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Thursday, October 3, 2024 | Digital Edition | Crossword & Sudoku

Greens’ ‘crazy’ RBA demands are bad economic policy

The Greens’ demands on the RBA make for bad economic policy. Is it also crazy politics, asks political columnist MICHELLE GRATTAN

When the Greens tell Labor they’re ready to negotiate, what they usually mean is they’re preparing to make populist demands that can’t or shouldn’t be met.

Michelle Grattan.

So it is with their “ask” on the Reserve Bank legislation.

Treasurer Jim Chalmers wants to split the Reserve Bank board into two, one to run monetary policy and the other to administer the bank.

He got close to agreement with the Liberals, but then they saw an advantage in walking away. The Greens jumped in to fill the void, demanding an interest rate cut in exchange for their support.

“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,” the minor party’s treasury spokesman Nick McKim said on social media on Monday.

“We are unashamedly using our political power to fight for mortgage holders who are getting smashed by high interest rates.

“The power exists for the Treasurer to bring down interest rates. Time to stop the pretence that the RBA is independent.

“Time for Jim Chalmers to end his ritual ashen-faced handwringing, end the pretence there’s nothing he can do, and intervene to bring down interest rates,” McKim said.

“We are deliberately bringing the RBA into the centre of the political debate where it belongs. The RBA board are unelected technocrats, not high priests who are beyond criticism. Every decision they make is political.”

When it comes to the Greens, the government gives as good as it gets.

“The Greens are out of control,” Finance Minister Katy Gallagher told the ABC on Monday. “It’s crazy what they’re saying to us,” adding, rather primly, that it was “a bit unseemly” for McKim to be “issuing ultimatums”.

Leave aside the unseemly – that’s a common political trait. What about the crazy?

What the Greens are demanding is bad economic policy. Whether it is crazy politics remains to be seen.

From time to time the Reserve Bank comes under sharp criticism, from experts and from the public.

Chalmers and McKim agree on one thing – the “smashing” power of high interest rates.

But the bank’s essentially independent status is a bulwark against monetary policy becoming the creature of short-term politics, as McKim would have it.

(The bank isn’t totally independent. Section 11 of the RBA Act gives the treasurer the power to overrule it, with statements from both the treasurer and bank tabled in parliament. The section has never been invoked.)

What the Greens are proposing, having the treasurer use his power to overrule the bank board to get his way on legislation, is irresponsible.

It’s also illogical. The whole point of the proposed dual boards is to strengthen the bank’s expertise as the independent setter of monetary policy. But McKim wants, in essence, to scrap that independence.

The stand on the Reserve Bank is typical of the Greens policy positions more generally. They’re presently holding up the government’s housing legislation in the Senate, making demands they know the government won’t meet, such as controls on rents.

When challenged, the Greens point out that after playing hardball on earlier housing legislation, they won extra funding.

They’re probably hoping the government will decide to buy them off this time with some more housing money. Notably, they have delayed the latest bills rather than vote them down. To do this they’ve teamed up with the Coalition – expediency overcomes ideology with these bedfellows.

Monday’s announcement that the Australian Competition and Consumer Commission has launched legal action against Coles and Woolworths over their allegedly misleading behaviour on product discounts feeds right into the Greens’ (and the Coalition’s) policy for the power to break up the big supermarkets.

The government reacted on Monday by releasing an exposure draft of its mandatory food and grocery code of conduct, which has been in the pipeline for some time. A government inquiry by former Labor minister Craig Emerson argued against divestiture powers but it’s easy to understand how cash-strapped families struggling with grocery bills could see that as appealing.

In general, is wild economics savvy politics? We won’t know until after the election.

The Greens were on a roll in 2022. They ended up with four lower house members, up from the one (leader Adam Bandt) they had before. The extra seats, all in Queensland, were won from both Labor (one) and the Liberals (two).

They also came out of the election with a record dozen senators (now 11, after Lidia Thorpe’s defection).

In the hunt for more lower house seats, the Greens would hope to pick up votes from those on the left who see Labor as too conservative, people financially hurting who are attracted to populist solutions, and young voters turned off the major parties.

