Labor's push for Reserve Bank of Australia (RBA) reforms is moving forward, with significant concessions. 

Initially aiming to abolish the federal government's power to override RBA interest rate decisions, Treasurer Jim Chalmers has instead decided to retain this power, limiting its use to “emergency circumstances and not just differences of opinion”.

The decision follows months of negotiation after the 2023 RBA review recommended scrapping the veto to enhance the bank's independence. 

However, opposition from the Coalition, Greens, and former central bank governors stalled the reforms, prompting the treasurer to revise his approach.

Key changes include restructuring the RBA’s board into two distinct entities: one for setting interest rates and the other for governance. 

Current board members will transition to the interest rate-setting board unless they choose the governance board instead, maintaining continuity while introducing new oversight.

Shadow Treasurer Angus Taylor has voiced concerns over potential Labor appointments to the new board, indicating that the opposition would carefully scrutinise the proposed changes. 

Despite these concerns, Dr Chalmers is hopeful the reforms can pass by the end of 2024.

The decision to keep the override power has reignited debate. 

Critics argue it undermines the RBA's independence, noting that the power, in place since the 1940s, has never been used. 

However, supporters, including former RBA Governor Bernie Fraser, view it as a crucial “safety valve” for extreme situations, cautioning against its removal.

Dr Chalmers clarified that the veto would be strictly limited to emergencies involving “substantial structural or institutional failure”, aiming to prevent its use in everyday policy disputes.

The treasurer says he has a goal of implementing the changes by early 2025.

 

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