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RUBY:

From Schwartz Media, I’m Ruby Jones. This is 7am.

When Jim Chalmers said that interest rate hikes were “smashing the economy”, he was either stating the obvious or starting a war, depending on who you ask.

For weeks, in question time and in the news, a picture has been forming of an aggrieved treasurer, angry at the governor of the Reserve Bank.

At the same time, senior unnamed Labor insiders have called Michele Bullock a “nutter” and the RBA board “weirdos”.

But behind the apparent breakdown between the government and the Reserve Bank, there’s a much more bitter feud going on between Jim Chalmers and Angus Taylor, who has recently walked away from a bipartisan plan to fix the Reserve Bank.

Today, special correspondent for The Saturday Paper Jason Koutsoukis, on how the deal unravelled and what it means for the future of the Reserve Bank.

It’s Tuesday, September 17.

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RUBY:

So, Jason, it's been more than two weeks now since we heard Jim Chalmers say that interest rates are, quote, smashing the economy. Those comments have dominated the news ever since. So why do you think that is?

JASON:

Well, for the last two weeks, it feels like we've heard nothing else. That here is Jim Chalmers at war with the Reserve Bank and how they are smashing the economy.

Audio Excerpt - News Reporter 1:

“Treasurer Jim Chalmers has declared the Reserve Bank is smashing the economy.”

Audio Excerpt - Treasurer Jim Chalmers:

“And I think the Australian people, frankly, expect me to tell it like it is and I've been making that point for some months. What I said overnight wasn't new.”

Audio Excerpt - News Reporter 1:

“His statement overnight making multiple mentions of the Reserve Bank's 13 interest rate hikes, saying the impact of interest rate rises are smashing the economy.”

JASON:

It was three days before the release of the June quarter national accounts. Those accounts were expected to show, and subsequently did show, that the economy was barely growing, by just 0.2% in the three months to June 30. And parts of the media framed this as a rift between the RBA and the Treasurer.

On the Monday, the day after the Treasurer made those comments, The Australian newspaper led its paper with the headline “RBA Rates Smashing Nation” and that Jim Chalmers had turned on the central bank. We also found, you know, in that story, former Liberal treasurers John Howard and Peter Costello rising to criticise the Treasurer's comments. It felt like they were really trying to confect some kind of battle. In fact, it wasn't long before we saw the words, you know, Jim Chalmers has gone to war with the Reserve Bank and that he was trying to shift blame for a barely growing economy onto the Reserve Bank. He tried to do the media rounds to try and sort of tamp down the story.

Audio Excerpt - Treasurer Jim Chalmers:

“You know, we've got different responsibilities, the Reserve Bank and the Government, but we've got the same objective which is to get on top of this inflation challenge and we need to do that in a way that doesn't smash an economy which is already weak.”

JASON:

Even Michele Bullock, you know, the Reserve Bank Governor, had to brush away questions that the two of them were somehow suddenly at war. But she rebuffed that saying both she and the Treasurer were just doing their jobs.

RUBY:

Right. Okay, so how would you describe then the relationship between the Reserve Bank Governor Michele Bullock and Jim Chalmers right now?

JASON:

Well, it was Jim Chalmers who appointed Michele Bullock. She was carefully chosen, she's the first woman to lead the Reserve Bank in its history. He described her as the right person to lead the RBA into the future.

Audio Excerpt - Treasurer Jim Chalmers:

“Michele Bullock is the person best placed to take the Reserve Bank into the future. Michele is an outstanding economist, but also an accomplished and respected leader.”

