3. Broader Economic Conditions and Other Issues

Australia’s Economic Recovery

The impact of the COVID-19 pandemic and associated public health measures on the Australian economy has been profound. The public health response to the crisis caused the largest economic contraction to the global economy since the Great Depression in the 1930s and saw Australia enter recession for the first time in nearly three decades, with Gross Domestic Product (GDP) falling by 7 per cent in the June quarter of 2020 and unemployment peaking at 7.5 per cent in August 2020, the highest rate in over 20 years.1
In August 2020, the Reserve Bank of Australia (RBA) Governor (the Governor) explained to the committee that, despite its magnitude, the economic contraction had not been as severe as had been predicted:
If there is any good news at all to be found here, it is that this decline is not as large as we initially feared; it's also not as large as what we're seeing in many other countries at the moment. Similarly, while the labour market outcomes have been very poor, they have not been as bad as was expected. Hours worked were initially expected to fall by a staggering 20 per cent over the first half of this year. The actual fall has only been around half of this, largely due to Australia's initial success in containing the virus and the earlier than expected easing of some of the restrictions.2
Despite the positive outlook, the Governor cautioned that the road to recovery for Australia would be ‘uneven and bumpy’ and ‘more drawn out than was initially expected’.3 When asked about the best policy settings to ensure as swift a recovery as possible, the Governor responded that:
From our perspective, it's keeping interest rates low and the supply of credit available to the economy. From a government perspective, at a very high level, there have been two approaches. The first was to build the bridge to get us over the pandemic, and, by and large, governments around Australia have done that quite successfully. The second element of that is to build the road to the recovery…. The first step was to build the bridge. We're coming down the other side of that. We're ramping off the bridge now, and now it's building the road to recovery. There are a whole bunch of structural reforms. The government is focused on training. It's focused on the digital economy. There's a process for industrial relations reform. These are the types of things we need to focus on to make sure that road to recovery is a strong one.4
According to the Governor, the central factor in accounting for the better-than-expected economic outcome for Australia has been the coordinated economic policy response by federal and state and territory political leaders, regulators, the banking sector, and the RBA. On this, the Governor commented:
That common mission was to support the Australian economy through this difficult period. The level of cooperation and coordination was extraordinary, and it was a real ‘Team Australia’ mindset. In my view, this reflects positively on both Australia’s political system and our institutions, and we shouldn’t forget that.5
On the economic policy response, the Governor noted that ‘[w]hile monetary policy has played an important role, it’s been fiscal policy that has provided much of the support to the Australian economy’. This fiscal response has been to an unprecedented level, with spending by the Commonwealth Government amounting to seven or eight per cent of GDP and that of the states and territories around two per cent.6 This fiscal stimulus, including the Commonwealth Government’s JobKeeper payment scheme, the HomeBuilder grant scheme and the SME (Small and Medium Enterprises) Recovery Loan Scheme7, has supported individuals and businesses through the COVID-19 crisis and has provided a solid basis for Australia’s economic recovery.
The Governor mentioned that the unprecedented levels of fiscal stimulus by government contrasted with the approach of decades past, which were characterised by low budget deficits and low levels of public debt. On the current high levels of debt, however, the Governor noted that it was ‘entirely manageable and it’s affordable’.8
The committee asked how the COVID-19 recession differed from previous economic downturns. The Governor explained that previous recessions have been caused by macroeconomic policy mistakes, problems in the financial system or global economic shocks, and have tended to have more uniform negative effects across the whole economy and society. By contrast, the impacts of the COVID-19 recession have been very uneven with certain locations, industry sectors, and age cohorts hit harder than others. The Governor suggested that:
As we come out of this, it will be an issue for governments around the country as to whether they try and offset those differential effects with industry or regional specific policies. That's something we'll have to confront going forward.9
Reflecting on the experience of the Australian economy over the pandemic period, the Governor suggested that ‘the economy has proven to be resilient’. He suggested that despite the disruptions caused by the Omicron strain, ‘we still expect growth in GDP in the March quarter, with spending and hours worked already recovering quite quickly.’10
The Governor provided the following outlook for the Australian economy:
Reflecting this resilience, the outlook for the Australian economy has improved since we last met in August. We estimate that GDP increased by around five per cent over 2021 and we're expecting GDP growth of around 4¼ per cent this year and two per cent next year. This outlook is being underpinned by a number of factors. These include household balance sheets that are in generally good shape, with households having accumulated more than $200 billion in additional savings over the past two years. That's a lot of extra money they have in their bank accounts. An upswing in business investments is also underway. There's a large pipeline of residential building to be completed over the next or so. Macroeconomic policy settings are also supportive of growth, with governments planning significant infrastructure spending and monetary policy remaining very accommodating.11

