Greens’ plan would hurt those the party is seeking to help

Greens senator Nick McKim. Picture: NewsWire / Martin Ollman

The Greens’ plan for government to override an August rate increase would signal the end of the central bank’s independence in Australia.

There is no support for this position from either of the major parties, and it would represent a major backwards step.

Any attempt to overturn a rate increase under section 11 of the Reserve Bank Act would represent a crossing of the Rubicon – it would elevate political considerations over the economic interests of the nation.

Public confidence in the bank would be irreparably damaged.

Reserve Bank independence played a key role in lifting Australia out of the high unemployment and stagflation which marked the 1970s, and ushering in a new economic era in the 1990s, as inflation targeting kept the economy on track.

It helped to ensure Australia was able to record 29 years of uninterrupted growth stretching from 1990–91 until the outbreak of the pandemic in 2019–20.

In his recent submission on the government’s proposed reforms to the Reserve Bank, former RBA governor Bernie Fraser said that “genuine independence from actual and perceived political interference is arguably the Reserve Bank’s most valuable asset”.

Fraser said the performance of the RBA had been “at least the equal of any other central bank” and “contributed to sustained economic growth”.

Overturning rate increases would not only damage the bank, it would harm some of the most vulnerable in society by failing to properly address the challenge of rising prices.

Speaking in August 2023, then RBA governor Philip Lowe said high inflation was “corrosive to the healthy functioning of the economy and it makes life more difficult for everybody – especially those on low incomes”.

Failure to tackle inflation would eventually result in “even higher interest rates and even greater unemployment to bring inflation back down”.

The Greens’ argument to overturn further rate hikes sounds appealing on the surface and may even prove popular among some voters. But this is all it is: a cynical ploy to win disaffected voters.

In the long run, compromising the independence of the RBA will hurt rather than help the key constituencies supporting the Greens.

The minor party knows this. But it is also aware that no government will make such a radical intervention, and the Greens will not have to live with the economic consequences.

This is one of the convenient aspects of being a minor party – making populist demands while never having to be accountable.