Why Ben Chifley came to fear the ‘Chifley overwrite’
A brief history and partial defence of Section 11 of the RBA Act
Robert Menzies (left), Ben Chifley (right).
The RBA’s latest increase in official interest rates has seen at least one politician call on the government to invoke section 11 of the RBA Act to override the Board’s decision. This is part of a broader populist attack on the Bank, but also an attempt to tie the government to the Board’s decisions. Zac Gross has a good discussion of why the independence of the Reserve Bank is valuable in this context.
The 2023 RBA review recommended that the RBA Act should be amended to repeal section 11 (2)-(7) of the legislation on the basis that it:
‘creates the risk that the Government wields, or threatens to wield, power in a way that undermines the independent operation of monetary policy. Parliament should define the RBA’s objectives and independence through the underlying legislation, without the option for overrule by executive Government.’
Although the review does not say so explicitly, this recommendation was motivated in part by a concern with the trend to increased populism in politics internationally and the threat this might pose to the independence of monetary policy should populist politics take firmer root here. Politicians’ calls to invoke section 11 only serve to validate the review panel’s concern.
The review’s recommendation to repeal section 11 has been opposed by a number of commentators, including former RBA Board member and adviser to Treasurer Keating, John Edwards, as well as Ross Garnaut and David Vines. They argue that there may be contingencies in which it would be desirable to assert direct democratic control over monetary policy.
The RBA review was concerned that:
‘While no Australian Government has used these override powers, there is the possibility that established conventions cease to be observed.’
While the full provisions of section 11 have never been explicitly invoked, it has been threatened many times and these latent powers are a constraint on the behaviour of both the government and the Bank. The fact that section 11 has not been fully invoked suggests that it contributes to a stable institutional equilibrium between the government and the Bank.
My sense is that the review panel saw section 11 as something akin to Chekhov’s gun, but it may be closer to a Chesterton fence. While section 11 is often seen as a pro-democratic legacy of Prime Minister Ben Chifley, Chifley himself came to fear the Menzies government’s 1951 amendments to the RBA’s precursor legislation, which Chifley thought overly reinforced the independence of the Bank to resist government direction.