Inflation and the RBA Inflation Target

The Reserve Bank Act 1959 outlines three broad objectives for the RBA Board in deploying monetary policy:
The stability of the currency of Australia.
The maintenance of full employment in Australia.
The economic prosperity and welfare of the people of Australia.12
Since the early 1990s, the RBA has maintained a target for consumer price inflation of between two and three per cent as a means for achieving these broad mandates. The target is ‘defined as a medium-term average rather than as a rate (or band of rates) that must be held at all times.’13 The RBA uses monetary policy to achieve this inflation target:
The principal medium-term objective of monetary policy is to control inflation, so an inflation target is thus the centrepiece of the monetary framework.14
On the rationale for applying a target rate of between two and three per cent, on average, the RBA states that ‘[t]his is a rate of inflation sufficiently low that it does not materially distort economic decisions in the community. Seeking to achieve this rate, on average, provides discipline for monetary policy decision-making, and serves as an anchor for private sector inflation expectations.’15
The committee questioned the appropriateness of this target and suggested that a specific target—2.5 per cent—as opposed to a target range and a medium-term average, may produce better results. The Governor responded that ‘[i]t might affect the way we communicate, but in practical terms I don’t think it would make that much difference. What we’re trying to do over long periods of time is deliver an average inflation rate of 2.5, roughly, somewhere in the midpoint of the two and three per cent range’.16
Continuing on this theme, the Governor observed the following:
The more important point—and this is coming out of many central bank reviews—is that, at least in the current state of the world, the best monetary policy approach is a flexible inflation target with a focus also on what's going on in the labour market. That's the approach that we've had. Having the two to three per cent, on average over time, I think, sends the message that we do have flexibility and we're prepared to use it. Having a number that's just 2½ per cent on the surface implies less flexibility but, in practice, it may not. Either of these arrangements could work, but what's really important is that, whatever arrangement we have, we have flexible inflation targeting with a strong focus on the labour market. The Fed has that, the Bank of Canada has that, the ECB [European Central Bank], the Bank of England—they're all there.17
The committee asked how inflation is measured and whether it factors in rising prices in the property sector. The Governor responded that:
The inflation measures that we have measure the average price of goods and services, and the ABS [Australian Bureau of Statistics] does a remarkably good job, by international standards, at measuring the price of goods and services. We have separate price indices for housing. Australia has a very good housing price series as well. So we measure both of those quite well. Really the issue is, in thinking about economic policy, what weight we put on goods and services prices versus asset prices…18
Since 2016, Australia has experienced persistently low inflation, and the RBA has consistently missed its target band for inflation of between two and three per cent. The Governor explained that the COVID-19 situation ‘reinforced the disinflationary forces in the global economy’, with inflation falling into negative territory in the June quarter of 2020 for ‘the first time since the early 1960s.’19 Since that low, inflation has steadily increased.
In December 2021, the ABS reported a Consumer Price Index (CPI) rise of 3.5 per cent. As the RBA’s inflation target is expressed in CPI inflation—‘headline inflation’—the current rate is now above the RBA’s inflation target band.20 This rise was the result of large price hikes in new dwellings and automotive fuel. Price rises on new dwellings and automotive fuels were significantly impacted by the COVID-19 situation, with the Commonwealth Government’s HomeBuilder grant scheme putting upward pressure on construction costs and higher global demand for fuel coming off the back of the COVID-19 crisis resulting in the largest price increases in fuel since the 1990s. The trimmed mean annual inflation rate, or ‘underlying inflation’, which excludes large price rises and falls, amounted to 2.6 per cent, the highest rate since June 2014.21
When asked to reflect on the reasons the RBA missed its inflation target over an extended period, the Governor observed the following:
We are always trying as hard as we can in an uncertain world. In previous hearings we've discussed the factors that led to inflation here and in almost every other country. Remember when President Trump was in power in the US there were all those trade tensions which were dislocating the global economy and led to slower growth than we expected. On the supply side of the labour market in Australia, we had a very big increase in labour force participation such that when there was strong jobs growth that didn't translate into strong wages growth because more and more people kept entering the labour force. We were able to tap into the global labour market as well. So there were those global developments going on with the labour supply side of the economy. We had this period where housing prices were declining, and that led to slower consumption and less spending than we expected. So that was that period of undershooting the inflation target. It wasn't a lack of effort by the Reserve Bank; there were just other things going on in both the global and Australian economies that led to us undershooting.22
Given the extended period of lower-than-target inflation, the committee asked whether the RBA would tolerate a period of above three per cent inflation. The Governor responded that:
We're not setting out to say we want to have higher inflation for a few years to offset the under. That's not how we think about it. But the approach that we're running at the moment—waiting for the evidence—does run the risk that inflation will be above three per cent for a period of time. That risk is acceptable. In fact, I think running that risk is the appropriate thing to do. If, in a parallel world, inflation had been three per cent for the past decade, I think we'd probably be less tolerant of a period above target now, but we've had six or seven years where we've been below the midpoint in terms of underlying inflation. Given the history, it makes sense to run a policy that does have a material chance that inflation is above three per cent for a while. Intentionally I've said it, but the policy approach allows it; the history doesn't. That's where we are now.23
The committee noted that the latest inflation figure in the United States was 7.5 per cent, a rate not seen since the Reagan presidency. The committee asked how Australia differed and whether there was a danger that Australia would now head into a period of high inflation. The Governor replied that:
US inflation is 7½. In Australia underlying inflation is 2½ and headline is 3½. In the US, utility prices—this was in last night's CPI—are up 25 per cent. In much of Europe it is 25 per cent. I think in the UK it is even more than that. In Australia the price of electricity and gas in the last year has hardly moved at all for consumers, and for some consumers the prices have actually declined. Our utility and gas markets are in a very different place to those in the North Atlantic. So that's a first-order difference.
Another first-order difference is what's going on in the labour market. Largely because of the design of the labour support programs through the pandemic in Australia, the connection between workers and their firms has been sustained in Australia. That is not the case in the US. The design of their support during the pandemic did not keep this connection alive. So, when the labour market recovers and demand for workers increases, firms have to go out and seek new labour again, in a way they haven't had to do in Australia. That's put upward pressure on wages in the US and in the UK. The US has also seen a big decline in labour force participation. In Australia it's risen. The labour market is not knitting back together in the US in the way that it has in Australia. It's fundamentally different, and the institutional features of our labour market are quite different as well, with enterprise bargains going over multiple years and annual award cases.24
At the public hearing on 11 February 2022, approximately two weeks ahead of Russia launching its invasion of Ukraine, the committee asked how the Australian economy could be impacted by turmoil in Europe and disruptions to the gas supply by Russia. The Governor replied that:
We've thought about that. It's kind of an upside risk to gas prices. But we're not going to forecast how those geopolitical issues play out. At the moment what we know is that the prices that Australian households pay for utilities have hardly moved over the past year. They have not gone up 25 per cent. Who knows what's going to happen in the future if there is a conflict in Europe?25

