Australia's central bank unscathed by controversy

SYDNEY - A strong economic record means the reputation of Australia's central bank has not been harmed by the resignation of a board member involved in a multimillion-dollar tax dispute when he was appointed in 2003, analysts say.

South Australian manufacturer Robert Gerard resigned from the Reserve Bank of Australia board last Friday, saying that while he had not broken the law, the controversy had brought "unwanted attention" to the board.

TD Securities chief strategist Stephen Koukoulas said if the issue had been allowed to linger it might have damaged the central bank's standing.

"The fact that it is now over probably means any problem was only short-lived in terms of the perception, even though it may not have had material impact on the way the bank functioned."

The tax office had sought A$150 million ($159 million) including tax, interest and penalties from Gerard's family company, but the 14-year dispute was settled with a payment of A$75 million. Gerard said the dispute was settled in 2003.

"Whatever the background of the various [RBA board] members, it seems though they've clearly provided a good contribution for the deliberations at the board level," said Craig James, chief economist at Commonwealth Securities.

"Over the last decade the bank has had a very good track record ensuring interest rates are at an appropriate level for the economy. That's evidenced by the Australian economy now being in its 15th year of expansion."

Retailer Roger Corbett took up Gerard's position on the board, which held its last meeting of the year on Tuesday.

The meeting was unlikely to have been contentious, as economists expect no change in interest rates for a ninth consecutive month. The cash rate is generally expected to still be at 5.5 per cent at the end of the first quarter of 2006.

Corbett, chief executive of retailing giant Woolworths, was already the front-runner to join the board before the Gerard controversy to replace shopping mall magnate Frank Lowy, who retires on Friday.

Treasurer Peter Costello said the further vacancy would be filled later. Costello remains under attack from the opposition Labor Party for appointing Gerard to the central bank's nine-member board.

The board is made up of the RBA Governor and Deputy Governor, the Secretary to the Department of Treasury, and six external members from a range of industries and backgrounds.

TD Securities' Koukoulas said the episode has raised questions about the process of appointing board members.

He said given that wages growth and a shortage of skilled workers are issues for the central bank, and at a time of the introduction of new industrial relation laws, it may be useful to reinstate a trade union member to the board.

- REUTERS