Maria Irene
In the wake of Porter Davis’ collapse last month, leaving 1700 homes in Victoria and Queensland unfinished, the Australian government has announced a $15 million support package to refund deposits to affected customers. The builder went into liquidation without providing domestic building insurance policies for clients, an issue now under investigation by the Victorian Building Authority. Builders are legally required to obtain insurance for all residential builds valued over $16,000 before accepting deposits or other payments from clients. This insurance covers clients if the builder dies or is declared insolvent before completing the work.
As this support package is unveiled, the Reserve Bank of Australia (RBA) faces its most significant shake-up in 60 years. An international policy expert review has made 51 recommendations to overhaul the central bank’s interest rate decisions, accountability, and culture. The RBA is expected to implement these changes immediately, with a one-year deadline for legislative changes.
This review comes as the Australian Government scrutinizes the RBA amid falling home sales and rising cancellation rates. New South Wales has experienced a 76% year-on-year decline in Q1 new home sales, and the overall cancellation rate for new home constructions has exceeded 30%. The construction sector is under immense pressure, and the government is reevaluating the RBA’s mandate and decision-making process.
The review panel found that the RBA board provided only limited challenge to the governor’s views and that the expertise of board members was inadequate when making interest rate decisions. In response, the RBA has been advised to give equal weight to “price stability” and “full employment” when setting interest rates. However, the definition of full employment is contested, with critics arguing that high immigration rates surpass the labor market’s capacity for full employment, keeping interest rates low and undermining society.
Reserve Bank Governor Philip Lowe has defended the board’s processes but acknowledged the need for members with more monetary policy and financial expertise. His term ends in September, with the government deciding on his possible continuation by mid-year.
Lowe suggested changes to improve the RBA, including greater public transparency, releasing more research, and having fewer meetings per year. He also recommended closer interactions between board members and bank staff to encourage a stronger culture of challenge and debate.
As the construction sector faces increased company collapses, with Western Australia seeing a nearly 20% increase this financial year, the government’s move to restrain the RBA’s power is being closely observed. The ongoing debate surrounding full employment and the implications of the government’s immigration policies will likely impact the future of interest rates and the Australian economy. The nation now awaits the government’s decision on the RBA’s leadership and mandate changes, with the construction sector’s future and broader economic stability hanging in the balance.
