Some facts on the RBA dividend molehill

 

Some really sloppy journalism surrounds the pea-sized “scandal” surrounding the desire of the RBA to keep all of its 2011-12 profit so that it could rebuild its reserve fund. While there is no doubt the RBA would have preferred to keep all of the $1.096 billion profit, it was asked by Treasurer Swan to pay $500 million as a dividend to the government.

So what?

The reporting of this issue has been at best, footloose and fancy free. But given it was driven by a part time speech writer and Liberal Party advisor, there could be some other motive to magnify this issue. I simply don’t know.

One critical error has been that the RBA dividend did not prop up the government’s attempt to return to “budget surplus this year” as reported in today’s AFR, because it went into the 2011-12 budget bottom line.

Whoops!

This point was made last year when the government released the final budget outcome in late September 2012, in which is said “a $500 million dividend [from the Reserve Bank] has been recognised in 2011-12 instead of 2012-13, based on advice from the Australian National Audit Office”.

This is that part of the mischief making shown up for what it is. Sloppy, poorly researched.

The other fanciful element of the story tries to inflate the degree to which the RBA was “raided” or the government was told by the RBA to “keep your hands off RBA earnings” and other emotive and clap trap.

The truth is that the RBA Governor, Glenn Stevens, was grilled in this issue in February and he made a few inconvenient points to those wanting to make this issue into a scandal. In particular, Stevens said, quite plainly,

• “Then the bank’s owner, which is the Commonwealth government in the person of the Treasurer, can determine how much of those earnings available for distribution he will take as a dividend.”

• “But in the end it is his prerogative; it is not open to the Reserve Bank board to say, ‘The only things that are available are X, and we are keeping this much—the rest is for you’. My preference would be to keep all of it, frankly, until we rebuild the capital, but it is the Treasurer’s prerogative to decide.”

• “In the current situation he was quite amenable to us keeping more than half of the earnings available for the year, but he wished to take the 500 dividend. That is his prerogative, and he is perfectly entitled legally under the acts to do that.”

• “It is true that the reserve fund is gradually being rebuilt. It will take some years to rebuild it in full—that was always going to happen anyway, regardless of any decision on dividend this year. It is heading in the right direction”

• “it is not my job to take account of the broader pressures that government finances are under. That is the Treasurer’s job, and he has to weigh—yes, as the custodian of the ownership relationship of the Reserve Bank—the soundness of that. But he has to weigh all the other pressures that he is under as well. He reached a judgement, and I accept the judgement. As I say, it is perfectly within the legal powers and obligations that he has to do what he has done.”

So there.

It is a pity the cub reporters making the proverbial mountain out of a mole hill didn’t spend the 45 minutes I just spend researching the issue before getting all hot under the collar on chicken feed issue.