Politicising the Treasury

Who are the architects of government economic policy?

Under previous governments, as The Howard Years has reminded us, responsibility for major economic initiatives lay with senior ministers, backed by Cabinet. It might be the Prime Minister more than the Treasurer who called the shots in private, while the pair presented a united front in public. But ministers were clearly in charge and their public service advisers generally invisible. The authority of Treasury might be occasionally called on, with supporting economic data or modelling. But policy choices and directions lay with politicians not public servants, as they should under Westminster conventions of minister/public-service relations.

The Rudd Labor Government, however, is altering these conventions, through the newly conspicuous role it is giving to the Secretary of the Treasury, Dr Ken Henry. As a result, the government is not only weakening its own authority. It is also undermining its commitment to restore traditional relations between ministers and department heads after the Howard’s politicisation of the senior public service.

In justifying the government’s recent package of measures to deal with the international credit crisis, the Prime Minister and Treasurer leaned heavily on Dr Henry’s alleged imprimatur, as well as that of Glenn Stevens, Governor of the Reserve Bank. The ministers emphasised that these officials supported the government’s decisions, including the controversial extension of unlimited guarantees to bank loans. Henry and Stevens were thus being asked to lend independent authority to decisions for which ministers lacked the confidence to take full responsibility themselves.

Not surprisingly, both officials came under opposition fire and media criticism for their role in supporting the decisions.

The Governor was required to reconcile his apparent support for an unconditional guarantee with later reported doubts about the decision. Dr Henry faced a fierce Senate committee grilling about his conversations with the Governor and with ministers. The Prime Minister and Treasurer were accused of hiding behind the coat-tails of the Treasury and the Reserve Bank. In response, the ministers mounted a counter-offensive centred on the alleged impropriety of the opposition’s attack on the professional integrity of both Mr Stevens and Dr Henry.

In delegating responsibility to their economic advisers, Rudd and Swan were reflecting an approach they foreshadowed in opposition. In his infamous leaked speech to Treasury colleagues in mid 2007, Dr Henry had complained about the unsound decisions that governments take in election years. For Rudd and Swan, facing perennial doubts about Labor’s soundness on economic policy, the speech offered a welcome chance to boost their economic credentials. They promised that an ALP government would avoid the Coalition’s opportunistic populism and would stick close to the orthodox Treasury line. Their use of Treasury, along with the Reserve Bank, to authenticate the loan guarantees and other crisis-driven decisions, had been well flagged.

Bracketing Treasury and the Reserve Bank together as independent sources of advice is revealing, given that the two organisations have significantly different constitutional relationships with the executive. The Bank is a genuinely independent body, a statutory authority with its own board, deliberately established at arms-length from government and free from ministerial interference in its day-to-day operations. The governor and the board take full responsibility for their decisions, for instance on interest rate settings, and are entitled to speak out on economic issues generally.

The Treasury, on the other hand, is a government department under direct ministerial control. Though Treasury is independently responsible for certain published statistical information and economic forecasts, it has no authority over policy, which remains with ministers. Like any other government department, its main policy function should be ancillary, to assist ministers by tending expert advice and offering other forms of support, including help with framing public justification of government decisions.

This public service advising role has traditionally been conducted behind-the-scenes, in order to allow frank exchange of views and to prevent exposing any politically damaging rifts within the government. For this reason, Dr Henry has properly refused to reveal the content of his advice (to either the current or the previous government).

However, if ministers start publicly deferring to the Treasury Secretary as an independent source of authority for government decisions, the constitutional ground begins to shift. In effect, ministers are saying that, for some decisions, responsibility rests more with their advisers than with themselves. In this case, the traditional silence and anonymity of secretaries becomes anomalous. They should be openly questioned before parliamentary committees and in the media on the substance of their advice, on what led them to recommend one course of action rather than another, and so on. Otherwise, if ministers defer to officials and officials refuse to answer, public accountability is short-changed.

Buck-passing to public servants is not new, especially when government policy turns sour - remember Amanda Vanstone and the conduct of immigration policy, or Alexander Downer and the wheat board bribery scandal. But it always diminishes the public’s right to hold their government accountable and exposes the public service to unwelcome partisan attack. Senior public servants are placed in a very difficult position, having to take responsibility for government decisions but without being able to speak openly in their own defence or in defence of their colleagues.

In effect, their professional discretion is being exploited in order to save their political masters’ skins.

So far, Dr Henry appears to be tolerating the partisan use to which his professionalism has been put. Indeed, he has also agreed to be the government’s stalking horse as convener of its tax review. But, in the long run, such exploitation is unsustainable. If secretaries are made to carry the can for government decisions, their willingness to assist ministers through thick and thin will be tested to breaking point. Moreover, their professional reputations for non-partisanship will be badly compromised once they are politically identified with the government of the day. In this sense, in spite of his fine qualities and personal integrity, Dr Henry is already damaged goods professionally, disqualified from ever serving again for the other side of politics.

No doubt, Dr Henry will be happy to move on before the Coalition takes office once more. Indeed, after his leaked criticism of Howard, he would be most unlikely to be invited back. But that just underlines how politicised his position has become. If the Rudd Government was hoping to restore the conventions of a non-partisan public service, where secretaries are expected to serve both sides of politics, they have failed spectacularly with their treatment of the pivotal position of Treasury Secretary.