubin and Iain Ross, to the RBA board in April last year.

Opposition Treasury spokesman Angus Taylor said the ­Coalition would consider Dr Chalmers’ latest proposal. “We’ve only received correspondence from the Treasurer today (on Thursday),” Mr Taylor said.

Opposition Treasury spokesman Angus Taylor. Picture: NewsWire / Martin Ollman

“There have been no subsequent discussions. As you would expect we will take our time and work through the detail. As ­always, we will approach these ­negotiations in good faith and in confidence.”

Dr Chalmers has previously declared that removing his power to override RBA interest-rate decisions – legislated under section 11 of the Reserve Bank Act – would enhance the independence of the central bank.

The government had argued this change would bring the RBA into line with several foreign central banks including in the US, New Zealand, Japan and Sweden.

However, under Dr Chalmers’ proposal, the circumstances where the government’s veto power could be used would be narrowed by applying a public-­interest test.

The RBA review’s recommendation to remove the Treasurer’s veto of interest-rate decisions was opposed by former prime minister Paul Keating, former treasurer Peter Costello, and ex-RBA governors Bernie Fraser and Ian Macfarlane. The proposal received objections from the Greens and some Liberal backbenchers.

Dr Chalmers said on Thursday he wanted to strike a deal with the Coalition to reform the RBA rather than negotiate with the Greens.

“There have been, from ­memory, about half a dozen issues that the shadow treasurer has raised, I think, in good faith, and we’ve done our best to accommodate the views that he has put forward,” Dr Chalmers said.

The review into the RBA — the first of its kind in 40 years — recommended the board hold fewer meetings and the governor hold mandatory press conferences, changes already adopted. The recommendations also set out a new dual mandate to grant “equal consideration” to price stability and full employment, which is part of Labor’s legislation.

The offer to roll over the RBA board onto the new monetary policy committee eschews concerns outlined in the review of the capacity of current members to scrutinise decisions of the governor.

Apart from Dr Ross, who previously served as president of the Fair Work Commission, and Telstra director Ms Rubin, all remaining external members were appointed by former Coalition governments. They are economist Ian Harper, businesswoman Carol Schwarz, former investment banker Carolyn Hewson and company director Alison Watkins

Members of the new interest rate setting board will be required to give at least one speech annually.