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  • Writer's picturePaul Tilley

Tumultuous Years for Treasury

The election of the Rudd government in November 2007 marked the beginning of a tumultuous decade for Australia. It began with the GFC – and Treasury was at the centre of Australia’s response to that event.

A global financial crisis

The GFC unfolded through the course of 2007 and 2008, following the collapse of the USA sub-prime mortgage market – but the September 2008 failure of Lehman Brothers signalled a full-blown crisis. Australia was relatively well prepared, with a strong fiscal position and a robust financial system, but action would be required on both the monetary and fiscal policy.

At the height of the crisis, Prime Minister Rudd convened a series of kitchen cabinet meetings involving himself, Gillard, Swan and Tanner meeting with Treasury and other advisers. Asked for Treasury’s advice on a fiscal stimulus package Ken Henry advised “go early, go hard, go to households”. This was to be a full Keynesian response.

In October 2008 the RBA cut interest rates by a full percentage appoint and the Government announced a fiscal package of $10.4 billion immediate one-off payments to households and a guarantee of financial institution deposits. The Government made it clear that it was acting on Treasury advice. This package received wide acclaim and, together with the monetary policy action and Australia’s strong starting position, was seen to help avoid a recession.

More controversially, though, there were a further two fiscal packages in February and May 2009. These packages were focussed on infrastructure spending - their impacts would not come early nor would they go to households. These packages were opposed by the Opposition who railed against Labor’s ‘debt and deficit disaster’ and attacked the ‘school halls’ and ‘pink batts’ programs.

Political chaos

From 2009, the political scene in Australia deteriorated, lurching from the Rudd/Gillard/Rudd years to the Abbot/Turnbull/Morrison years. For this last decade no government has had a strong political mandate and the contests have been more political than policy. And governments fighting for their daily political survival in the 24-hour media cycle demanded facts and figures, not policy advice.

In that environment the public service, including Treasury, was dragged closer to government, into those daily battles as the providers of facts and figures. The policy advising role took a back seat and there were worrying signs it was withering on the vine. One manifestation of this in Treasury was the development of the ‘one-pager’ briefing template – with a heading, a brief description of the issues, a costing if necessary and some pros and cons – but crucially no policy advice.

With Treasury ceding parts of the policy advising space, that vacuum was increasingly filled by other bodies including the ministerial offices – but there was a problem, their lens was political not policy. It was hoped that this would be a temporary phenomenon, that the political scene would settle one way or the other and normal good policy development transmission would resume. Unfortunately, that has not been the case.

Internal reform

Treasury, meanwhile, was contemplating its own culture and capability.

With Martin Parkinson as secretary, the Progressing Women Initiative was put in place to tackle those aspects of Treasury’s culture that made it a less attractive place for women. Treasury is a better place for that. The department was also facing a budget squeeze and went through a series of redundancy rounds, downsizing from over 1,000 in 2011 to 835 in 2015. This, however, exacerbated the retreat in Treasury’s policy advising role.

The election of the Abbot government brought little change in the political environment or in the reduced policy role of the public service. Indeed, one of the government’s first actions was to dismiss several secretaries, including effectively Parkinson from Treasury, adding to an unhealthy precedent of politicising the public service and incentivising senior public servants to be compliant.

With John Fraser as secretary, Treasury expanded its horizons to engage more fully with the private sector, including by opening offices in Sydney, Melbourne and Perth. Treasury’s exclusive Canberra location has long been seen as part of its insular nature and these offices, together with other efforts, have helped counter this.

Fraser was replaced by Phil Gaetjens as secretary of Treasury – a controversial appointment given his previous positions as chief of staff to Morrison and earlier to Costello. From the sacking of Parkinson to the appointment of Gaetjens the wheel had turned a long way.

Subsequently, though, Gaetjens was appointed as head of PM&C and Steven Kennedy was appointed secretary of Treasury. He will now get to put his stamp on Treasury’s future. All strength to him!

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