Do We Need A New RBA Governor? The Fight Against Inflation

  • Clifford Bennett, Chief Economist at ACY

  • 17.12.2021 02:00 pm
  • #stocks

The World is fighting inflation.

Wake up Reverse Bank of Australia.

The Bank of England has raised rates and given guidance that inflation is a problem. The US Federal Reserve has admitted inflation is different to what they expected and indicated they may well raise rates three times in 2022. The ECB has begun unwinding its bond buying program. Banks from Mexico to South Korea have already raised rates once or more.

Until quite recently the RBA was still saying it will do nothing until 2024. There is clearly movement at last, but it is dangerously late. Historically there is no justification for the current policy settings.

If they think Australia as a trading nation will not import further inflation, the RBA should think again.

The RBA should be thinking again on a whole range of issues, including its own Board and Charter. As was urgently recommended by the OECD.

That recommendation confirms what I have been saying for several years, that the RBA is NOT held in high regard internationally. That we naval gaze and pat each other on the back that everything in Australia is the best in world, we actually degrade ourselves and the nations long term potential.

Too much back slapping and not enough real staring into the soul in the mirror, is our nation's Achilles heel. It is preventing the recognition and real need for major radical reform of how we operate internally, so as to compete more effectively in this modern global economy. It is a super competitive global marketplace and yet we seem rather content with ourselves?

There is no room for standing still. Especially not now. We fight among ourselves with short term political objectives, as the world quite literally passes us by.

Other nations in our region are creating 5 and 10 year economic plans. In Australia, policies seem to change on the basis of the latest focus group.

Our tax system is a great example of the inherent problem. Each side of politics waging massive battles about the tinkering and minor re-settings of the existing system. Making it all the more complex and unwieldy with each small step taken. As the false political triumph rings loud around the nation.

All of this is largely wasted time, energy and opportunity.

The entire debate is about this war of internal political view points. When what is badly needed is the awareness that we are a small population in the midst of a modern Asia, and as such we must maintain true world's best practice and super competitiveness in all regards in everything we do. Just to survive. Let lone prosper. Rather than resting on the past, and adjusting our systems in comparison with what has previously existed domestically, we must break through to a totally modern blue print with the sole purpose of being globally competitive. That's right, a new tax system that is globally efficient and competitive. Emphasis on 'new'.

Radical but absolutely necessary. Of course this is unpalatable to the existing power structures, but that is what we have to overcome. We need real leadership prepared to make the bold moves in economic policy toward simplification and streamlining of all our systems and procedures. We have the capacity and this is being seen in both the private and public sectors largely at ground level.

What has to happen, is that we make some real leaps forward. While we may not like Trump, his reduction in taxes spurred the USA into a strong a broad participation growth path. The drastic immediate cut in corporate taxes made corporate America competitive again on the world stage. Particularly in regard to the new first world of Asia.

Australia has to have the world's most competitive tax structure, regulatory environment and central bank. If it is to successfully navigate the domestic and global trade challenges ahead of us.

Amidst all this the level of interest rates will need to be at all times appropriately fine tuned. It is clear to everyone on the outside looking in that The RBA has failed badly in this undertaking on numerous occasions. A necessary first step is to appoint a new Governor from outside of the bank if the internal culture of this institution is to be successfully lifted to a world class and effective level.

We are left asking why has the OECD's recommendation for a review of both the board and its charter been completely ignored? It is time for a strong Federal leadership to step in and make the hard calls. Do what is necessary to ensure the Reserve Bank serves the people of this great country of ours effectively. Is this not the very least we should expect.

That the RBA thinks quite highly of itself goes without saying. The necessary revolution of the Reverse Bank of Australia can clearly not be undertaken from within.

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