Unemployment and Underemployment

The COVID-19 recession led to the highest unemployment rate in Australia in over 20 years, peaking at 7.5 per cent in August 2020. Since its peak, the unemployment rate has been on a steady decline. By December 2020, unemployment had dropped to 6.6 per cent, and by June 2021 had decreased to 4.9 per cent.26 In its latest announcement—for February 2022—the ABS reported unemployment to have decreased further, to 4 per cent.27
The gradual fall in unemployment has been mirrored by an overall declining rate of underemployment. From a rate of 11.2 per cent in August 2020, underemployment fell to 8.3 per cent in July 2021, and 6.6 per cent in December 2021, before a slight rise again to 6.7 per cent in January 2022 and a decline again to 6.6 per cent in February 2022.28
The committee noted that between the end of World War II and the 1970s, there was an average unemployment rate of around 2 per cent, and that this was considered ‘full employment’. The committee sought the Governor’s views on what currently constitutes ‘full employment’. He responded that:
My current judgement…is that it's some number starting with a four. That's lower than two years ago, when we thought somewhere between five and 5½ per cent was full employment. Can we ultimately go lower than that? It's possible, but, over time, I think there's been an increase in the structural rate of unemployment. The social safety net is much more generous than it was in the 1950s, so that influences people's choices. There are probably bigger mismatches between people's skills and the demand for labour. In an economy that's undergoing a lot of structural change, there is more skills mismatch, which means a higher rate of unemployment. If we could get back to four-point-something that would be a very good outcome. If we are going to go lower than that over time, it will require addressing issues in the design of the social safety net and jobs mismatch—the education system. But if we can get strong enough aggregate demand I think we can get back to four-point-something.29
When asked why Australia is experiencing such low rates of unemployment, the Governor suggested that ‘the main reasons…is that we have had unprecedented monetary and fiscal stimulus working together.’ Expanding on this, he stated that:
No doubt the closure of the borders has left some labour markets tighter than they would otherwise be but that is not why the national unemployment rate is heading to four per cent and vacancies are at record lows. I note that in many other countries unemployment rates are also quite low. Again, fiscal and monetary policy works. Other countries do not have low unemployment because the borders are closed; they have it because of the success of the policy response.30
In February 2022, the Governor informed the committee that the RBA forecast for the unemployment rate is for it ‘to decline to below four per cent later this year and to remain below four per cent next year’.31
The committee asked whether this forecast factored in the opening of the borders and consequential population increase. The Governor replied that even accounting for these factors, ‘we still think the unemployment rate will come down to below four per cent’.32
Moving to underemployment, the committee mentioned that in the 1980s and 1990s underemployment was systematically lower than unemployment and there was, therefore, a focus on unemployment in discussions of wage growth. Considering that currently underemployment is consistently higher than unemployment, the committee asked how underutilisation affected wage growth. The Governor responded with the following:
A third of the workforce is now working part time, which from many perspectives is fantastic because it opens up opportunities for participation that people didn't have when we all had to work either zero or 40 hours a week. So it's a much better world than we were in before, but quite a few of those people working part time, roughly a quarter of them, aren't happy with the hours they have. So when you have a third of the workforce working part time and a quarter of those wanting to work more hours that's quite a big source of additional labour supply that when the economy is doing quite well can be absorbed if these people are happy to work more at the existing wage. If there is more demand for labour then there will be more supply fairly readily. So it's quite an important consideration when thinking about wage dynamics…33

Wage Growth

Australia has experienced persistently low wage growth for nearly a decade. Between 2008 and 2013 the Wage Price Index (WPI) rose by 3.3 per cent per annum. By contrast, between 2013 and 2019 the WPI rose on average by 2.2 per cent per annum. In 2020, with the impact of the COVID-19 recession, annual growth fell to 1.4 per cent. In 2021, the WPI rose again to 2.3 per cent over the year.34
The Governor informed the committee that the issue of low wage growth was one that he had been ‘calling out’ for at least two or three years. The Governor mentioned that while there has ‘been a strong increase in demand’ there has also been ‘a big increase in supply that’s put downward pressure on wages’.35 The Governor also stated his view that it was ‘largely structural global factors that are delivering the low wage growth’ and noted that ‘wage growth everywhere around the world has been weak, reflecting globalisation, technology, shifts in the bargaining power of labour’.36
Expanding on this latter point, the Governor observed the following:
Before the pandemic, there had been, in many countries, a shift of national income towards the owners of capital and away from workers. So, to put it another way, the profit share in many countries was very high. That's a structural and secular shift that's been with us for a number of years and in a number of countries. So it's not something unique to Australia; it's a global issue, which has global roots. We've talked about those: the globalisation of supply chains and the changes in technology that have made many more jobs internationally contestable. I think I've talked to this committee before about a professional services firm that had the chief executive's PA [personal assistant] sitting in Manila. Who would have thought—I certainly wouldn't have a decade ago—that the PA to a chief executive of an Australian firm would be an internationally traded service? But it is, and that has meant that the competitive dynamics in the labour market have changed, because many, many people have realised that their job can be done somewhere else in the world, perhaps at a lower rate, and it actually affects wages.37
The Governor went on to explain that the RBA’s job was to ensure ‘that the labour market is as tight as it can reasonably be so that firms decide they have to pay higher wages to attract the workers they need.’38 That is, according to the Governor, job creation was the surest path to encourage more robust wage growth:
If we can create jobs, the labour market will tighten up. Firms will have to compete more for workers, they'll have to pay higher wages not only because the labour market's tight but because productivity is lifting…39
The committee acknowledged that productivity growth was important but expressed concern that productivity gains had not flowed through to wage growth. It asked if the Governor was concerned with how gains in productivity are shared through society. The Governor responded that:
If you can get the labour market tight enough, wage pressures will start to emerge, but you've got to have the labour market quite tight for quite a long time. That's our challenge: to have a tight labour market and to sustain it for quite a long time. This is one reason we're talking about interest rates and monetary support being there for a long time. We want to see a tight labour market, and we want to see it sustained, and what the Reserve Bank can do for that is to provide monetary support for a long time. If we can do that, I think wages growth will pick up.40
On the relationship between low unemployment and wage growth, the Governor observed that New South Wales and Victoria had experienced periods when unemployment was around four per cent and ‘aggregate wages growth didn’t move’. Continuing, he noted that in ‘WA now the unemployment rate is 3½ and wages are moving up, but not that much. So we want to see how that goes, and I think these uncertainties are not going to be resolved quickly.’41
Looking forward, the Governor provided the following projection on wage growth:
A further pick-up in overall wages growth is expected, although this is likely to be a gradual process, given the institutional features of our labour market. These include multiyear enterprise agreements, an annual review of award wages and public sector wages policies. We're also expecting broader measures of labour cost growth to pick up faster and growth in the Wage Price Index.42
The committee asked how the increase to the Compulsory Superannuation Guarantee would impact wages and employment. The Governor responded that:
I don't know whether it would have a negative effect on employment. It would certainly have a negative effect on wages growth. If this increase goes ahead, I would expect wage growth to be even lower than it otherwise would be. So there will be an offset in terms of current income. Some people say that's perfectly fine because people will have higher future income. There's a trade-off: do we want people to have income now, or do we want them to have it later on? Different people will view that trade-off quite differently…43
Noting that inflation is forecast to increase faster than wage growth, therefore resulting in a decline in real wages, the committee asked whether real wages would be declining if the legislated increase in compulsory superannuation were not proceeding. The Governor responded that:
I think the other consideration we're focused on here is that broader measures of labour costs are rising more quickly than wages, as indicated by the WPI. The broader measures of labour costs include the superannuation contribution increase…and the increases people get by jumping or changing employers, or by people getting internal promotions. So there are a lot of other ways that people's pay can increase other than through increasing base pay in their current job. We're expecting those other measures of wages growth to increase quite a lot faster than the WPI over the next couple of years. Overall wages, I think, will be rising more quickly than inflation, even if the WPI isn't.44

Labour Supply and Migration

The committee asked about the impact of severe labour shortages on certain industry sectors and regional communities. The Governor responded that ‘[i]t is certainly not an issue the central bank can solve through setting up incentives. Governments can do something or private businesses can do something but we don’t have any tools to address it.’ The Governor, further, noted that ‘the available jobs are dwarfed by the number of people who really want them’ and suggested that what the RBA can do is ‘create conditions to make sure there is a stronger demand for labour right across the country’.45
The Governor emphasised that the issue of industry and region-specific labour shortages relates to ‘training and incentives for mobility’ and suggested that ‘anything that impedes mobility is going to be bad for the economy.’ He suggested that the removal of inefficient tax regimes, such as stamp duty on property, and investment in transport infrastructure could be means to promote the greater mobility of the population.46
The committee asked how rural and regional labour shortages are impacting production. The Assistant Governor (Economic) replied that the RBA talks ‘to a lot of businesses in many industries and we do hear these sorts of reports [of labour shortages], both from our own networks and from our liaison partners, but when you aggregate it all up to actual rural production and actual rural exports we’re not seeing it influence the aggregate’.47
The committee asked about when the potential impacts of rural labour shortages may be seen. The Assistant Governor (Economic) responded that:
There is very good data on rural production and rural exports, so I think we would start seeing it there, and we would start seeing it in tonnage numbers. One of the things that may be making it hard to disentangle this, of course, is one of the things we were talking about this time last year, which was the drought. In the midst of the pandemic the drought has broken, so that has some important shifts in rural production. You see more grain output, but you actually see less meat output because farmers want to rebuild their herds. They slaughter a lot of animals during drought, so meat production goes up in droughts and then that reverses out. If there was a production issue, we would hear about it from the supermarkets in terms of their meat costs. We would see it in the consumer price index. But we're not seeing anything anomalous for a recovery from drought. It may well be an additional factor, but there's nothing anomalous relative to the fact we're coming out of drought.48
The committee asked how the cessation of in-bound skilled migration had impacted economic activity in the country. The Governor noted that population growth had fallen to 0.25 per cent, dropping from averages of 1.5 to 1.75 per cent per annum prior to the pandemic; ‘[t]he slower population growth obviously feeds directly through into growth in demand in the economy, so we’re getting lower growth because of the closure of the borders.’ Additionally, with 200,000 less temporary workers in the country, certain industry sectors were being particularly affected, such as hospitality, agriculture, and aged care. These shortages had ‘put some upward pressure on labour costs.’49
The committee suggested a potential corollary of less inward-bound migration was lower-skilled and lower-paid domestic workers being paid more and given greater working opportunities. The Governor responded that ‘[a]ll evidence is that, over long periods of time, having foreign workers come into Australia adds to both supply and demand and really doesn’t affect the aggregate level of wages in Australia.’ Elaborating on this, the Governor stated that:
It's clear that when you have a sudden change in the flow of labour, which is what we've had, that has first-order effects, in particular in labour markets… It has also affected the ability of firms to do investment because they can't get the skills they need. You might think it's good with more demand for domestic Australian workers because there are fewer backpackers and foreign students… but, on the other hand, it has made it harder for firms to expand their capacity, and that's bad for wealth generation in the end.50

Housing Affordability

The committee asked about the best ways to promote housing affordability. The Governor noted that ‘[l]ike most things, prices are determined by the combination of demand and supply.’ He said that ‘[w]e can’t do very much about the demand side’ as people wanted to live in houses in good locations. Instead, the supply side needed to be ‘more flexible’.51
Expanding on this, the Governor emphasised that the main supply factor was flexible zoning. He stated: ‘How to make housing more affordable is about supply—supply, supply, supply—that’s our observation: doing what we can to make the supply of land and housing, and that comes through zoning and the flexibility of the zoning requirements… It would be for me in many ways the single biggest thing we could do for people’s welfare.’52
Additionally, the Governor observed the importance of investment in transport infrastructure:
The other thing that's increased housing prices over time is inadequate investment in public and private transport, because…the main cost of housing in many parts of the country is the price of the land, and the land prices are higher because there's strong demand for well-located land. The supply of that pushes up the price, and we can increase the supply of well-located land through good investment in transport. So the best way of making housing affordable for people, I think, is transport policy and zoning and planning rules. The tendency always is to give people money to try and make housing more affordable. That affects the demand side, and I understand why that's the response, but the best response is on the supply side, whether it's transport, zoning or planning. Whether there's a role for the federal and state governments working together I'm not sure, but what I'm sure of is that the issue exists, and it would make a difference to our housing prices in a way that makes housing more affordable for people.53

Digital Currency

The committee asked about the RBA’s views on the future prospects for an Australian digital currency and work that it was undertaking on this issue. The Governor gave the following response:
It is possible, with technology, for us to issue tokens that people would have. So, rather than having a bank note, you would have a token that's issued by the central bank and would sit in your electronic wallet. Maybe you'd get the token through your bank. That's one form of central bank digital currency that people are looking at. My view is that, at the moment, it's unlikely to serve the public interest for to us do that, even if we could do it from a technology perspective. That's retail. So, rather than using bank notes, we'd just put our phones together and the tokens would move across the phones or whatever. That's one form of digital currency. The other liability the central bank has at the moment is an exchange settlement account. These are the accounts that banks have with us that they use to exchange value between themselves. You can imagine them doing that with a token. Rather than changing the balance in the account, we would issue these tokens and they would send a token from one bank to another. We're working with some of the banks and some technology companies to see if we could do that for the settlement of syndicated loans, because you could exchange the token plus some other contractual rights at exactly the same time as the token. So you could merge these things together to get a better settlement system and get clearer exchange of value with legal rights changing at exactly the same time.54
The Governor went on to emphasise that the RBA was ‘still in the exploration phase, from both a technology point of view and a policy view. If we can move and it makes sense and is in the public interest, it will help the efficiency of the payments and settlement system in Australia.’55 He told the committee that ‘we have the resources to study and to undertake proof-of-concept experiments with a number of other central banks, which we are currently doing. We are devoting significant resources to understanding how new forms of digital money can be used in the economy to make it easier for businesses and households.’56
The committee asked whether central-bank-issued digital currencies should be managed by an international body. The Governor responded with the following:
Not at the moment. If we're just talking about these wholesale settlement tokens, that's something that can be done within a single country. In time that may be able to be done across countries, but the exploration of that is still at very early stages. If we move to a world where there is a central bank digital currency available for use by the general public, that creates potentially very large issues. Another version of this is that the tokens that move between our phones are not issued by the central bank; they're issued by a private company. It may be a private technology company. That raises huge numbers of issues. You will have seen Facebook's Libra project. An international college chaired by the Swiss authority is looking at how that would work. I can tell you that at the central bank meetings I go to there are very significant concerns about the shape of the global monetary system if that became the way that we shifted our tokens between one another, that tokens were issued by Facebook. There's an international college looking at that currently. There are huge numbers of issues to work through.57
The committee asked about the future of physical currency in an increasingly digital economy. The Governor replied that:
I think we will see more digital payments if people have confidence that the digital payment system is working all the time, that the cost of digital payments is low and the digital payment systems is offering the functionality that they deliver. I am always encouraging other banks to work on those—low cost of payments, reliability and security of digital payments. But I do think there will be a long residual demand for bank notes for a couple of reasons. One, it's anonymous. Not everyone likes using their bank accounts to make every payment because you leave electronic fingerprints. There are legitimate reasons and illegitimate reasons for that. People— and I feel this as well—want to carry some bank notes in their wallet just in case the electronic payment system goes down and some people like the comfort of holding bank notes as a store of value. So I hesitate to make predictions in this area but I think we'll be producing bank notes for a long period of time but they could well turn into a bespoke product.58

Digital Wallets

The committee noted significant market concentration in the digital wallet area and the threat that this poses to competition. The committee asked how the RBA was responding to this trend. The Governor responded that regulatory arrangements need to keep pace with technological change and that there was a process to ensure that this was the case. He explained that the Government had commissioned a review of the matter and has ‘also committed to reviewing the regulatory arrangements that apply to stored value instruments, which are part of the new payment landscape’. He suggested that ‘[w]e need better arrangements for regulating stored value’ and that there is a need to ‘update the legislation, including perhaps … a special licensing regime for payment providers’.59
The committee asked whether the RBA was concerned about the domination of the digital payment landscape by Apple which requires payments to be channelled through their product—Apple Pay. The Governor responded that:
Apple Pay is clearly one that a number of countries are focused on—the fact that at least with the iPhone you have to use the Apple Pay wallet, and you can't provision another wallet on the phone. Some countries are requiring Apple to adjust its design to allow multiple wallets to be put on the phone. That's something the Reserve Bank can't do. The parliament could set up a process to do that, if it so chose. We are going to have a more competitive system if there can be competition amongst the providers of digital wallets. Ultimately, there will be lower fees and better services if we have competition and open access. So that is an issue. It's not something the Reserve Bank can do anything about. We do not have the power to do it.60

Reserve Bank Governance Issues

Review of the Reserve Bank

In August 2021, the committee noted international examples of central banks undertaking fundamental reviews of monetary policy and asked whether the RBA would support a review into the RBA. The Governor provided the following response:
…let's think about what that means, because there are three elements of the monetary policy framework. There's the element that's controlled by the parliament, there's one controlled by the government and there's one controlled by the board. The parliament sets our legislation. It wrote that legislation in 1959, and I think it's very sound. Your committee plays a role here in keeping the bank accountable, and this process we're going through is part of that.
So, the parliament has a role in setting the legislation and keeping us accountable. The government makes appointments to the Reserve Bank Board. So, they're responsible for the people who go on the board. The government and I as the governor sign a letter setting out our common understanding of how monetary policy works, and ultimately the government, under a provision of the Reserve Bank Act, can determine to override the decisions of the board with appropriate oversight from the parliament. So, the government has a role there. And the third element is the board, which has the responsibility for carrying out the legislative responsibilities, and it's advised by the staff.
So, when people say that there should be a review of the Reserve Bank, I'm not sure what they're calling for—a review of the legislation, the mandate, the way the government appoints people to the board, the type of people they put on the board, or how we've done our job; we haven't done our job effectively. All those things get conflated. What I'm responsible for is how we do our job, and the monetary policy regime that we employ.61
In September 2021, the Organisation for Economic Development and Co-operation (OECD) noted the ‘institutional and structural changes that have occurred in the economy as a result of the pandemic and the unconventional policy instruments the RBA has begun to employ’.62 Accordingly, the OECD recommended that a review be undertaken into Australia’s monetary policy framework that is broad in scope, ‘transparent and involves consultation with a wide variety of relevant stakeholders.’63
Since that time, both the Treasurer, the Hon Josh Frydenberg MP, and the Shadow Treasurer, Dr Jim Chalmers MP, have committed their respective parties, should they form government following the 2022 federal election, to an independent review of the RBA.64

Pay Secrecy Clauses and Gender Pay Equity

The committee noted the tendency for pay secrecy clauses to put downward pressure on wages and contribute to gender pay inequity. It asked about the RBA’s internal position on pay secrecy clauses. The Governor replied that:
I don't mind what people talk about with one another. If they want to talk about that, that's perfectly fine. I think the staff know my view on wages. I would like to have faster wage increases for the country as a whole and for my own staff. I have been very public about that. We are currently undertaking an enterprise agreement discussion, which is complicated, as you can imagine, given that is my view. I am also endeavouring, as best I can, to abide by the government's workplace bargaining policy. I thought that might be where you were going, but the idea of trying to keep secrets from our staff around pay and reducing pay is so alien. That's why when you asked the question I was a bit taken aback, because it is so alien to my way of thinking.65
The Governor later confirmed that ‘some of the employment contracts [at the RBA] do include a clause that says that you must keep the terms of the agreement and any subsequent amendments confidential’. He continued: ‘From my individual perspective, people should be free to talk about their remuneration with their colleagues, so I'm going to go back and look at why we have that clause. It's so alien to me to say that you can't talk about the employment relationship with your peers.’ 66
The Governor told the committee that he would take action to address the issue:
I send a weekly email to all the staff at the Reserve Bank saying what I've been doing during the week, and I'll include this issue in my email this afternoon. The HR department tells me that the motivation for the clause is to preserve the confidentiality of contractual terms between the employee and the employer and that it is a standard kind of clause in many contracts, but openness and transparency about these things serves us all well…67
At a subsequent hearing, the Governor informed the committee that the RBA ‘did a review and changed’ the pay secrecy clauses in its employment contracts.68


