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When things got fraught during the 1993 election campaign, Keating adopted
more than Henry's advice - he took on some of his image as well. He donned
Ray-Bans for the cover of Rolling Stone magazine and turned himself
into a blues icon. It was quite a contrast to the dry John Hewson and his
15per cent GST.
Now, Henry is the brains behind the Federal Government's tax reform plans,
despite being unknown to the public.
Working with him is another former Keating adviser and veteran of the 1985
tax summit, Greg Smith, whose political nous has earned him the job of devising
the Government's $10million marketing campaign for a GST.
In this pair, the Government has two of the best tax brains in the country,
and they may well be able to add a touch of the Keating panache when the
going gets tough in selling the new tax system to voters.
While many Australians have cynical perceptions of their public servants,
Henry and Smith are outstanding examples of what can be achieved as a
behind-the-scenes bureaucrat working at the cutting edge of public policy.
They embody the best of Treasury's "rationalist" intellectual rigour, coupled
with a keen sense of political pragmatism - plus a touch of that Yes Minister
aloofness and arrogance.
They could easily double their Public Service salaries in the private sector,
yet the job satisfaction of senior Treasury "officers" is in working at the
highest level and seeing governments install their idea of good economic
reform.
For Henry and Smith, the Government's plan to introduce a GST marks the
culmination of their work on tax reform since the mid-1980s. Both were closely
involved in Keating's failed attempt in 1985 to introduce a 12.5per cent
consumption tax. If this Government succeeds, it will probably have to
acknowledge their contribution, perhaps with an official honour.
They eschew a public profile and declined to be interviewed for this article.
They did, however, in classic public servant style, write polite letters
expressing best wishes.
Henry wrote: "I can assure you this is no reflection on you or your newspaper.
I would like to be able to discourage you from this venture, but anticipating
no possibility of success I can only wish you the best of luck."
Over the phone he is softly spoken, sounding like an old-style Treasury boffin.
I telephoned Henry about 10 years ago as a junior reporter and, without having
met me, he confirmed details of the Government's plans to abolish archaic
bank regulations. He seemed a pushover at the time.
About a year later, after arriving in Canberra, I asked him to lunch. He
waited at one of the entrances to Parliament House in the dark glasses and
black hat outfit and suggested we go in the Citroën.
He offered one piece of advice over lunch. If I wanted to know what was going
on in tax policy I should talk not to the Treasury but to a fairly notorious
lawyer who was then - as now - involved in devising tax schemes for some
of our wealthiest families. The lawyer was also very well connected to the
Government and the Taxation Office. It seemed extraordinary advice from a
Treasury official, but it shows the pragmatism and worldliness in his thinking.
In person he is a strong, imposing figure with a dark complexion. (When he
took the stage to receive his doctorate at the University of Canterbury,
Christchurch, he was applauded by a group of Maoris who had mistaken him
for one of their own.)
It was while he was in New Zealand that, despite the pressure of raising
a young family, he picked up the Citroën. (He sold the rust-laden vehicle
a few years ago and now drives a standard Government-issue car.)
Colleagues describe him as an unassuming, very Australian boy from the bush,
having grown up the son of a sawmiller in the NSW mid-North Coast town of
Taree. While he retains his enigmatic style, Henry is also a family man who
married young and has remained happily married. He lives outside Canberra
in the semi-rural town of Queanbeyan.
Henry has long been a strong supporter of a consumption tax, but in late
1991 he established a team in Treasury that helped the Government tear apart
the Coalition's Fightback package. He began this work after having returned
to Treasury from Keating's office. Keating had gone to the backbench after
the first leadership challenge to Bob Hawke in June 1991, but Henry did not
return to his staff when he became PM.
Working under instructions from the Government, he developed a new economic
model which showed in intricate detail how the package would affect every
type of household.
Shortly after this work was completed, in mid-1992, he departed for a
two-and-a-half-year posting to Treasury's mission at the OECD in Paris.
The modelling had a devastating impact on the Coalition's election chances
in 1993, yet Henry retained his senior position as head of Treasury's tax
division after the change of government. This alone was a mark of Peter
Costello's respect for his capacity, and in July last year Henry was given
responsibility for directing the reforms as head of the Government's tax
task force, which officially began operating in August.
The task force comprises a handful of senior tax officials: one from the
Taxation Office, one each from the Prime Minister's Department and the Cabinet
Office, and two Costello staffers - his tax adviser, Nigel Bailey, and senior
political adviser, Tony Smith. Henry was given the chairmanship over two
members of the Treasurer's personal staff.
This group has been co-ordinating work on the tax package throughout the
bureaucracy. Henry describes the overall effort as "quite a sizable group",
involving as many as 30 people at any one time. Most of the work on the tax
package has been completed in just 12 months.