JASON:

And when Jim Chalmers appointed her, of course we knew that an independent review into the bank would soon be handing down recommendations on how the bank should be structured into the future. And that Michele Bullock was going to be the one who would have her hand on the tiller as those reforms were handed down and would be implemented. And one of the main things that the review recommended was splitting the Reserve Bank board into a board that would look after the management and operations of the bank itself, and then a separate committee that would just consider monetary policy and whether interest rates should be moving up or down. And since the review made its recommendations, the Government has been working with the Coalition to try to get their support to make the changes outlined in the review. Both Jim Chalmers and the Shadow Treasury spokesman Angus Taylor, have both emphasised the importance of a bipartisan approach here because whatever changes are made cannot last much longer than any one government lasts, so bipartisanship has been very important from the outset, and that's why Jim Chalmers has had three face to face meetings with Angus Taylor since the review was handed down. He's also arranged for three in-person briefings by Treasury officials for the opposition and they've exchanged also a bunch of letters. So things were pretty much going in the right direction.

Up until Thursday August 22, when Jim Chalmers was heading home to Brisbane after a couple of pretty tough parliamentary sitting weeks and suddenly, his office started getting all these calls from journalists in the press gallery offering variations of the same question which was, you know, was it true that Chalmers and Taylor had finally reached an agreement to reform the Reserve Bank? And the deal that journalists thought was on the table had to do with this signature proposal to split the RBA board into, into two. And Chalmers staff were scratching their heads at the requests for comment. They couldn't tell where the story was coming from, it certainly wasn't from them.

RUBY:

Okay. So you've got journalists in Canberra clearly getting this tip that there is about to be a deal announced on changes to the Reserve Bank. So where is this story coming from Jason?

JASON:

Well, earlier that day, Jim Chalmers had written to Angus Taylor agreeing to a key coalition demand that would see all of the existing RBA board members who wanted to, move across to the new interest rate setting board in order to eliminate the perception, or the possibility, that Chalmers was going to try to stack the board with people sympathetic to the Government's political agenda. Chalmers' office played down the suggestion that a deal had been done. You know, what they were saying was that they had actually received no response, either formal or informal, from Taylor's office to the letter that Jim had written earlier that day. But Friday morning's papers carried the detail of Chalmers' letter to Taylor. You know, the Australian Financial Review leading off its front page with a story headlined “Chalmers offers deal on RBA split”. The Australian’s splashed with “Treasurer deals in Libs on RBA 2.0”. Whether or not Jim Chalmers was annoyed with the Coalition for leaking the detail of the previous day's letter to Angus Taylor, he certainly didn't show it when he fronted up to the media on Friday morning at a press conference in Brisbane. In fact, Jim Chalmers went out of his way to praise Angus Taylor. He said that, you know, while the two had had their differences, in this instance, Jim Chalmers said he thought that Angus Taylor had the right instincts. And he went into some detail about the kind of good faith negotiations the two had been having over the previous few months and how Jim Chalmers had tried to accommodate the changes that the Coalition had wanted. And he talked about how important it was that these changes be above and beyond bipartisan politics. So I think at that point, a deal was looking pretty good and the legislation would sail through the Parliament.

RUBY:

Coming up after the break, the deal unravels.

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RUBY:

So, Jason, Jim Chalmers has spent more than a year working on these reforms for the Reserve Bank. Central to this is this new board which would set interest rates. And he's been negotiating with the Coalition, he's agreed to everything they've asked for. The Coalition appeared to be backgrounding that a deal was imminent. So, tell me what happens next.

JASON:

So then, Jim Chalmers and his advisors wake up last Tuesday morning to see in the newspaper that the deal is off. Angus Taylor had told the Australian Financial Review that the Coalition would not be going ahead with supporting Labor's reforms to the RBA. This was the first that Chalmers had heard that. He'd heard nothing from Angus Taylor or anyone else in the Coalition for two weeks and then he wakes up to that headline.

RUBY:

Right, and so, what reason does Angus Taylor give for this?

JASON:

Well, it's quite curious because, even though the government had given in to every one of Angus Taylor's demands, he told the Australian Financial Review that recent public comments, from not only the Treasurer but other senior Labor figures in an attempt to blame the RBA for their own economic failures, you know, are deeply unsettling. And he added that,
considering recent events the Coalition has serious questions about the Government's commitment to the continued independence of the Reserve Bank of Australia. We will not be complicit in Labor's sack and stack strategy, which is why we will be opposing this bill.

