You have to assume that it is Wayne Swan who has leaked this minute, in his desperation to salvage some reputation as Treasurer. (Get over it, mate, I say … you were a disaster.)
Let us not forget that it was his office that leaked the information about Treasury costings of presumed Coalition policies … and he was caught out.
And let us also not forget all Swan’s carry on about the Coalition black-hole (just keep repeating $70 billion) and calling for its costings to be released early. In fact, the PBO gave the Coalition a clean bill of health, whereas Labor’s savings amounted to absolutely nothing.
We also know, because Glenn Stevens confirmed this to a Senate Committee, that Swan insisted on taking half a billion in dividends from the Reserve when the Governor had sought to retain the full amount. This is fact. And we also know that Deputy Governor, Phil Lowe, stated publicly that the bank was very pleased with the capital injection approved by Treasurer Hockey this week.
So here’s the story, from Mark Kenny (a favourite Labor go-to man at Fairfax). Note the inconsistencies in the story -the Treasurer cannot issue capital to the RBA but the RBA can request it???? (Of course, Kenny has no understanding of the issues at hand.)
Note also the General Manager, Macroeconomic Policy Division is pretty low-rent. You would expect this to be handled by the Secretary, not some low-ranking official. And the advice??? Don’t bolster the Reserve’s balance sheet because it might be a bad look???
Wayne Swan considered bolstering the Reserve Bank’s reserve fund earlier this year, but was formally instructed by the Treasury Department that shoring up its capital holdings could be counter-productive, Fairfax Media has discovered.
Despite Treasurer Joe Hockey’s decision to bolster the RBA to the tune of $8.8 billion this week, an official minute to Mr Swan in April advised the then treasurer not to transfer money from the government to the bank on the grounds there was no legal basis for the request.
The minute advised that the impression created by doing so could undermine confidence in the central bank’s stability and compromise its independence from the government.
The advice contradicts any suggestion by the new government that Mr Swan had been negligent in allowing the bank’s capital buffer to run down, and had acted against the advice of the RBA itself.
”There is no specific provision in the Reserve Bank Act 1959 (the act) for the Commonwealth to make a capital injection to the Reserve Bank,” advises the general manager, macroeconomic policy division. ”There is also provision in the act that would allow the Reserve Bank board to request a capital injection from the Commonwealth.”
The advice was sought after Mr Hockey, then shadow treasurer, raised concerns about the state of the Reserve Bank’s reserve fund, in February.
In April, RBA governor Glenn Stevens told the parliamentary economics committee he would have preferred that the government had allowed the bank to retain all of its profit – just over $1 billion – for the previous year rather than being required to surrender half to the Treasury.
In opposition, the Coalition saw the decision to take $500 million from the RBA as a cynical exercise in bolstering the budget to speed the return to surplus. This week, Mr Hockey announced a surprise allocation to the Reserve Bank reserve fund of $8.8 billion. The decision, which has instantly added $9 billion to the budget deficit, was justified as restorative action after the bank was allegedly made more vulnerable by the actions of the previous Labor government.
”It’s money that should have been allocated by the Labor Party in government, but they didn’t,” Mr Hockey said.
The Treasurer said that since the election Mr Stevens wrote to him indicating ”it would be appropriate” that the central bank’s reserve fund be increased to the equivalent of 15 per cent of the bank’s assets at risk.
But advice from Treasury to Mr Swan, formulated in conjunction with the Reserve, advised against action that might have sent a message about the bank’s foundations.
”Institutionally, there have been no recent precedents for the Commonwealth to provide the RBA with a capital injection.
”To do so could create the perception that the RBA’s viability and capacity to conduct monetary policy was beholden to the government and risk undermining the credibility of the RBA as an operationally independent institution.”
Opposition leader Bill Shorten urged Mr Hockey to release the request from the RBA, saying: ”The independence of the Reserve Bank is incredibly important to the strength of our economy”.
(I am told that Jim Chalmers’ book is just a shocker and contains some truly embarrassing revelations about life in the Treasury’s office. I might have to read it.)