Labor stares down ‘crazy’ Greens ultimatum on RBA
The Reserve Bank is tipped to keep rates on ice in November. Photo: AAP
A plan to steamroll the central bank and force it to cut interest rates has been branded a “crazy economic ultimatum” and a threat to its independence.
The Greens say they will block Reserve Bank changes until it lowers interest rates, calling for Treasurer Jim Chalmers to use an extreme stick at his disposal and force a rate cut – something the federal government has explicitly ruled out.
Finance Minister Katy Gallagher said it was a populist policy idea that would damage Australia’s economy in the long run.
“It’s just crazy,” she said in Canberra on Monday.
“It’s ridiculous that after 30 years of stable, good economic architecture in this country, they would be seeking to undermine that.
“They’re out craving votes, they’re not actually serious about any economic policy or economic reform.”
Labor’s proposed amendments would split the central bank’s board into two, so one could focus on monetary policy and the other, internal administration.
The changes have the backing of the Reserve Bank, but are dead in the water without a deal with the Greens or opposition.
They were recommended in an independent review commissioned by former Liberal treasurer Josh Frydenberg. The opposition has dealt itself out, arguing Chalmers could stack the monetary board with union officials.
The Greens will not support Labor’s Reserve Bank legislation until interest rates are cut. Both the Treasurer and the RBA Governor have said the reforms are important. Now they know what they have to do to get them done – provide some much needed relief to mortgage holders.
— Nick McKim (@NickMcKim) September 23, 2024
Greens economic spokesman Nick McKim was unapologetic about his position, despite flagging working with the government to pass the changes.
The RBA uses its interest rate lever to put the handbrake on the economy when inflation is too high, with it currently above the target of between 2-3 per cent.
The official cash rate has been at 4.35 per cent since November 2023.
The central bank board will announce its latest rates decision on Tuesday. However, governor Michele Bullock has already flagged any decreases are unlikely this year.
McKim said he didn’t care whether Chalmers used his big stick to force an early cut or Bullock decided herself to slash the cash rate.
He said high interest rates were robbing Australian mortgage holders in a cost-of-living crisis and flowing into banks’ already “eye-wateringly large profits”.
“It’s time for significant action, it’s time for significant relief,” he said.
The Greens would then back the government amendments in their current form, as long as Labor retained both the power allowing the treasurer to overrule the bank and a separate clause allowing the RBA to direct money to productive parts of the economy.
The government’s power to overrule the central bank has never been used.
The Reserve’s interest rate decision will come ahead of quarterly inflation data on Wednesday.
-AAP