Peter Costello claims that establishing an independent Reserve Bank is
one of his finest policy achievements as Treasurer but sometimes you do
wonder just how independent it really is. For starters, Costello’s Treasury Secretary Ken Henry sits on the board
and can report back on all deliberations to his political boss.

Then you have the stacking of the board with Liberal mates such as Rob
Gerard and Hugh Morgan, people who would know that keeping interest
rates low is a potent political weapon for the Howard Government against Labor.

And what about the conflicts of interest that come with appointing
people who directly profit from lower official interest rates? Look no
further than Woolworths CEO Roger Corbett, who yesterday released his
final profit and gave an unsubtle public warning to governor Ian
Macfarlane about lifting official interest rates.

“Discretionary spending in Australia is as tight as I’ve seen it in
recent years,” warned Roger, paradoxically after announcing the strongest
quarterly sales growth in five years.

There wouldn’t be many Australians with a greater vested
interest in monetary policy than our Roger. With Woolworths hovering
around $20, Corbett owns almost $70 million worth of shares and will
finish his executive career with almost $10 million in salary, bonus
and dividends coming to him in calendar 2006.

Of course he doesn’t want an interest rate rise between now and his
sign-off date in September when that final big bonus will be determined
based partly on share price performance. Woolworths is now more heavily
geared that at any time since it was floated in 1993, and has just
raised more than $800 million flogging off some distribution centres to
strengthen its balance sheet. The last thing it needs is a bigger
interest bill on its $3 billion corporate debt and a lift in official
interest rates to slow sales and profits.

It really is completely unacceptable that someone with a huge vested
interest is given all the insights of RBA research and the ability to
influence decision-making inside the boardroom. Yesterday Corbett went even
further with these contestable public pronouncements about spending

Exactly the same argument applies with fellow RBA director Frank Lowy,
because Westfield is carrying Australia’s largest corporate debt and
its profits also rely heavily on continuing the debt-funded consumer
binge of recent years.

In a tight labour market where employers are desperately bringing in
foreign workers to meet demand, surely the RBA should have lifted
official interest rates more quickly and decisively to take the steam
out of the economy. Let’s hope the governor hasn’t been overwhelmed by
the collective lobbying power of Hugh Morgan, Ken Henry, Roger Corbett
and Frank Lowy.

Of course, we might know about this if Peter Costello had a more
enlightened approach to freedom of information and agreed to the
release of Reserve Bank board minutes, something which happens in many
countries, including the UK and the US.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey