Inside the feud between Peter Costello and Ken Henry

Ken Henry helped to deliver Peter Costello’s greatest triumphs as Treasurer. Today Costello slammed him. How did it all go wrong?

Peter Costello and Ken Henry.

Ken Henry helped to deliver Peter Costello’s greatest triumphs as Treasurer, including the creation of the Future Fund that Mr Costello now chairs.

Dr Henry ran the taskforce that developed the GST out of Mr Costello’s office and was also the prime-mover behind the intergenerational report, which helped to extend thinking about budget policy beyond the close horizon of the next election.

Appointed Treasury secretary in April 2001, Dr Henry helped to craft Mr Costello’s last seven surplus budgets.

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But as Treasury secretary under both Mr Costello and under Labor treasurer Wayne Swan, Dr Henry showed signs of hubris, giving rise to similar concerns about governance to those Mr Costello is canvassing over Henry’s continued chairmanship of the National Australia Bank.

Under Mr Costello, Dr Henry became a public intellectual unlike any previous departmental secretary, giving frequent speeches on a wide variety of topics. He crafted a mission for the Treasury Department based on the “wellbeing” philosophy of Indian developmental economist, Amartya Sen.

In the lead-up to the 2007 federal election, he gave a speech to Treasury staff in which he condemned some of the Coalition policies as “frankly bad”, arguing that the Treasury’s wisdom was being overlooked in the crafting of government policy.

The speech was immediately leaked to the media, to the fury of the Howard government.

In the early months of Kevin Rudd’s government, Dr Henry became his closest adviser while still heading Treasury, which some saw as an overreach.

The financial crisis kept Dr Henry in the limelight, traditionally shunned by public service chiefs.

Mr Costello argued Dr Henry allowed himself to be used by Mr Rudd as a political tool, sent out to advocate and defend government policy when the political leaders lacked the gumption to do so themselves.

Many saw it as a failure of governance for the Treasury secretary to take on the role of leading the Rudd government’s review of the tax system. Although no one questioned Dr Henry’s great authority on tax policy, there was a conflict in simultaneously conducting a review of policy, advising government on its response to the review and being charged with its implementation.

It was a conflict which came to the fore over the resource rent tax, which Henry sought to retain in its original form as the government buckled under extreme political pressure.