Terry McCrann’s trip down the section 11 time tunnel
Plus, benchmarking the RBA’s inflation targeting performance
Terry McCrann had a long piece in The Australian detailing a 1982 episode in which the RBA Board considered invoking section 11 of the RBA Act in the dying days of the Fraser government. McCrann introduces his piece as follows:
we are now able to tell, for the first time, in fine unfolding detail through a nearly four-month period of mounting crisis, what went on inside the RBA, as it refused to bow to the government. The saga has been documented from internal RBA documents that have never been publicly released.
In fact, this episode has been known in broad outline for more than a decade. I mention it my brief history of section 11 of the RBA Act, drawing on Selwyn Cornish’s short history of the RBA, The Evolution of Central Banking in Australia. Cornish recounts this episode in less detail than McCrann, but presumably drawing on the same archival material. If you want a copy of Selwyn’s book, it is available on request from rbainfo@rba.gov.au.
As argued in a previous post defending section of 11 of the RBA Act, this episode, along with several others, is consistent with my argument that section 11 is more of a two-way street than is commonly appreciated and does more to enhance than detract from the RBA’s independence. As McCrann recounts:
But in 1982, [section 11] came close, very close, to being triggered.
Stunningly, not by the Treasurer, using it to overrule an RBA decision.
But by the RBA in reverse – effectively challenging the Treasurer to formally, and publicly, order it to do what the government wanted. And which the RBA, refused to do.
And thereby explode it all into the public arena. Something that neither governor – Johnston or Knight – wanted.
And nor, even more obviously, Howard.
For as the then about-to-retire Governor Knight, pleaded in a private note to Treasurer Howard, right at the start, in mid-August.
“There are no winners in a civil war (between a government and the country’s central bank).”
While three months later, as exactly such a civil war reached its climax, his successor, Johnston, would note: “I did not think we should look upon Section 11 action in a relaxed way”.
But, as he went on in his note, if we refused the government’s request, “if we were forced through Section 11”, the reasons for our decision must one way or another be stated publicly.
They never were. Section 11 was not triggered. Treasurer Howard blinked. Just days later, he backed off.
As the chapter on government-RBA relations in Cornish’s book makes clear, there was nothing stunning about it based on the RBA’s history. Indeed, Cornish shows how former Prime Minister Ben Chifley came to recognise that a provision originally intended to provide for democratic control of the RBA Board (aka the “Chifley overwrite”) eventually became a potential RBA veto over government policy.