Barnaby Joyce wants the RBA to be able to strongarm the government on inflation
Pauline Hanson has been railing against the country’s and the world’s elite for decades.
Politicians, media, universities and business leaders who might have an interest in the environment were all targeted because they were out of touch with ordinary Australians.
For the elite, the Central Bank is clearly at the tip of the spear. Its headquarters are at Martin Place in Sydney, just opposite the NSW Parliament. If it’s not the center of economic elitism in this country, you can certainly see it from there.
But the Reserve should be able to pressure governments to reduce inflation by calling for spending cuts or reducing “red tape”, according to Hanson’s treasury spokesman Barnaby Joyce.
Saying that the current government has made the Central Bank less independent, Joyce said that this would be a shock for Governor Michele Bullock as well as Jim Chalmers and Anthony Albanese. Joyce said the Reserve under One Nation should be reviewed, with some vague suggestions that the inflation target would be looked at.
Joyce may have forgotten that the RBA only underwent an independent review three years ago. The proposals adopted by the government increased the bank’s independence in all respects.
We know this because of the government’s discomfort with comments Bullock makes at regular press conferences.
Comment is one thing. But Joyce’s proposal effectively hands economic policy over to unelected scientists at Martin Place, saying the Reserve should tell the government what to do.
Bullock and her team have already been criticized for allegedly being “out of touch” with ordinary people. Imagine saying the government should cut old-age pensions or aid to regional areas. Or that he advocates tax increases to help slow consumer spending?
Joyce was recently in Britain, providing a case study of what can happen when the government and the central bank clash.
Failed former British Prime Minister Liz Truss, who featured Hanson on podcast week, has been in a running battle with the Bank of England since her short term in Downing Street. After Truss announced $90 billion in unfunded tax cuts, the bank was forced to buy public debt to ensure the survival of a number of British pension funds exposed by government policy.
As Bullock often points out, the Reserve has one job; achieving the inflation target while maintaining full employment and a single lever. There is so much more to governments that requires trade-offs and choices. This is the essence of democracy. It is hard to argue that the RBA should have a view on the level of defense spending, tax incentives or public health policy.
The last thing Bullock or any central banker (just ask former Federal Reserve boss Jay Powell) wants is to be dragged into such a maelstrom.
And this is based on the assumption that the RBA always makes the right decision. During Covid the Reserve created nearly $500 billion, which, combined with record low interest rates, provided a greater stimulus to the Australian economy than that provided by the federal government.
RBA board members from the early 1990s recall hearing that the economy was “cracking” as they raised interest rates above 17 per cent. The cost of this was measured in one million job losses.
Joyce also believes that the cost of land (and housing) should be included in the measure of inflation. There is a lot of research among elite economists saying the danger of central banks targeting the prices of assets such as land.
There is also the problem of land tracking inflation because there is only so much land available and it increases in value over time. This would leave a persistent inflationary pulse in the official consumer price index, ultimately forcing the RBA into higher interest rate settings.
The populist right has a long history of hating government debt (while the populist left has never seen a tax it didn’t like), with a fear of foreigners and lenders demanding their money back at every turn.
Joyce lost his brief stint as Tony Abbot’s shadow finance spokesman in part because he suggested Australia was “looking out for people overseas” and that the country was likely to default on its debt.
Australia is one of the nine countries with the highest credit rating across all rating agencies. It remains one of only two developed countries that have never experienced a federal default. And it has one of the lowest debt levels in the world.
Delegating economic policy to an elite Central Bank is unlikely to change these basic facts.
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Shane Wright is senior economic correspondent for The Sydney Morning Herald and The Age.Connect with: X or email.