The period under review in this report has been dominated by the impact of the global COVID-19 pandemic. The pandemic and associated public health measures has seen Australia enter recession for the first time in nearly three decades. The unprecedented fiscal and monetary responses coordinated by federal and state and territory governments, the banking sector, regulators, and the RBA provided the Australian economy the resilience to emerge from the crisis in a relatively strong position.
Since the peak of the economic downturn in mid-to-late-2020, the Australian economy has rebounded strongly, with the economy back to positive growth, unemployment at historic lows, and inflation moving within the RBA’s target range. While wage growth remains subdued, modest growth is forecast over the coming years.
The Russian invasion of Ukraine will likely result in increased inflation globally, but the full impact of the conflict on the Australian economy is still uncertain.69 New strains of COVID-19 may still yet result in further economic uncertainties. In these unpredictable economic times, monetary policy will continue to be an important policy lever in buttressing the stability and vitality of the Australian economy and through that the prosperity and general well-being of the Australian people.
The economy is continuously evolving in line with technological innovation and the RBA needs to be flexible in changing with the times. The committee will continue to scrutinise the RBA’s readiness to adapt to the challenges of the digital economy, including the rise of digital wallets and digital currencies.
The committee notes the September 2021 OECD report recommending a broad review of the RBA and monetary policy in Australia, and the Treasurer’s and Shadow Treasurer’s subsequent comments indicating support for such a review. Similarly, the committee welcomes the prospect of an independent review of the RBA and looks forward to oversighting changes in RBA practice that could be expected to stem from a review.
The committee will continue to scrutinise the RBA’s policy responses to current and emerging threats to the strength of the nation’s economy and ensure the transparency and accountability of RBA decisions.
On 10 March 2022, RBA Deputy Governor, Dr Guy Debelle, announced that he would be leaving the RBA to pursue an opportunity in the private sector. The committee has consistently found Dr Debelle a thoughtful and knowledgeable witness, and we are grateful for his insights in our hearings, as well as his long and distinguished service to the RBA. The committee wishes Dr Debelle all the best in his future endeavours.

