If ever there was a statement of Reserve Bank independence it was this morning’s effort from governor Glenn Stevens announcing that interest rates were going up by 25 basis points to 6.5 percentage points.
Whilst various ministers tried jawboning the bank into keeping rates steady, the RBA board has lost its two most partisan Liberal Party backers, Hugh Morgan and Rob Gerard, over the past two years. The incoming Rudd Government will no doubt look favourably on the board for doing its job and also putting another nail in the coffin of the Howard Government.
The current RBA board comprises governor Glenn Stevens, deputy governor Ric Battellino, Telstra chairman Donald McGauchie, former Woolworths CEO Roger Corbett, Treasury Secretary Ken Henry, professional director Jillian Broadbent, Bluescope Steel chairman Graeme Kraehe and the PM’s favourite Kyoto critic, ANU professor Warwick McKibbon.
We all know what Ken Henry thinks about recent policy initiatives courtesy of his leaked speech earlier this year and Donald McGauchie is no friend of the government as Telstra cranks up its ongoing war with the regulators.
Barrie Dunstan made an interesting comment at last night’s AFR.com product launch in Melbourne, when he said that today’s interest rate rise was almost a statement to try and keep the government under control.
John Howard is junking any pretence of good policy discipline and process as he spends like a drunken sailor on his contrived multi-fronted war with the Labor states. There has been an unprecedented backlash against him from his own supporters in recent days with the IPA’s Mike Nahan, his biographer David Barnett and yesterday’s Chanticleer column in The AFR all unleashing scathing attacks. The leaking of the Crosby Textor polling also demonstrated flagging internal support.
Whilst Howard is absolutely right that the Labor states have lost control of their finances – to be borrowing $15 billion a year at the top of a boom is scandalously reckless – his own government is cranking up spending even more and went too far with the recent personal income tax cuts.
When you remove proceeds from asset sales and include the $35 billion blowout in unfunded public sector superannuation since 1996 – the Howard Government has little to show from the boom and still carries a $50 billion debt despite claiming to have no borrowings.
That said, state governments still owe more than $100 billion and with the 50 basis point blowout in spreads courtesy of the global credit market crunch in recent days, new borrowings are suddenly 75 basis points more expensive. Ouch.