The Reserve Bank’s focus would shift from fighting inflation to ensuring every person who wanted a job could have one under a proposal from the ACTU that has accused the institution of adding to Australia’s cost-of-living crisis.
In a submission to the independent review of the bank, the ACTU said the RBA had been “shadow-boxing” inflation for the past 30 years in a “myopic and heavy-handed approach” that had only succeeded in hurting the real wages of ordinary workers.
ACTU secretary Sally McManus says the RBA had taken a “heavy-handed” approach to inflation fighting that had cost ordinary Australians jobs while adding to cost-of-living pressures.CREDIT:ALEX ELLINGHAUSEN
Thereview, the first of the RBA in more than 40 years, is being led by a three-member panel that includes international monetary policy expert Carolyn Wilkins, who sits on the Bank of England’s financial policy committee; the interim director of the Crawford School at the Australian National University, Renee Fry-McKibbin; and the secretary for public sector reform, Gordon de Brouwer.
Submissions to the review closed on Monday. It is due to report to Treasurer Jim Chalmers by the end of March next year.
The Reserve Bank’s charter commits the institution to stability of the currency, maintaining full employment and to adding to “the economic prosperity and welfare of the people of Australia”.
It does this largely through its 2-3 per cent inflation target that forms a key part of an agreement signed between the bank governor and the treasurer of the day.
But the ACTU said the bank had effectively made the commitment to full employment secondary to targeting the inflation rate.
It said the bank should have an explicit full employment target which it argued was “zero involuntary unemployment”.
ACTU secretary Sally McManus said a lack of diversity, experience and expertise across the RBA had contributed to the slump in wages over recent years, and was now making worse the surge in inflation.
“The reality is that the bank has been consistently wrong in its analysis of wage growth and the
relationship between wages, unemployment and inflation,” she said.
“It has contributed to the current cost of living crisis through a myopic and heavy-handed approach to inflation control with little regard for other macroeconomic goals like full employment and wage growth.
“It would be far better, for example, to regulate gas prices and reign in the profits of gas companies, than to keep hitting working people with huge mortgage costs.”
This week, the RBA came under fire in a Senate committee from the left and right for its handling of interest rates, with accusations it had both contributed to inflation through its COVID-era quantitative easing program while hurting low income earners with its aggressive tightening of monetary policy.
The Reserve Bank works independently of the federal government although the Treasury secretary has a seat on the bank board.
RBA deputy governor Michele Bullock, with assistant governor Christopher Kent, was pressed this week to accept responsibility for the bank’s incorrect forecasts on inflation and rate settings.CREDIT:ALEX ELLINGHAUSEN
But the ACTU believes fiscal, monetary and macroprudential policy should work together. It backs the government creating what it calls a “macroeconomic coordination committee” that would include the treasurer, finance minister, RBA governor and deputy, the head of the Australian Prudential Regulation Authority, the Treasury and Finance department secretaries.
This committee would meet a week ahead of every RBA board meeting to discuss how the three policy arms were working together to meet shared employment and inflation targets.
The RBA would take powers from APRA for macroprudential policy which it could then use to stabilise credit and asset price changes such as the mid-COVID pandemic surge in property values.
Apart from changing the direction of the bank, the ACTU said the board had to change to include at least someone with “a deep understanding, skills and experience of the labour market and wage-setting systems”.
The last person from the union sector to sit on the RBA board was former ACTU secretary Bill Kelty who resigned in 1996.
“The extremely narrow skillset of the RBA Board must change. A body with this much power
needs a diversity of skills, experience and expertise to best serve the interests of all Australians,” McManus said.
