Greens hold the cards on RBA reforms

Jim Chalmers has dealt in the Greens to break the impasse over his stalled overhaul of the Reserve Bank, with the minor party demanding the Treasurer broaden his power to overrule interest rates decisions.

Greens economic justice spokesman Nick McKim. Collage: Frank Ling

Jim Chalmers has dealt in the Greens to break the impasse over his stalled overhaul of the Reserve Bank, with the minor party demanding the Treasurer broaden his power to overrule interest rates decisions and allow governor Michele Bullock to instruct banks how to lend their money.

After the Coalition ruled out supporting Labor’s proposed reforms to the RBA, Dr Chalmers said “all options are on the table” in progressing the RBA reforms.

“Unfortunately, the position that the Coalition has taken deals the minor parties into the conversation more than they should be in my view and that’s an unfortunate development,” he said.

The reforms, which follow a sweeping review of the central bank last year, plan to create a new dual board structure at the RBA, one charged with setting interest rates and another overseeing the RBA’s governance, and to strip the treasurer of his veto power.

While the Coalition had initially supported the review’s recommendations, it later grew wary that Labor could “sack and stack” to the proposed specialist rate-setting committee, a fear fuelled by Labor’s appointment of two ex-union officials to the current board.

In an attempt to ease Coalition concerns, Dr Chalmers agreed to automatically transfer all six external members of the ­current board to the new monetary policy committee unless they expressed a desire to instead sit on a separate governance board.

But on Tuesday, opposition treasury spokesman Angus Taylor said Labor’s recent rhetoric, including Dr Chalmers’ claim that the RBA was “smashing the economy” via its rate hikes, had prompted the Coalition to oppose the changes.

“How can you support legislation for reform of the Reserve Bank when the government has spent the last week … bagging the Reserve Bank?” Mr Taylor said.

“There’s a point at which you say, enough, let the Reserve Bank get on and do its job … I think it’s time to move on.”

The parliamentary debate comes as Wesfarmers chief executive Rob Scott said the RBA had adopted a responsible and prudent approach to tackling stubborn inflation, putting pressure on the government to overhaul regulations to address cost-of-living pressures.

While Dr Chalmers continued to voice his preference for a bipartisan approach to the reforms in the “national economic interest”, he said he was open to negotiations with the Greens despite previously eschewing their involve-ment. A deal with the minor party is not out of the question, with its economic justice spokesman Nick McKim stating he was prepared to have “good faith negotiations” with the government.

In order to secure Greens’ support – essential to pass the RBA reforms through the Senate – Senator McKim has demanded Dr Chalmers retain two laws which Labor planned to abolish following recommendations of the RBA review.

The first law is the treasurers’ ability to override monetary policy decisions – outlined in section 11 of the Reserve Bank Act – which has never been used in its 64-year history. Its abolition was recommended to safeguard the institution’s independence.

While Dr Chalmers had initially proposed to axe the veto power, he later backflipped to secure Coalition support.

The Greens want the veto power maintained in its original form, arguing its abolition would equate to the “final surrender of our democracy to the forces of neoliberalism” and would leave monetary policy decisions in the hands of “unelected technocrats”.

Secondly, the Greens have demanded the RBA’s power to direct the lending activity of commercial banks to certain sections of the economy – contained within section 36 of the Banking Act – also be retained.

The law’s abolition was similarly recommended by the review, as it had become redundant in the late-1990s when the power was relinquished by the RBA and handed to the Australian Prudential Regulation Authority.

Senator McKim demanded the power should be retained so the RBA could direct credit into “desirable parts of the economy”, including renewable energy.

The Greens also extended other fringe proposals in negotiations with Labor, including the objective of “the maintenance of climate and ecological processes”.

Further complicating negotiations, Senator McKim demanded Dr Chalmers move to loosen monetary policy, offering relief to households struggling under elevated borrowing costs.