Given its present radicalism, one wonders whether the Greens will hold the two Brisbane seats they won from the Liberals.

It’s difficult to chart the likely trajectory of the Greens, given their small share of the vote, and the heavier concentration of their support in particular areas. But Labor is certainly afraid of them. With the government on the back foot, it knows the potential attraction of easy-sounding solutions.

The Greens hope there will be a minority Labor government after the election, and that they would be in a position to twist that government’s arm on multiple issues.

The risk for them, however, is that if they overreach now, some of their potential but still undecided voters might become wary about how they would behave if their power was much enhanced.The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra. Republished from The Conversation.

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Michelle Grattan

Michelle Grattan

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4 Responses to Greens’ ‘crazy’ RBA demands are bad economic policy

David says: 1 October 2024 at 3:15 pm

You may say having the treasurer overruling the RBA is bad policy but it is any worse than those that are feeding the housing crisis. For instance, any policy that supports renting over home occupier ownership is a dreadful policy. There are times and places in peoples lives where renting is appropriate. Keeping in mind when you rent that at the end of the day you have absolutely nothing to show for the money you paid in rent. For all sorts of good economic reasons we want a situation where at the end of the average persons’ working life they should own their own home. Given the current housing crisis we need to prioritize owner occupiers. They are the ones we need to incentivize over investors to build new homes. Investors should also not be allowed to hold properties that owner occupiers want to buy. It is evil making money out of people who need somewhere to live and end up with nothing at the end of the day.

The Greens economic policies may be bad but at least they aren’t evil like making money out of peoples basic needs and leaving them with nothing to show for the money spent. Even worse that the taxpayer funds this evil.

To get an idea of just how evil it is image we had a rule where you cannot profit from people’s basic needs and leave them with nothing. Seems fair enough. To satisfy this someone who rents is also buying ownership in the property they are renting. A little bit like super contributions. At some point they can combined all the partial property ownerships they have into a lump to help buy their own house. i.e. you rent from say 20-30 and at the end you trade all the partial property ownerships to get started in your own home.

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Phillip says: 1 October 2024 at 11:31 pm

Michelle appears unaware of the extent of serious criticism of the establishment neoliberal economics profession and so called independent reserve banks. What you simplistically label as bad economic policy has worked extremely well in China for over two decades where the inflation rate has averaged 0.15%, and hundreds of millions have been lifted out of poverty. Singapore’s incredible economic rise since the 1950s also happened without having an independent inflation targeting reserve bank, which I note is chaired by Singapores Deputy Prime Minister. Perhaps Michelle should do some research before ignorantly backing in the appalling status quo of: social justice being subservient to markets, and concern with distribution overruled by attention to the average, often nonsensically described as the “national interest”, as Angus Deaton puts it.

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David says: 2 October 2024 at 8:45 am

Sadly I think you’re expectations are a bit high.

We currently live in a cost of living and housing crisis where low income earners are suffering the most. In any situations like this to identify and target money wastage. The big one is people paying rent because at the end of the day you have nothing to show for it. Not a problem when rents are low compared to income but this is not the case. If the government can minimise the need for people to pay rent and get that money going towards owning long term accommodation, which they will always need while alive, it will be a big step forward. Why isn’t the government focused on converting as many renters to home ownership as possible and focused on existing housing as we clearly cannot build at the rate and cost required ?

Lowering interest rates doesn’t necessarily help as it also makes property investment more attractive which means less chance of people breaking out of the renting cycle of no return. You’ve actually got to prioritise home ownership over property investment. The cost of living crisis bloomed while interests rates were low. Rates going up isn’t the cause, it’s just highlighting the problem. Hence it isn’t the fix.

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Phillip says: 3 October 2024 at 11:20 am

Greens policy is to lower the cost of credit, AND housing (rents and purchase price). If you hold down prices, cheaper credit means cheaper credit not bigger loans. Subsidised loans and access to super for housing deposits for first home buyers doesn’t inflate housing prices in Singapore as their public developer HDB ensures housing is available at construction cost to first home buyers. It’s easy to create the impression people are crazy when you cherry pick statements out of context, unfortunately it’s all too often what we must expect from the mainstream media.

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