The announcement of a new Reserve Bank governor last week will be cold comfort to the many Australians groaning under the pressure of twelve interest rate rises since May 2022, but the departure of Philip Lowe should take some political pressure off the Albanese Government, even if he’s not actually gone yet.
Treasurer Jim Chalmers told the media, ‘Phil Lowe goes with our respect, he goes with our gratitude, and he goes with dignity, and I want to make that clear.’
After seven years in the top job, the governor’s term was due to expire. The issue was whether his term would be extended again. Cabinet have now declared that his successor for the next three years will be Mr Lowe’s deputy, Michele Bullock.
Philip Lowe will not formally step aside until mid-September, and he’s going to accompany Treasurer Chalmers on one last junket, to the meeting of G20 money men in Gandhinagar, India, this week.
So what went wrong?
Mr Lowe was originally appointed governor of the RBA by Scott Morrison, who was federal treasurer in 2016. He’s presided over the central bank during a particularly turbulent time, which has included the COVID pandemic, war in Ukraine, and record inflation here in Australia.
One of the main jobs of the RBA governor is to put a trustworthy, human face on whatever interest rate percentage the bank decides to inflict on borrowers following its regular board meetings, which is where Mr Lowe has apparently fallen down, despite his best efforts.
In November 2021 Mr Lowe told the country that he didn’t expect interest rates to rise from historic lows during COVID until at least 2024, which encouraged many Australians to go into heavy debt. Since then, the RBA has raised interest rates repeatedly (from 0.1 to 4.1 per cent) in an attempt to curb inflation. Having only one blunt instrument at their disposal, they used it, making life much more difficult for 1.2 million borrowing households.
The Reserve Bank has recently been through a major review, but Philip Lowe won’t be around to see that through, or to benefit in the eyes of the borrowing public from the likely end of steep rate rises and a growing focus on employment. It looks like the end of a well-paid run for the bloke from Wagga Wagga who did a doctorate at MIT and has worked at the RBA on and off since high school.
Mr Lowe has been a significant mentor to his replacement Michele Bullock, who reportedly shares most of his economic philosophy, and will no doubt face further major challenges.
Her vaunted communication skills will be in demand as RBA reforms include eight press conferences a year (compared to Lowe’s total of four in seven years).
Is there another way to deal with inflation?
The Australia Institute’s Richard Denniss has been saying for some time that huge corporate profits are driving inflation, along with overseas supply factors, not wage growth, and that raising interest rates is not dealing with the real problem.
The OECD, led by that well known leftie Mathias Cormann, is now in agreement, saying ‘corporate profits contributed far more to Australia’s rise in inflation through the past year than from wages and other employee costs’. So far the Reserve Bank has ignored this.
Economist Jim Stanford has shown that Australian businesses have increased prices by $160 billion per year, over and above their higher labour and tax expenses, and over and above new profits generated by growth in actual economic output. He says that without the inclusion of these excess profits, inflation would have been halved.
Mr Denniss notes that government policies directly influence the cost of many things, ranging from gas to medicine to aged care to electricity to education – along with the opportunity to control associated inflationary pressures – if only big businesses (including the banks) could live with less excessive profits, and politicians were brave enough to take them on.
The gap between rich and poor in Australia is continuing to grow, as those who have assets become richer (especially as interest rates have risen) and those without fall away.
Australia Institute analysis shows there’s been an almost perfect reversal of economic benefits in this country in the last 60 years, with 96 per cent of economic growth going to the bottom 90 per cent of income earners in 1950-60, as opposed to 93 per cent of growth going to the top 10 per cent in 2009-19.
The forthcoming $250 billion of tax cuts for high earners will worsen this situation, along with inflation.
With the seat of Fadden swinging further towards the Liberals at Saturday’s by-election, it’s clear that cost of living pressures are the main concern for many Australians, and a major challenge for government, no matter who is in the big chair at the Reserve Bank.
Originally from Canberra, David Lowe is an award-winning film-maker, writer and photographer with particular interests in the environment and politics. He’s known for his campaigning work with Cloudcatcher Media.
Long ago, he did work experience in Parliament House with Mungo MacCallum.
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