  • 1
    Australian Bureau of Statistics (ABS), ‘One year of COVID-19: Aussie jobs, business and the economy’, <https://www.abs.gov.au/articles/one-year-covid-19-aussie-jobs-business-and-economy >, viewed 24 February 2022.
  • 2
    Mr Philip Lowe, Governor, Reserve Bank of Australia (RBA), Committee Hansard, 6 August 2020, p. 2.
  • 3
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 6 August 2020, p. 2. Also see: Committee Hansard, 2 December 2020, p. 2.
  • 4
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 2 December 2020, p. 6.
  • 5
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 6 August 2020, p. 3.
  • 6
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 6 August 2020, pp. 4, 5.
  • 7
    Australian Government, ‘Economic Response to COVID-19’, < https://treasury.gov.au/coronavirus>, viewed 8 March 2022.
  • 8
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 6 August 2020, p. 4.
  • 9
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 6 August 2020, p. 16.
  • 10
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 11 February 2022, p. 1.
  • 11
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 11 February 2022, p. 1.
  • 12
    RBA, ‘About Monetary Policy’, < https://www.rba.gov.au/monetary-policy/about.html>, viewed 3 March 2022.
  • 13
    RBA, ‘About Monetary Policy’, < https://www.rba.gov.au/monetary-policy/about.html>, viewed 3 March 2022.
  • 14
    RBA, ‘About Monetary Policy’, < https://www.rba.gov.au/monetary-policy/about.html>, viewed 3 March 2022.
  • 15
    RBA, ‘About Monetary Policy’, < https://www.rba.gov.au/monetary-policy/about.html>, viewed 3 March 2022.
  • 16
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 11 February 2022, p. 9.
  • 17
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 11February 2022, p. 10.
  • 18
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 2 December 2020, p. 5.
  • 19
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 2 December 2020, p. 5; Mr Philip Lowe, Governor, RBA, Committee Hansard, 6 August 2020, p. 2.
  • 20
    RBA, ‘Inflation and its Measurement’, <https://www.rba.gov.au/education/resources/explainers/inflation-and-its-measurement.html>, viewed 23 March 2022.
  • 21
    Philip Lowe, ‘The Year Ahead’, address to the National Press Club of Australia, 2 February 2022, <https://www.rba.gov.au/speeches/2022/pdf/sp-gov-2022-02-02.pdf>, p. [13], viewed 9 March 2022; Mr Philip Lowe, Governor, RBA, Committee Hansard, 11 February 2022, p. 3.
  • 22
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 11 February 2022, p. 8.
  • 23
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 11 February 2022, p. 9.
  • 24
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 11 February 2022, p. 6.
  • 25
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 11 February 2022, p. 6.
  • 26
    ABS, ‘Labour Force, Australia, December 2020’, 21 January 2021, <https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/dec-2020>; ABS, ‘Labour Force, Australia, June 2021’, 15 July 2021, <https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/jun-2021>, viewed 10 March 2022.
  • 27
    ABS, ‘Labour Force, Australia, February 2022’, 17 March 2022, <https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/latest-release>, viewed 17 March 2022.
  • 28
    ABS, ‘Labour Force, Australia, August 2020’, 17 September 2020, <https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/aug-2020>; ABS, ‘Labour Force, Australia, July 2021’, 19 August 2021, <https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/jul-2021>; ABS, ‘Labour Force, Australia, December 2021’, 20 January 2022, <https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/dec-2021>; ABS, ‘Labour Force, Australia, January 2022’, 17 February 2022, <https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/latest-release>. All viewed 10 March 2022. ABS, ‘Labour Force, Australia, February 2022’, 17 March 2022, <https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/latest-release>, viewed 17 March 2022.
  • 29
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 2 December 2020, p. 23.
  • 30
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 11 February 2022, p. 23.
  • 31
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 11 February 2022, p. 2.
  • 32
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 11 February 2022, p. 12.
  • 33
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 6 August 2021, p. 20.
  • 34
    Geoff Gilfillan, ‘The extent and causes of the wage growth slowdown in Australia’, 9 April 2019, Parliamentary Library, <https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp1819/WageSlowdown>, viewed 7 March 2022. For the 2019 figures, see: ABS, ‘Wage Price Index, Australia, December 2019’, 19 February 2020, <https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/dec-2019>, viewed 7 March 2022. For the 2020 figures, see: ABS, ‘Wage Price Index, Australia, December 2020’, 24 February 2021, <https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/dec-2020>, viewed 7 March 2022. For 2021 figures, see: ABS, ‘Wage Price Index, Australia, December 2021’, <https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/latest-release>, viewed 7 March 2022.
  • 35
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 6 August 2020, p. 8.
  • 36
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 5 February 2021, p. 6.
  • 37
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 5 February 2021, p. 21.
  • 38
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 5 February 2021, p. 21.
  • 39
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 5 February 2021, p. 6.
  • 40
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 5 February 2021, p. 21.
  • 41
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 11 February 2022, p. 25.
  • 42
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 11 February 2022, p. 2.
  • 43
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 6 August 2020, p. 7.
  • 44
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 11 February 2022, p. 5.
  • 45
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 2 December 2020, p. 20.
  • 46
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 2 December 2020, p. 20.
  • 47
    Dr Luci Ellis, Assistant Governor (Economic), RBA, Committee Hansard, 5 February 2021, p. 24.
  • 48
    Dr Luci Ellis, Assistant Governor (Economic), RBA, Committee Hansard, 5 February 2021, p. 24.
  • 49
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 11 February 2022, p. 11.
  • 50
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 11 February 2022, p. 12.
  • 51
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 11 February 2022, p. 6.
  • 52
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 6 August 2020, p. 19.
  • 53
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 6 August 2020, p. 9.
  • 54
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 2 December 2020, p. 25.
  • 55
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 2 December 2020, p. 25.
  • 56
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 6 August 2021, p. 6.
  • 57
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 2 December 2020, p. 26.
  • 58
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 5 February 2021, p. 13.
  • 59
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 6 August 2021, p. 6.
  • 60
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 6 August 2021, p. 7.
  • 61
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 6 August 2021, p. 8.
  • 62
    Organisation for Economic Cooperation and Development (OECD), OECD Economic Survey of Australia, September 2021, Paris: OECD Publishing, p. 27.
  • 63
    OECD, OECD Economic Survey of Australia, September 2021, Paris: OECD Publishing, p. 13.
  • 64
    Hon Josh Frydenberg MP, Treasurer, and Dr Jim Chalmers MP, Shadow Treasurer, referenced in Ronald Mizen, ‘RBA should face independent review: Frydenberg’, The Australian Financial Review, 7 January 2022.
  • 65
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 6 August 2021, p. 9.
  • 66
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 6 August 2021, p. 13.
  • 67
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 6 August 2021, p. 13.
  • 68
    Mr Philip Lowe, Governor, RBA, Committee Hansard, 11 February 2022, p. 26.
  • 69
    Shane Wright, ‘Ukraine invasion to hit Australian economy and drive up prices: S&P Global’, 10 March 2022, The Sydney Morning Herald, < https://www.smh.com.au/politics/federal/ukraine-invasion-to-hit-australian-economy-and-drive-up-prices-s-and-p-global-20220309-p5a379.html>, viewed 15 March 2022.

 |  Contents  | 

About this inquiry

The House of Representatives Standing Committee on Economics is empowered to inquire into, and report on, the annual reports of government departments and authorities tabled in the House that stand referred to the committee in accordance with the Speaker’s Schedule.

The Reserve Bank of Australia annual reports stand referred to the committee in accordance with this schedule. The committee resolved to conduct an inquiry into the RBA’s 2019 Annual Report on 10 December 2019, and extended the inquiry to cover the 2020 Annual Report on 23 June 2021.

Past Public Hearings

11 Feb 2022: Canberra
06 Aug 2021: Canberra
05 Feb 2021: Canberra