The PwC scandal: how the government outsourced itself
Sam Hawley: Hi, I’m Sam Hawley, coming to you from Gadigal Land. This is ABC News Daily. The government pays private consulting firms hundreds of millions of taxpayer dollars every year. But can we really trust they’re acting in our best interests? And if they’re not, why are we outsourcing such a large amount of public sector work to them today? Host of Radio National’s The Money, Richard Aedy on the PwC scandal and whether it will change who the government does business with. All right, Richard. Oh, my gosh. This is a story that just keeps on giving. We’re learning more and more about this scandal this week through the Senate estimates process. Wow, what a ride we’re having.
Richard Aedy: It is. It keeps sort of unfurling. Yes.
Juanita Phillips: The treasury secretary says the PwC tax scandal is far larger than first thought.
Reporter: Revelations that its senior partners misused confidential government information to help multinational tech companies avoid tax has rocked the firm to its foundations.
Richard Aedy: The more you look at it, the more happens. So, yeah, the head of Treasury, Steven Kennedy, has been appearing before the Senate committee.
Reporter: A warning from the Treasury secretary.
Steven Kennedy, Treasury Secretary: This matter is far from over from our perspective.
Richard Aedy: He saying it’s clearly disturbing that PwC used confidential Treasury information on tax laws to benefit its own clients, including big multinational companies. So and we’re talking very big ones Sam. Apple and Google.
Steven Kennedy, Treasury Secretary: I think by any community standard, one could say clearly disturbing.
Richard Aedy: The Labor senator, Deb O’Neill, who has been kind of prosecuting the case, she’s been very dogged in her approach. To find out more. She’s warned that her interest in this will not wane.
Deborah O’Neill, Senator: This is about cover up. This is about PwC trying to stem the flow of of an artery that’s well and truly open. Now, I think what we’ve seen is a train wreck. In yesterday, a couple more carriages fell off.
Sam Hawley: It’s a train wreck for sure, Richard. I want to come back to the Senate estimates process in a moment, because we want to know a bit more detail about that. But we better just recap exactly what it is that PwC has done.
Richard Aedy: So what we’ve kind of found out over the course of the year is that a partner called Peter Collins, who’d been contracted by the government to develop new tax avoidance laws, had actually leaked the confidential information to big clients to help them get around the very laws he was helping to create. So he broke the confidentiality agreements he’d signed as part of that contract. He was pinged, which is a technical term used by the Tax Practitioners Board, which which found he’d helped the company sidestep the new laws and attract new clients. And so he was sacked and the practice could could carry criminal charges.
Sam Hawley: Okay. So he’s he’s gone from PwC, but there is so much more to this.
Richard Aedy: Yeah. Because a few weeks ago Deb O’Neill released internal documents that had been given to a Senate committee and it showed that not only Peter Collins had seen these confidential documents, but 30 to 40 staff.
Deborah O’Neill, Senator: There are many more questions than answers arising from these pages, and I will not let this go.
Richard Aedy: It was later revealed it was 53 PwC staff in Australia and indeed around the world had access to this confidential information and on Monday, PwC stood down nine unnamed partners.
Daniel Ziffer: Pwc is trying to stem the damage of betraying public trust.
Deborah O’Neill, Senator: They want the scrutiny to stop. But in my view, this is too little and it’s too late.
Richard Aedy: Then we had the acting PwC chief executive, Kristin Stubbins, saying that a full review is underway and once it’s complete, it will be made public. Initially, she’d said only a portion of it would be released. This week, she actually committed to a full disclosure. And we now know that the Australian Federal Police is investigating this whole thing.
Sam Hawley: Okay. Yeah. So really serious stuff. Okay, so let’s go back to the Senate estimates process. What else have we found out through that?
Richard Aedy: It’s well, it’s explosive. The latest bombshell. I love when I get to say bombshell.
Sam Hawley: Yes, it is a bombshell. Yeah.
Richard Aedy: It’s the tax commissioner, Chris Jordan, saying that the ATO became aware of a handful of multinationals trying to avoid the new laws way back in early 2016.
Senator: Did they initiate an investigation?
Chris Jordan, Commissioner for Taxation: No.
Senator: Why not?
Chris Jordan, Commissioner for Taxation: They felt they didn’t have sufficient evidence at that time to pursue that.
Richard Aedy: That’s seven and a half years ago, Sam. I was just starting The Money then, you would have been overseas somewhere?
Sam Hawley: Yes, can’t quite remember where.
Richard Aedy: That triggered the audits back then. Mr. Jordan told the committee that PwC was behind 15 schemes designed to help multinationals sidestep the tax laws. He also revealed that the Tax Office had referred Collins to the AFP in 2018. But in 2019 police decided not to take further action. Then we get to more questioning from Deb O’Neill to the Treasury’s Deputy Secretary for revenue, Diane Brown. She admitted that the department first became aware of the breach in 2018.
Deborah O’Neill, Senator: Can we just get it on the record that the response… when when did you first become aware?
Diane Brown, Treasury deputy secretary for revenue: I’m just hesitating because the word aware suggests a level of knowledge.
Deborah O’Neill, Senator: My question is, when did you become aware of the issue?
Diane Brown, Treasury deputy secretary for revenue: So in 2018, we were requested information from the ATO about a possible breach of confidentiality.
Richard Aedy: Treasury Secretary Steven Kennedy told the committee it’s disturbing, but he also confirmed that even Treasury had contracted PwC as an auditor in $1 million contract.
