Political Corrections

with Mungo MacCallum

You can bank on Honest John

The least amazing news story of last week was that the Reserve Bank of Australia had confirmed that John Howard's election campaign on interest rates last year was exaggerated, misleading and in places factually wrong.

Mercy me and pass the smelling salts. Who would have thought it? Well, actually every reputable economist and every half-way honest commentator thought it, and said so loudly at the time; which leads to the question of why the Reserve Bank didn't.

Kim Beazley believes that if the RBA had spoken up at the time it would have blown Howard's campaign out of the water. Personally I doubt it; the evidence was that the electorate was predisposed to believe Howard's lies, whether about interest rates or Iraq, as long as they accorded with the fear and loathing Howard and his allies had nourished so assiduously over the years; they weren't about to let the facts spoil a good story.

But at least the sturdily independent members of the Reserve Bank board could have tried. They were, after all, quoted interminably as the source for statistics which Howard said proved that the average mortgage repayment would increase by $960 a month if Labor gained power; they had become the very foundation of the Big Lie. You might have expected them to protest mightily. Instead, they whimpered mousily.

It was only after an indignant citizen sent the RBA a leaflet trumpeting the above propaganda that the bank acted at all, and then it was only to write to the Electoral Commission asking plaintively if the leaflet conformed to the electoral act. The Commission wearily gave its standard reply: its charter did not extend to determining the truth or otherwise of political advertising (which is, incidentally, also exempt from the provisions of the Trade Practices Act) and that if the RBA had any problems with the leaflet, it should write to the author, and the best of luck.

The real authors, of course, were the faceless manipulators of the Liberal Party, but that was too difficult for the bank's directors; instead they dashed off a quick note to the local apparatchik who had authorised the particular pamphlet, asking him to stop distributing it. Unsurprisingly there was no reply. Asked last week whether distribution of the leaflet had in fact stopped, the bank's spokesman replied weakly that he didn't really know, but that he had received no further complaints.

What is certain is that distribution of scores - perhaps hundreds - of almost identical leaflets continued unabated until polling day, as did the constant repetition of the Big Lie from Howard and his ministers, and nary a peep from the RBA. Indeed, even its minimalist attempt at correction would never have become public except for a chance remark to a journalist in the wake of last week's decision not to raise rates in April.

The rationale for this Pontius Pilate-like refusal to speak up for the truth was given as a fear of being seen to become involved in party politics: the bank would claim it was safeguarding its independent status. But hang on. The point was that its independent status had already been hijacked; the bank had been dragged willy nilly into the political process by the Liberal Party.

If it had really been concerned about its independence it would have screamed blue murder. What it was really concerned about was keeping out of trouble.

This was not the first time that the RBA has admitted that, when it comes to the crunch, it is prepared to compromise its integrity rather than make political waves. Last year the chairman, Ian McFarlane, told a group of bankers that only in truly extraordinary circumstances would the bank raise interest rates in the lead up to the election; to do so, he implied, would give the opposition a free kick.

True, but equally, not to do so was to give the government a free kick. Since no one wanted interest rates to rise, this obvious point was not made. But the conclusion can only be that the need (if not truly extraordinary) for a rise was secondary, in the bank's priorities, to the need not to distress the government.

Nor does this necessarily apply only in election years: after last week's decision to leave interest rates on hold the economist John Edwards, who used to work for Paul Keating and can therefore be assumed to know his way around the politics of interstates, declared that there could now be no rise at least until July. Why? Because a rise just before or just after the May budget could be seen as a slight on the competence of the treasurer, Peter Costello. The bank would certainly stick to the political comfort zone.

In a sense this is hardly surprising; while the RBA, like the ABC, is nominally independent, its directors are appointed by the government and thus are likely to be at least sympathetic to its cause. At the very least; indeed, Howard declares that he knows all of them, and some of them very well. If not exactly cronies, they are definitely not boat rockers.

It is, of course, convenient for the government to stress their independence; it means that when rates go up, the decision can be blamed on the heartless numbers men of the RBA (and if they don't, or better still go down, it is as a result of the benign policies of a far-sighted government forcing the bank's hand). But it might be more honest to put the responsibility for interest rates back where it used to be: in the hands of the Treasurer.

We'd still get bodgie electioneering, but at least we'd know who to blame.