Head Of Treasury Lashes Lib Senator

The Age

Thursday October 23, 2008

By Michelle Grattan and Ruth Williams

ONE of Canberra's top bureaucrats, Treasury secretary Ken Henry, has clashed sharply with Liberal senators after one of them questioned his truthfulness over the Government's bank deposit guarantee plan.

In an extraordinary Senate estimates committee appearance, Dr Henry backed the Government's version of events surrounding its bank guarantee, and hit back strongly at suggestions of a disagreement about it between himself and Reserve Bank governor Glenn Stevens.

During several hours of often torrid Coalition probing, Dr Henry took particular exception to Liberal senator Eric Abetz questioning his integrity.

At times during his evidence, Dr Henry groaned audibly.

Contrary to media reports and Coalition claims, Dr Henry insisted the Reserve Bank gave its blessing to the plan for an unlimited deposits guarantee before the announcement.

But the Government is refusing to release subsequent central bank advice on how the guarantee should be fine-tuned to stop it distorting markets.

Dr Henry denied a report in The Australian claiming the central bank had warned of dangers in the scheme when it was being considered. This account was W-R-O-N-G, he said, spelling out the letters and adding "exclamation mark".

But, asked to confirm a reported letter last Friday from Mr Stevens to Dr Henry saying that "not only must there be a cap (on the deposit scheme), but the lower the better", Dr Henry said he would have to consult Treasurer Wayne Swan about what he could say. Mr Swan indicated the correspondence would remain private.

Dr Henry said that in advice to the Government on its October 12 decision, "Mr Stevens and I were of one mind" - though it was understood there would be detail to settle later.

It became heated when Senator Abetz said: "So the two of you were of like mind ... each time you opened your mouth? That to me doesn't sound to have the ring of truth about it."

Dr Henry leaned forward and snapped back: "I'm sorry, Senator? What are you suggesting?"

Dr Henry said there had been no advice from the Reserve to put a cap on the size of guaranteed deposits. Mr Stevens' mention of "cap" appears to refer to a threshold for the proposed Government fee on large deposits that attract a guarantee. The Coalition later called the fee proposal a "new tax".

In Parliament, the Government demanded that Mr Turnbull apologise for saying Dr Henry should be sacked if he had misled a cabinet committee when he said regulators supported an unlimited guarantee. Mr Turnbull later denied he had criticised Dr Henry and said he accepted his evidence yesterday.

Meanwhile, disquiet about the guarantee continues in the funds management industry, where investors have been shifting money from some market-linked investments into guaranteed bank deposits. Some in the industry want the guarantee extended beyond banks, credit unions and building societies.

In Canberra, a funds management industry delegation met Treasury officials and MPs.

John O'Shaughnessy, of the Investment and Financial Services Association, later called for "unintended consequences" of the bank guarantee to be addressed quickly.

And Australian Unity's head of investments, David Bryant, said: "The guarantee was necessary, but it's only been applied to half the system. As a result, you break the system more than you fix it, by only looking to support part of it."