Steven Kennedy, Treasury Secretary: They’re our internal auditors. I know they have been for some time. That’s right.
Nick McKim, Senator: So $985,000 contract.
Steven Kennedy, Treasury Secretary: They have a contract with us till the end of this year.
Richard Aedy: He did note that ongoing procurement will be considered carefully. The Greens Senator Nick McKim also grilled the officials, questioning how much trust the public could have in PwC. He thinks it’s failed the pub test.
Nick McKim, Senator: so fails the pub test, though, doesn’t it really that a company that’s, let’s be clear, stole confidential Treasury information and monetised it to help their clients actually avoid paying tax in Australia and they’re providing Treasury and you Dr. Kennedy personally as secretary with advice on governance. I mean it’s absurd.
Sam Hawley: So the question is, how many government contracts does PwC actually have, Richard?
Richard Aedy: It’s very difficult to put a finger on an exact number. We know that PwC secured over half a billion 537 million in federal contracts over the last couple of years. The Defence Department, which as you know is the biggest, most complicated department of government there is alone, has 54 contracts with PwC worth more than 223 million. And it was even revealed that the Reserve Bank hired PwC last year to help with a with a staff underpayment.
Sam Hawley: Yeah, right. So they’ve got a lot of work from the government. Yeah. So, Richard, I want you to explain to me why it is that the government is handing over all of this money to firms like PwC, not just PwC, of course, but there’s others as well. Do they really think this is a good way to spend taxpayers money?
Richard Aedy: Ah well, so there’s a couple of things to say about this. Firstly, this is happening everywhere. Over time there’s been more and more of a push for the public sector to look more like the private sector, right. To kind of mimic its perceived efficiencies and capacity for innovation. And also over time and completely related, the public sector has shrunk. So the consultants argue that they now have expertise that the bureaucrats don’t have.
Sam Hawley: But why, Richard, has the public service shrunk?
Richard Aedy: Well, so this has been happening really on and off since the 80s. But over the Howard years, you might remember, he came in, he sacked six departmental secretaries.
John Howard, former prime minister: It is our aim to get the budget into underlying surplus. The fact that there are redundancies in the federal public service I don’t enjoy at one moment.
Richard Aedy: Oversaw the loss of about 30,000 public service jobs in his first term.
John Howard, former prime minister: What we are doing there is no different from what private enterprise has been doing now for the last 10 or 15 years. The idea that restructuring stops at the door of the federal bureaucracy and doesn’t go in there is just, I’m afraid, unrealistic.
Richard Aedy: Kevin Rudd came in in 2007. There was a reduction in consultants. So it’s sort of ebbing and flowing. Until 2013-14, when the Coalition came back to power under Tony Abbott and from there expenditure on contractors almost doubled to an annual 647 million five years later and over that time we saw another something between 13,000 and 18,000 jobs cut from the from the public service. And according to the Australia Institute, which are a progressive think tank, our spending on consulting is greater per capita than any other country, and about double that of comparable places like Canada or Sweden.
Sam Hawley: Right. Yeah. So we want our public service to look like the private sector. And to do that, we’re just giving all the work to the private sector by the sounds of it. Yeah.
Richard Aedy: I think you get to a point with this where you unless you make a very deliberate decision at the top, it’s hard to stop because a lot of the pushes come under Coalition governments which which favour small government ideologically. Of course, what using consultants means is that they come off your books or they’re on your books in a different way, and they’re not bodies sitting in seats on floors that you have to pay for and cover. They’re super they’re kind of a different line item. The other issue is consultants produce reports that governments want with the perception of an independent organisation. So if the government wants to do something and it hires a consultancy, say, you know, Hawley and Aedy Associates, we don’t have to be told what the government wants that report to say. That stuff’s very easy to work out and there’s always backchannels. So you can see the attraction of that for politicians. And the other thing is that consulting firms are relatively big donors to both sides of politics. All political donations come with a payoff. We now know the federal spend on those contracts rose from 352 million to just under 890 million a year. That’s between 2012-13 and 2021-22, which are the latest figures we have, and they come from the Australian National Audit Office.
Sam Hawley: Yeah, so a huge increase. But Richard, given the conflict of interest that we’ve seen when it comes to PwC in this scandal that’s emerged, is anything going to change?
Richard Aedy: Well, that is the $888 million question. So before the election, Labor vowed to cut $3 billion from the amount the federal Government spends on consultants and contractors, though it’s not clear that will be met. What it feels like is and I’m not saying this is what’s happened, this kind of idea of snouts in the trough and it connects to a kind of wider issue. Another issue perhaps of that kind of revolving doors between politics and business, which in Australia is particularly endemic. We don’t have the rules that constrain it that some other countries do. It all feels that it’s kind of who, you know, having those connections matters perhaps more here than than it ought to for us to be as healthy as we could be. So I think there is now a lot of concern and there’s a fair bit of outrage about this, but let’s see how long it lasts.
Sam Hawley: Richard Adey is the host of the Money on Radio National. At a Senate estimates hearing on Tuesday the Tax Office says its attempts to investigate PwC in 2017 were frustrated by restrictive secrecy and confidentiality rules. The New South Wales Parliament has announced an inquiry into the use of consulting firms in the wake of the PwC scandal. This episode was produced by Veronica Apap, Flint, Duxfield, and Sam Dunn, who also did the mix. Our supervising producer is Stephen Smiley. I’m Sam Hawley. Abc News Daily will be back again tomorrow. Thanks for listening.
