RBA reform on the line as Taylor and Chalmers square off

The planned changes to the Reserve Bank of Australia (RBA) have become the new battlefield for the government and the opposition after Taylor confirmed the Coalition no longer supports the reform.

Treasurer Jim Chalmers’ statement ahead of the release of the GDP print last week has led to a breakdown of relations between the government and the opposition, with the planned changes to the Reserve Bank now seemingly on the chopping block.

On Tuesday morning, speaking in Parliament House, Treasurer Jim Chalmers accused shadow treasurer Angus Taylor of back-pedalling on his word after the latter confirmed the Coalition now plans to block the creation of a new interest rate setting board at the central bank.

Just days after it was revealed that Chalmers had made a number of concessions to secure the Coalition’s support for the changes, Taylor confirmed to the media that the Coalition is now worried that Labor will stack the new committee with its own figures to sway the bank’s decision making.

“I wrote to the Treasurer saying we would not be supporting the Reserve Bank legislation he has brought to the public. This is the Treasurer’s legislation, not ours. And from the start, we’ve made clear that we were concerned that this strategy from the government was a sack and stack strategy for the Reserve Bank Board,” Taylor told a media conference in Canberra on Tuesday.

“Now frankly, over the last 10 days, our concern about the motives of this government, with respect to this review, have only deepened ... The Reserve Bank now needs to be able to get on with the job of doing what it’s doing within the context it has. It needs stability, it needs certainty, and now is not the time to be pursuing these reforms, given what we’ve seen from the government over recent times.”

Taylor said he believes Labor’s objective in driving this legislation is twofold – one, to yield control and two, to shift blame.

“Number one, to put the Reserve Bank in a position where it can direct it as to what it should do ... It’s also been clear in recent days that the Labor Party is prepared to, and the government is prepared to, use the Reserve Bank as a punching bag, as an excuse, as a means of blame shifting for its failures.”

Taylor’s allegations follow Chalmers’ suggestion last week that the RBA’s high interest rates are “smashing the economy”. The Coalition has framed this comment, made just a day before the release of the concerning GDP print, as an attempt by the Treasurer to shift blame away from the government.

Doubling down at a press conference on Tuesday, Taylor accused senior Labor figures of describing the Reserve Bank board as “barbarians, weirdos, conducting bizarre group think”.

“One went so far as to describe the governor as a nutter,” the shadow treasurer said.

“This is truly an absolute disgrace. It is disgraceful behaviour from a Labor Party, and the Treasurer clearly was part of this, and he himself has made comments that I think were unbelievably unhelpful in ensuring that the Reserve Bank can get on and do its job in the context given to it by a government that has had the wrong priorities, has made the wrong decisions.”

Responding to Taylor, Chalmers called the shadow treasurer “irresponsible”.

“It shows they cannot be taken seriously on the economy,” he said.

“The shadow treasurer made it very clear that he was supportive of the Reserve Bank reforms. Unfortunately, we have been hostage to his ability to convince his leader and his colleagues.”

Defending his recent language regarding the RBA’s impact on the economy, Chalmers insisted he is not to blame for the breakdown in communication and said he will consider negotiating with the Greens to get the changes across the line.

Initially planned for 1 July, the legislation to implement the findings of an independent review into the RBA has faced delays in the Senate due to insufficient support from the Coalition.

Last month, Chalmers offered to amend the legislation, allowing all six external members of the present board to transition to the new interest rate-setting board. This move was seen as a significant concession aimed at securing the opposition’s support.

“Under the arrangements that I’ve proposed to the opposition in the interests of getting a deal here, I have proposed that everyone who’s on the current Reserve Bank board would go on the monetary policy board unless they write to me and indicate a willingness to go on the governance board instead,” the Treasurer said.

“The Reserve Bank governor has made clear her views – she would like to see some continuation and experience on both boards, but I’ve been prepared to make that proposal to the opposition in good faith.”

Also at the time, Chalmers said he would retain the federal government’s power to override the RBA on interest rates but with new limits. This followed criticism of the original proposal in the review to repeal the government’s override power – a move opposed by former RBA governors and Coalition members.

“We are prepared to limit the Parliament’s override powers to emergency situations, to rare instances. That has come about in the discussions between myself and the opposition,” Chalmers said.

Responding to the Treasurer’s readiness to accommodate the opposition’s suggestions, Taylor said at the time: “The Coalition is committed to continuing these negotiations in good faith and in confidence”.

“Our Reserve Bank hasn’t always got it right. But continuity, stability, and independence of interest rate setting is critical during these inflationary and uncertain economic times.”

The dual-board structure for the RBA was expected to be operational by early next year.