The tiff between Opposition Leader John Howard and Reserve Bank Governor Bernie Fraser highlights the need for a closer look at the role of the Reserve Bank in Australia. Mr Howard has accused Mr Fraser of showing poitical bias towards the Government because he has endorsed the Accord and generally supported the Government’s economic direction. Mr Fraser, in turn, has dismissed Mr Howard’s comments that Australia is enjoying only five minutes of economic sunshine as a hollow-sounding throwaway in the face of five years of economic growth. Mr Howard says the bank is not independent enough.
The Reserve Bank and its Governor are in a unique position in the Federal public sector. Some statutory authorities and government businesses are almost completely independent. Other bodies like the Auditor-General’s Office and the Australian Bureau of Statistics are not responsible to the Government but to the Parliament, though the Government appoints their heads.
The Reserve Bank, on the other hand, has a statutory charter to act in an independent way to achieve certain economic goals but it must report to the Goverment about its banking and monetary policy. More significantly, if the Government and bank disagree, the Government can force the bank to follow its policy.
The Governor of the Reserve bank is not the independent creature that Mr Howard imagines him to be or would like him to be. Nor are the bank’s statutory goals necessarily in the order that Mr Howard, or indeed the Government, would like. Those goals are: the stability of the currency; the maintenance of full employment; and the economic prosperity and welfare of the people.
Some have argued for reordering the bank’s priorities, putting the fight against inflation and government structural deficit before the fight against unemployment. Some have argued for a more independent bank that can pull the economic levers in a way that is more suitable for the long-term benefit of Australians because it does not have to worry about short-term political consequences.
But this is undemocratic talk. It would give too much power to an unelected, unaswerable body which could pursue economic goals to the detriment of social well-being.
In a democracy, the elected Government must have the carriage of economic policy; not a bank. Ultimately, the Government will be judged on its actions in a way a bank cannot. The present set-up has the balance about right. If Mr Howard feels Mr Fraser is too sychophantic to the Government he may get the chance to do something about it after the next election.