Analysis: Henry's legacy

What did Ken Henry see? That's a question Australia's top civil servant should answer before slipping into comfortable retirement, leaving a nasty tax mess behind.

So far, no-one has asked the Treasury Secretary, and chief architect of the mining super tax, to explain why he is leaving without finishing the job he started.

One possibility is that Henry knows the Australian Government has just botched its third attempt to sell a tax that was originally described as "elegant".

That's why he chose yesterday, the day the tax ran off the rails (again), to announce his departure, leaving a mission impossible to be sorted out, or dumped, by his successor.

So far, not many outside observers have connected the timing of Henry's departure with the report of the Policy Transition Group into the mining super tax.

But it's easy to see a link because yesterday's report by the transition group was effectively the third version of a tax since first announced in May.

Back then the Australian Government unveiled Mining Tax Mark 1, complete with glowing praise from economists such as Ross Garnaut who famously described its design as "elegant".

It was, of course, so elegant that it cost the Prime Minister, Kevin Rudd, his job, and almost lost the government a hastily called election.

Everyone has a favourite explanation as to why the Mark 1version failed but the underlying reason was that the Australian Government, and its Treasury advisers, failed to think it through, and failed to consult the mining industry.

Mark 2, the version designed by Henry and the new PM, Julia Gillard, was little more than a patchwork of ideas borrowed from Mark 1 (the failed tax) but was really a rushed political solution to a deep-seated business and economic problem.

Now we have the Mark 3 version, which is a fair description because there are 94 variations proposed by the transition group, an astonishing number of possible changes given that Mark 1 was "elegant" and Mark 2 was hailed as a "breakthrough deal"

But, the wheels have already fallen off Mark 3 because this time the government failed to consult the States on the future of mining royalties - just as it failed to consult industry with the original tax.

Henry is smart enough to know that the entire mining tax issue has become a farce, and while he was largely responsible for Mark 1, he recognises when it's time to head for the exit before an Australian version of civil war breaks out pitting States against the Commonwealth.

Two statements at yesterday's launch of the Mark 3 tax will reverberate for months to come, potentially rivalling the elegant tag applied to Mark 1.

First came the Treasurer, Wayne Swan, saying he couldn't give the "green light" to increased royalties, apparently forgetting completely that royalties are clearly a State tax and he has no control over them - unless he was sending a signal that he proposes to take another power off the States.

Then came Resources Minister, Martin Ferguson, saying: "we've got to get this right, first time".

Oh Martin, how silly that sounded as the third version of a botched tax was floated, the Treasury Secretary headed for the exit, and the States started briefing senior legal advisers for a fight that will now go all the way to the High Court.

Of course, the ultimate irony of all this is that a tax designed to hit the mining industry has done nothing but hit the careers of politicians and civil servants, and will continue to do so until consultations replace commands.