Dr Parkinson was one of four department heads controversially sacked after the 2013 election, apparently because of their connections with high-profile Labor government policies.

While the departure of Industry Department head Dr Don Russell – a former chief of staff to Paul Keating – was not a huge surprise, Dr Parkinson's sacking shocked the public service. It was seen as punishment for fulfilling his job as a public servant in developing the Labor government's climate change policy.

Dr Parkinson was sacked despite the fact that then Treasurer Joe Hockey had made clear he wished to work with him. The Treasury secretary was asked to stay on for some months, despite being sacked, and ultimately served out more than a year preparing the way for Australia to host the G20 meetings.

Transition tensions

Mr Thawley was seconded from the private sector by Tony Abbott in 2014, but was notably absent from Mr Turnbull's party on his recent overseas trip. It is believed there were some tensions between the department and Mr Turnbull's office in the early stages of the transition to the new leadership, with the new prime minister unhappy that there was not an incoming brief prepared for him.

Peter Varghese, Secretary of the Department of Foreign Affairs and Trade, is standing down. Alex Ellinghausen

However, Mr Turnbull noted on Tuesday that Mr Thawley had returned to the Australian Public Service (APS) in December 2014 after working at a senior level in the finance sector in the US since 2005.

"His earlier public service career included Australia's ambassador to the USA, and a range of significant diplomatic roles," Mr Turnbull said. "I am grateful for Michael's support as my department head and I thank him for his leadership of the APS."


Mr Thawley told his staff it had been "a highlight of my life to have worked in PM & C with you all over the past 12 months".

"I am very proud of the work we have done together. But more than anything else, I have enjoyed your camaraderie, the sense of purpose and dedication in the department, and the fun we have had in the interstices of the work demands we all face," he said.

There has been a steady flow of former staff and officials moving back to Canberra with the change of prime minister, including former Treasury official Phil Gaetjens, who is working as chief of staff to Scott Morrison, and Tony Parkinson and Brad Burke who have joined Mr Turnbull's strategy team.

Another Treasury official who was intimately involved in the Coalition's development of the GST, Nigel Bailey, has returned to Canberra as chief of staff to cabinet secretary Senator Arthur Sinodinos.

Speculation on Tuesday about who will replace Mr Varghese centred on Frances Adamson, currently foreign affairs adviser to Mr Turnbull and a former ambassador to China, and Dr Heather Smith, a foreign affairs veteran currently deputy secretary in the Department of Prime Minister and Cabinet.

Ms Adamson has only recently settled into her current job. Dr Smith is married to Dr Parkinson, raising questions about the likelihood both would serve in the same department.

Now read: Political editor Laura Tingle's lunch with Martin Parkinson