While Henry is an ideas man, he is also strong on detailed number crunching.
One former colleague described him as a master at writing "amazingly complicated"
spreadsheets using the Microsoft Excel program. He would do this often mundane
work himself rather than rely on junior Treasury officers.
One Howard Government adviser says Henry's number-crunching skills are legendary.
Business people who put complex proposals to him would have them crunched
down to their essence in a few minutes. The same sort of analysis would take
anyone else a week of solid work, he said. When Henry worked for Keating,
Coalition advisers were also in awe of his ability.
While he has been running the agenda since the Government launched its tax
reform plans last July, he has been joined in recent months by Smith, another
former Keating staffer who has done well under the Coalition Government.
Smith, now a deputy secretary, worked in Keating's office during the 1985
tax summit while Henry was his counterpart in Treasury. After the summit
Smith went back to Treasury, where he worked on tax, and Henry took his place
in Keating's office.
Costello has also shown immense trust in Smith by appointing him head of
Treasury's secretariat to the Wallis inquiry into the banking system. He
was the bureaucracy's linchpin in this review, and is credited with having
achieved bipartisan support for the Wallis reforms.
Smith's political skills are considered as good as his knowledge of economics,
and this is probably why he has been given charge of the Government's advertising
campaign for tax reform. The Government hopes this will deliver much-needed
public support for tax reform.
One adviser who worked with Smith on the inquiry was impressed by the way
he put the public interest at the fore in considering every aspect of the
reforms.
Smith's early background is in left-wing politics. He demonstrated against
the Vietnam War and was once arrested, according to a profile last year by
the veteran Canberra journalist Michelle Grattan. After leaving university
in 1977 he was involved in a number of causes; he headed the public housing
lobby group Shelter and worked with a drop-in centre and Friends of the Earth.
He was a member of the Australian Labor Party between 1976 and 1982 while
working on the staff of two Labor Opposition frontbenchers, Chris Hurford
and John Brown, before joining the Federal Treasury in 1982.
These backroom players moved into positions of influence when they were in
their early 30s and have made a formidable contribution to tax policy -
notwithstanding the absence of a GST.
Tom Mockridge, a former long-serving Keating staffer who worked with Henry
and Smith, describes them as two of the brainiest people he has come across
in his career, as "stand-out guys".
In the 1980s, tax policy was the "sharp end of the policy process", and the
"brightest guys gravitated to it", he says. "They were the best and the brightest
among a group that was already the best and brightest."
Mockridge, now chief executive of Foxtel, says he has come across many smart
people in his career in the Federal Government and in business, but nominates
Henry and Smith as being among the best.
After the consumption tax cause was lost in 1985, they helped drive through
the "longhand" reforms of capital gains tax, fringe benefits tax and the
superannuation contributions tax. These reforms helped to bolster the tax
base in the absence of what Keating called the "shorthand" solution - a
consumption tax.
Henry and Smith are the retiring, old-style public servants wrapped up in
a modern outlook. Another former colleague says part of their attraction
to the Public Service is the "psychic" income from being involved at the
cutting edge of policy development.
When they make rare public appearances before parliamentary committees or
at business forums, they retain an icy cool exterior that at times borders
on contempt.
When Henry addressed a forum sponsored by the Real Estate Institute he made
no effort to win over his audience. He said housing was lightly taxed and
implied they were whingers.
"When some people complain of the high costs of compliance what they are
really complaining about is the fact that they are required to pay tax,"
he said.
Last year he ran down the Government's commitment to reforming the economy
while addressing a group of graduate recruits. One of them, however, happened
to be a relation of a senior Liberal official and the critique found its
way back to the Government.
But the best display of Henry's acerbic nature can be seen when he is
occasionally hauled before parliamentary committees. Last year he was asked
by the Opposition in a Senate committee about how the tax task force operated.
He gave nothing away - except that he was keeping nearly all of the work
in his head.
Labor's Senator Peter Cook asked how often the task force had met.
Henry: "The task force has met on numerous occasions."
Were minutes kept?
"There is no formal record of discussion kept."
How did the group recall what had been talked about?
"We have very good memories."
Did the absence of paper reflect fears of leaks?
"No. That is not the reason. We would not expect this committee to leak were
such minutes in existence."
How many decisions had been made?
"Numerous ones."
How many could he remember?
"Let us say I can remember the important ones."
And how many was that?
"I am afraid I cannot give you the exact number."
Was this because the matters were private or did he just not want to say?
"Perhaps earlier I overstated my capacity. Perhaps I simply cannot remember.
I could not give you an indication."
Performances such as these must reassure the Government that despite the
political background of its senior bureaucratic advisers, its tax reform
plans are in safe hands. If the Government succeeds in the uphill battle
of selling tax reform in the coming election, it will have these advisers
to thank.
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