When the ReserveBank of Australia (RBA) board raised official interest rates during the 2007federal election, it was an audacious assertion of the central bank’sindependence.
The politicallyexplosive decision helped derail the Howard government’s bid for re-election,which was built around the message that ‘interest rates will always be lowerunder the Coalition’, and shattered the conventional wisdom that the RBA wouldnever touch monetary policy during an election campaign for fear of being seenas partisan.
It alsohighlighted the risk that governments run when they devolve functions toarms-length organisations like the RBA. But this has not stopped them fromincreasingly turning to the use of statutory bodies, expert groups, reviews andcommissions of inquiry to advise on, and in some instances, make and implementdecisions.
The more, themerrier
Since the early1990s, an alphabet soup of organisations, committees, boards and ad hoc groupshas emerged to join the RBA, the Commonwealth Grants Commission and the ForeignInvestment Review Board in advising government or acting on its behalf. Bodiesinclude Infrastructure Australia, the Parliamentary Budget Office, and theProductivity Commission, as well as inquiries like the Henry tax review and theNational Commission of Audit.
While theirresponsibilities and powers vary, their common purpose has been to improve theway government works and the decisions it makes. And their influence has oftenbeen profound. For instance, under the agreement struck between the RBA andTreasurer Peter Costello in 1996 to formalise its independence, the centralbank was given the task of engendering confidence among consumers, business andinvestors that inflation will be held at a moderate level (its current targetrange is 2 to 3 per cent). In doing this, it has proved to have been a signalsuccess.
During the 1970sand 1980s, the consumer price index (CPI) regularly spiked into double figuresand averaged between 8 and 10 per cent. But since the RBA was given itsmandate, mean CPI has been a touch under 2.5 per cent.
By assumingresponsibility for the day-to-day conduct of monetary policy, the central bankhas not only proved itself to be more adept than politicians at moderatingfluctuations in consumer prices and anchoring inflation expectations, it hasalso created some distance between the management of official interest ratesand the hurly-burly of the political contest.
Honest andtransparent
Arguably, theProductivity Commission and its antecedents – the Tariff Board, the IndustriesAssistance Commission and then the Industry Commission – have been even moreinfluential. During the 1960s and 1970s, the Tariff Board and the IndustriesAssistance Commission, under the leadership of Alf Rattigan and Bill Carmichaelrespectively, became powerful champions of the anti-protectionist cause.
By using openpublic inquiries to highlight the costs to the economy of industry protection,Rattigan and Carmichael paved the way for the decisions taken by primeministers Bob Hawke and Paul Keating, with bipartisan support, to cutAustralia’s tariff barriers.
Carmichael saysthe process of transparency, subsequently embodied in the formation of theProductivity Commission in 1998, was “crucial for maintaining the distancebetween government decision-making and the influence of domestic interestgroups seeking special treatment at the expense of the rest of the community”.
In a joint 2007paper1 with then-Productivity Commission chair Gary Banks, Carmichael wrotethat, “Australia’s experience demonstrates that institutionalised transparencycan help governments undertake beneficial reform and make better policies”. Notonly that, but well-researched and public independent advice can also,according to Banks, help governments implement reform by building publicconfidence that the change is well-founded and likely to be beneficial.
With thisreformist zeal embedded in its heritage, the Productivity Commission has hadsome notable recent successes, not least the establishment of the NationalDisability Insurance Scheme, which was a key recommendation of its 2011 inquiryinto disability care and support.
But thecommission, like Infrastructure Australia, has no power to compel governmentsto act on its recommendations, and finds its ideas and critiques notinfrequently ignored or put in the too-hard basket.
The Abbottgovernment, for instance, last year dismissed a commission recommendation thatmoney tagged for the prime minister’s paid parental leave scheme (sinceabandoned) should instead be directed toward helping parents pay for childcare.
Even the bestinformed and most compelling of advice can be for naught if a government cansafely ignore it without consequence.
To be continued
