Bloomberg News

Swan Restricts Central Bank in Setting Pay With Autonomy

September 15, 2011

(Updates with analyst comment in 10th paragraph.)

Sept. 15 (Bloomberg) -- Australia’s central bank, which pays its governor more than Federal Reserve Chairman Ben S. Bernanke and European Central Bank President Jean-Claude Trichet combined, will for the first time lose its sole power to set compensation for its board and executives, Treasurer Wayne Swan said.

The salaries at the Reserve Bank of Australia will be fixed within benchmarks that exist in the Remuneration Tribunal, a body that decides how much politicians and civil servants earn, Swan said. The independent authority determines, reports on or provides advice about pay, including allowances and entitlements for federal lawmakers, judicial and non-judicial offices of federal courts and tribunals.

“I’ve put in place a set of arrangements that mean that future decisions taken about those salaries will be in the context of other salaries paid to comparable people in the public sector,” Swan, 57, said in an interview in Canberra yesterday. “I have taken that action so that when the board takes its decision, it takes its decision within a framework set by government.”

The move is a culmination of months of debate over central bank salaries, with lawmakers including Bob Katter of northern Queensland state saying RBA Governor Glenn Stevens’s pay increase during the global financial crisis was “outrageous.” Swan wasn’t told until almost a year after the central bank chief got a A$234,000 ($239,000) raise in October 2008.

Pay Levels

The RBA chief’s 2010 total compensation was A$1.05 million, with an A$805,000 base salary. Trichet was paid 367,863 euros ($504,900) last year, 2 percent more than his 2009 salary, according to the ECB’s annual accounts published in March. Bernanke earned $199,700.

Stevens, 53, has been governor since September 2006, and his term as governor ends in September 2013. The RBA’s board has had oversight of the governor’s and deputy governor’s pay since the central bank was founded in 1960.

Under the previous practice, the top two RBA officers’ pay was referred to a compensation committee formed of three of the bank’s board members drawn from outside the central bank. Pay was set taking account of “market levels,” according to the bank.

The practice worked “very well,” Jillian Broadbent, an RBA board member who sits on the bank’s remuneration committee, said in correspondence with Swan in September last year.

Roger Corbett, an RBA board member who is also chairman of Fairfax Media Ltd. and heads the RBA’s compensation committee, declined to comment on the government’s move.

Comparative Pay

“It makes sense to bring the arrangements for setting the RBA governor’s remuneration in line with other public officials for consistency,” said Stephen Kirchner, a research fellow at the Centre for Independent Studies in Sydney. The remuneration tribunal “will need to take account of the fact that the level of remuneration for the Reserve Bank governor isn’t going to be necessarily the same as for other public officials,” he said.

Former central bank chief Bernie Fraser said in May the burden carried by the governor justifies the salary.

“I do not set my own pay,” Stevens said last month at a parliamentary committee hearing. “The board set it.”

Swan in September last year urged the RBA compensation committee to “discharge its powers with an emphasis on ensuring that salaries are adjusted to be in line with community expectations of senior officials’ remuneration,” according to correspondence between the central bank and the Treasurer’s office obtained under the Freedom of Information Act request earlier this year.

Transparency Gap

Stevens oversees a bank that’s less transparent than Poland’s in setting policy. The governor, who this month kept the RBA’s benchmark interest rate at a developed-world high of 4.75 percent, makes the call on adjusting borrowing costs without a publicly revealed vote of the board -- an anomaly relative to the standard followed by peers in nations from the U.S. to Japan to Poland.

Swan said he wouldn’t ask the RBA to reveal a vote on borrowing costs.

“I don’t wish to buy into an argument about whether they should publish their votes or not,” he said. “My personal view is that I don’t see that it adds to anything.”

Stevens has held borrowing costs unchanged after seven increases from October 2009 to December last year.

Economic Growth

Australia, the only major developed nation to avoid a recession during the 2008-2009 global slump, has relied on China’s demand for iron ore and coal to propel its expansion. Gross domestic product rose 1.2 percent in the second quarter from the previous three months, the most in four years, a government report showed last week.

Swan, who took office in December 2007, said that Asia will continue to lead global growth, and played down concern that China’s economy will falter. Fund managers James Chanos and Marc Faber, Citigroup Inc. economists Willem Buiter and Shen Minggao, and Harvard University professor Kenneth Rogoff are among those who have warned of a crash in China stemming from a debt and property bubble.

“I’m not in the camp that says, and you read this frequently, that China is falling over,” Swan said, referring to some observers as “professional pessimists on China.” He added that “I’m not unrealistic about it either.”

ADB Outlook

The Asian Development Bank yesterday forecast that China’s GDP will rise 9.3 percent this year, compared with an April estimate of 9.6 percent, after 10.4 percent growth last year. Asia excluding Japan will see an expansion of 7.5 percent, the Manila-based development lender said.

“An increasing proportion of global growth is going to come from the region,” Swan said. “This region is the hope of the world when it comes to global growth.”

At the same time, Swan said that he “would never want to see our economy become too excessively dependent upon one country or one commodity.”

The Australian dollar’s appreciation, and the fact that the nation has the highest benchmark rate in the developed world, are a consequence of the performance of the country’s economy, the Treasurer said.

“Interest rates, as in the dollar, tend to be a reflection of our domestic economic strength, but we are committed to an independent Reserve Bank which takes those decisions independently,” Swan said.

Dollar’s Gain

Swan said he wouldn’t impose a cap on the currency’s exchange rate, such as Switzerland executed last week for the franc against the euro. Australia’s dollar has advanced about 19 percent versus its U.S. counterpart in the past two years, and reached $1.1081 on July 27, the highest level since it was freely floated in 1983.

“Not at all; we’re committed to market-based exchange rates,” Swan said when asked whether he’d consider a Swiss-type measure.

Swan, who is also deputy prime minister, played down the importance of the government’s slump in public approval. The government will be rewarded by carrying out tough reforms like the carbon tax which had helped make the ruling coalition unpopular, Swan said. Prime Minister Julia Gillard’s personal popularity has fallen to its lowest level yet in Newspoll and Nielsen surveys published in the past two weeks.

“I wouldn’t be making any call on what’s going on in politics based on a couple of opinion polls right now,” Swan said. “What really counts is policies you put in place, the way in which you go out and market them.”

--With assistance from Michael Heath in Sydney and Shraysi Tandon in Canberra. Editors: Stephanie Phang, Chris Anstey

To contact the reporters on this story: Gemma Daley in Canberra at; Matthew Winkler at

To contact the editor responsible for this story: Peter Hirschberg at

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