Against increased central bank independence in Australia: better balancing the unelected authority to decide big distributional trade-offs with principles of constitutional democracy

The recent failed attempt to increase Australia’s central bank independence through removal of the Government’s override power invites re-exploration of the tension between ideals of constitutional democracy and the role of an unelected central bank. This article describes the uniquely qualified independence of Australia’s Reserve Bank, then zooms out to distil broader theoretical justifications for, and problems with, the central bank’s unelected authority to determine monetary policy. It situates central bank independence as a further evolution of what Will Bateman calls the incremental ‘distribution of authority’ in public finance, to show how Parliament has gradually relinquished political power over economic management, leaving the people more and more disconnected from economic decisions affecting our lives. Drawing on analogous debates about Bills of Rights, it posits that central bank independence can be understood as part of an anti-populist but also an anti-democratic movement in constitutionalism, that has quasi-constitutionalised neoliberal approaches to economic policy. The article applies Paul Tucker’s criteria for the legitimacy of delegation to unelected entities in a democracy, to show how independent central banks fail the necessary condition that they must not make decisions involving big distributional trade-offs. In setting interest rates, central banks sacrifice employment and restrain wages to achieve price stability, which redistributes wealth from labour to capital, contributing to inequality. Asking ‘how big is too big?’ the article argues such trade-offs necessitate retention of ultimate democratic control. It supports retaining Australia’s qualified central bank independence, which aligns with principles of responsible government, but refining it to achieve increased balance and partnership in the relationship between the Government and the central bank. Finally, the article suggests integration of novel policy options – a compulsory savings mechanism and a federal job guarantee – to mitigate and reduce the magnitude of the distributional trade-offs employed to control inflation. This would temper the breach of the ‘no trade-offs’ criteria, making delegation of monetary policy to an unelected entity more justifiable and compatible with principles of constitutional democracy.