RUBY:

Okay, so tell me a bit then about what else we've heard from other Labor figures about the RBA.

JASON:

Well, Wayne Swan accused the RBA of punching itself in the face and putting economic dogma over rational economic decision making. And Swan said that high interest rates were, quote, hammering households, hammering mums and dads and causing a collapse in spending and driving the economy backwards. You know, there's many other senior Labor figures who have been very angry at the bank's interest rate rises and I think there's also been a lot of frustration with the bank's repeated failures on economic forecasting, a point highlighted in last year's review of the RBA. So at the end of this week, while Jim Chalmers is busy insisting that his relationship with Michele Bullock is going just fine, up pops an analysis piece on the ABC's news website. That piece, by the ABC's Jacob Greber, quoted a senior Labor figure describing Michele Bullock as a nutter and the RBA board as barbarians and weirdos in the thrall of a bizarre groupthink. And I think once that piece came out, well, Peter Dutton saw an opportunity to blow up these reforms, and the Coalition's shadow cabinet met on Monday and agreed that they would pull out of any deal with the Government on splitting the RBA board into two.

RUBY:

Okay. So is what we're looking at here, Jason, a case of when politics gets in the way of policy? Because it seems like there was a lot of good faith negotiation when it came to these reforms, Labor was making concessions, including around this fear of board stacking that the Coalition had and it seemed like there was a strong possibility of a deal. But then the politics changed and the criticisms of the Reserve Bank got louder and the Coalition, it seems, saw a political opportunity.

JASON:

I think that's absolutely the case. And, you know, what we saw last week was the Coalition walking away from the very reforms, you know, it had worked very hard on and agreed to with the government. I think it's fair to say that Jim Chalmers and his office were, you know, absolutely furious at the decision by Angus Taylor and the Coalition to blow up his reforms.

Audio Excerpt - Treasurer Jim Chalmers:

“The position that has been reported from the Coalition is irresponsible. It's disappointing, but it's not especially surprising, given Peter Dutton's pathological negativity and Angus Taylor's weakness.”

JASON:

You know, as one Labor source who was close to Jim Chalmers put it to me, Angus Taylor was putting the national interest last, and all for the chance to gain the advantage during one parliamentary sitting week. In the view of one Labor source I spoke to, that made Angus Taylor a clown.

RUBY:

Okay so, where does this leave the Treasurer then, when it comes to getting these reforms through?

JASON:

Well, Jim Chalmers is in a difficult position because the only way he can get these reforms through now is to negotiate with the Greens and the crossbench. But even if he does get agreement from the Greens and the crossbench on these reforms to the bank, he won't have the agreement of the Coalition and he won't have that bipartisan support for long lasting changes to the Reserve Bank. The idea that Chalmers would try to, as Angus Taylor puts it, sack and stack the board with friendly faces doesn't really make sense because the term of the appointments to that new interest rate setting board would be for five years. So that's not just beyond the next election, but beyond the election after that. This was done purely for the short term political interest, not the long term national interest. Perhaps the Coalition's thinking was in a similar way that Tony Abbott, when he was Opposition Leader, was always trying to create chaos. The more chaos, the worse the Government looks. Blowing up the reforms to the Reserve Bank is probably something in that vein. It's making the Government look as though it can't get its agenda through the Parliament.

RUBY:

Jason, thank you so much for your time.

JASON:

Thanks Ruby. Great to talk with you.

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RUBY:

Also in the news today...

Former US President Donald Trump has survived an apparent assassination attempt at his private golf course in Florida.

During a security check of the area, Secret Service agents spotted a 58-year-old male suspect hidden amongst the bushes holding an assault rifle.

The man fled the scene but was later arrested and placed into custody.

And,

Australians have experienced a record number of data breaches in the first half of 2024.

Between January and June this year, the Office of the Australian Information Commissioner was notified of 527 data breaches, the highest in three and a half years.

Malicious and criminal attacks were behind 2/3 of the breaches, with the majority of them described as cybersecurity incidents.

I’m Ruby Jones, this is 7am. Thanks for listening.

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