Senate inquiry into PwC tax scandal calls for reform, but overuse of consultants will likely continue
- Written by Stephen Bartos, Professor of Economics, University of Canberra
The final report of a Senate inquiry kicked off by the PwC scandal has finally been released.
The inquiry, which began in March last year, looked at how consultancy firms work with the broader Australian public service. It focused initially on claims PwC was party to internal government discussions and used this confidential information to help its clients devise tax minimisation strategies. The shocking revelations, published by the Australian Financial Review, led to the resignation of then-CEO Tom Seymour.
This issue affects every Australian. Corporate tax avoidance hurts the budget bottom line. It means less money for schools, hospitals, pensioners or cost-of-living relief. PwC’s actions potentially allowed private businesses to pay less tax.
The Australian Taxation Office moved to fix the problem after the breach was discovered. If it had gone undetected, Australian taxpayers would have had to pay more or the government would have had a larger deficit.
The Senate inquiry examined what happened in the PwC case and how government departments use consultancy firms more broadly.
What did the report recommend?
The recommendations included:
PwC promptly publish the names and positions of those involved in the breach of confidential government information
the Department of Finance guidelines require government contracts to include a clause stating consultants have a duty to act in the public interest when doing government work
better training for officials doing procurement work to ensure Australia gets value for money when consultants are used
contracts are designed to ensure “transfer of knowledge” from consultants to public servants
the government’s Supplier Code of Conduct include a requirement for service providers to act in the public interest and follow professional standards that align with “public sector values”
the Department of Finance have clearer guidelines on what constitutes a conflict of interest and track conflict-of-interest breaches in a register.
The report also called for
the Australian Law Reform Commission, or other appropriate body, to undertake a review of the legislative frameworks and structures of partnerships in Australia with particular focus on partnerships in excess of 100 partners.
It suggested the Senate pass an order calling for the finance minister to table biannual statements on public service spending on consultancy contracts valued at A$2 million or more.
It also noted:
the growth in expenditure on consultants has approximately trebled every decade for the last 30 years.
Scathing interim reports
Today’s report follows two scathing interim reports.
The first one, titled A calculated breach of trust, accused the firm of not properly cooperating with the inquiry.
The second report, titled The cover-up worsens the crime, said PwC actually did misuse confidential government information, adding that
The failure of PwC to be completely open and honest as per the committee’s recommendations in its first report is reflective of PwC’s failure to genuinely change. The committee does not see how PwC can recover their reputation while it continues to cover up.
Today’s final report noted committee members “remain concerned” PwC had not been transparent enough about what exactly happened in the scandal.
A systemic problem
Today’s report is a start. It’s balanced in that it recognises that sometimes employing consultants is the appropriate thing to do. And it’s good to see the recommendations in relation to increased transparency.
The notion you can rely on consulting firms to follow professional standards that align with “public sector values”, however, is somewhat optimistic.
So is the idea that contracts should require consultants to act in the public interest. Most consultants today claim they already do this.
Overall, the systemic problem remains. Consulting firms have come to take such a prominent part in public life, and government departments have come to rely on them excessively because the public service has lost crucial skills. Australia is much worse off as a result, because we don’t have the capacity to do things the public service used to be able to do.
Part of this was due to cuts to the public service. But there was also an ideological belief from some governments that giving work to private sector consultants was a good thing to do, without proper recognition of the risks.
Restrictions on public servants taking up positions in private consulting firms after they quit the public service would go a long way toward solving the problem.
As it is, there is massive incentive for those public servants to give very costly contracts to the consulting firms and then go and work for those same consulting firms for their next job. There’s a real conflict of interest there, and taxpayer money is at stake.
Today’s report recognises this “revolving door” is an issue but doesn’t have a clear recommendation to address it.
The overuse of consultants is likely to continue to be a problem.
What now?
The interim reports called for culture change within PwC. And it’s true PwC has already lost one CEO because of this. They have said they will change but only time will tell.
There’s no guarantee any of the report’s recommendations will be implemented. Governments are not obliged to accept such recommendations at all. In fact, Australia is still waiting for implementation of key recommendations from the Royal Commission into Aboriginal Deaths in Custody in 1991, as well as all the recommendations from the banking royal commission, which tabled its final report in 2019.
The move away from public servants and toward consultants has been going on for decades. It will take decades to rebuild public service capability. We can’t expect quick fixes.
The government has promised to reduce public service reliance on consultants, with Finance Minister Katy Gallagher leading the charge. She will need ongoing persistence for the policy to succeed.
The hooks of the consulting industry are deeply embedded in public service departments. All it would take would be a year or two of inattention from ministers for consultants to regain their lucrative “business as usual”.
Authors: Stephen Bartos, Professor of Economics, University of Canberra
