Treasurer Jim Chalmers has stated that the upcoming election did not influence the Government’s decision to implement extensive reforms to the Reserve Bank.
These major reforms to the RBA mark the most significant changes in thirty years and were part of a series of bills aimed at passing parliament during the final sitting week.
The bank’s board will be reorganized into two distinct entities: one focused on the bank’s operations and the other on setting interest rates.
Following unsuccessful negotiations with the Coalition, the government collaborated with the Greens and crossbench members to pass the legislation.
Jim Chalmers is eager to move quickly — implementing the new dual-board structure and making interest rate decisions in the early months of the following year.
“We expect that the new board will be established after the February meeting,” he remarked.
What prompted the change?
The decision to divide the board into two followed a prolonged review of the Reserve Bank, which recommended the change to incorporate more expertise in the rate-setting process.
At present, a single board oversees nearly all aspects of the bank’s operations—from monetary policy (interest rate settings) to practical tasks like managing Australia’s currency.
This new structure will establish two boards: one for operational management and another concentrating on interest rate decisions.
The bank’s governor and select others will serve on both boards.
Initially, the proposed changes were met with widespread support, with shadow Treasurer Angus Taylor asserting, “it’s evident there is a need for reform.”
Bipartisan support for the reforms faltered after Angus Taylor claimed that Jim Chalmers intended to ‘sack and stack’ the RBA Board. (ABC News: Ian Cutmore)
However, earlier this year, the opposition raised alarms that the government might pursue a “sack and stack” approach, taking advantage of the changes to make partisan appointments to the bank’s boards.
Chalmers moving forward
Jim Chalmers expressed frustration over the Coalition’s withdrawal of support for the reforms, opting to abandon a bipartisan approach.
This morning, the Treasurer reiterated that the government made significant efforts to address any issues raised by the Coalition.
“We strongly preferred these reforms to be bipartisan, as we believe the independent Reserve Bank should rise above party politics,” he stated.
“We exhausted all possibilities.”
This includes a commitment to inviting all current members of the RBA board to transition to the monetary board following the split.
Mr. Chalmers was questioned if appointing several new members to the board so close to an election would reflect poorly, and he clarified that the election played no role in advancing these reforms.
“We will appoint highly qualified, exceptional individuals to both boards of the Reserve Bank,” he stated.
“We have put considerable thought into this already.
“We plan to consult with the opposition in good faith, as required, to ensure that the appointees to the new Governance Board and the new Monetary Policy Board are top-tier and exceptional.”
However, the Coalition remains skeptical, maintaining their concerns over ‘sack and stack’.
“Jim Chalmers has shown there is no institution he won’t abandon for his ambition to be a revolutionary, rather than a responsible economic manager,” remarked shadow Treasurer Angus Taylor.
Will this affect interest rates?
The reforms to the Reserve Bank are also partly driven by concerns raised during the Reserve Bank review regarding the functionality of the board.
There were specific worries that the single board structure does not effectively challenge the bank’s views if they differ on monetary policy direction.
“At times, the board has not sought or been provided with pertinent information for its decisions, nor has it been fully engaged in crucial policy decisions,” the review noted.
However, there are no expectations that this split will result in a drastic shift in interest rate-setting approaches.
One compromise that had to be made to gain the Greens’ support was the retention of the Treasurer’s authority to overrule the RBA on monetary policy.
Jim Chalmers had aimed to eliminate this power in line with the RBA review’s recommendations, deeming it outdated.
However, the Greens insisted on its retention and will continue to press the Treasurer to use it, a scenario that is highly unlikely to unfold.
