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Aug 21, 2006

Ian Macfarlane gets something off his chest — two years too late

George W Bush might have his flaws, but you never hear him bollocking Ben Bernanke each time the Fed meets.

George W Bush might have his flaws, but you never hear him bollocking Ben Bernanke each time the Fed meets.

Not so our pissant pols. The Governor of the Reserve and the board get leant on all the time. So much for Reserve Bank independence.

It’s the perfect illustration of how political debate works in Australia. The punters know the economy is important but don’t understand it, so now and then the politicians jump on one particular aspect of it to try to grab control of the agenda.

Paul Keating used foreign debt in the mid-80s to seize control of the agenda. Australia’s foreign debt justified his moves. The Liberals turned it against him. A decade later the debt truck was choofing around the marginals. And another decade on they ignore an even bigger foreign debt.

We all know the economic essential of the 2004 campaign. “Who do you trust to keep interest rates low?” the Prime Minister announced when he called the poll.

It was a clever touch. Mark Latham responded, guaranteeing lower interest rates by signing a giant cheque. The punters didn’t believe him, but by buying into the debate he guaranteed interest rates would be a major campaign issue.

It was typically deft politics by John Howard. As we observed at the time, it’s very hard for governments to do anything about rates. They are essentially a determinant of the Reserve Bank and external forces and institutions.

And as we also observed at the time, the Reserve Bank indulged in the economic equivalent of self-censorship by holding off rate rises until the election was out of the way.

Governor Ian Macfarlane got some of his own back before the House of Representatives Economics Committee last week and in Saturday’s SMH. The outgoing Reserve Bank governor has revealed his annoyance at the Howard Government’s election campaign promise to keep interest rates low – a pledge that he says was “not plausible”.

Macfarlane, who warned on Friday that interest rates were likely to rise again before the end of the year, told the Herald in an interview: “I mean, they make these claims, you know, ‘Vote for us – you’ll have low interest rates,’ which obviously we found annoying.”

He revealed the Reserve Bank had considered going public before the 2004 election to point out that the government was “incorrect”. But its leadership decided unanimously to remain silent to avoid politicising the central bank.

Macfarlane may have got something of his chest – but he hasn’t said much about the maturity of our polity. Or our economic debate. Or our media…

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