Our government is being privatised by stealth.

SMH 17 May 2023

Geoffrey Watson

The PwC scandal is serious, but it seems to have been lost in the background noise of a coronation and a federal budget. Yet the scandal raises some very big questions about how we are being governed.

The facts are simple enough: in 2013, Australia was engaged in an international effort to crack down on multinationals avoiding corporate tax through cross-border income and asset transfers. Specialists from PwC were brought in as consultants and given access to highly secret materials, subject to confidentiality agreements.

PwC’s top international tax partner, Peter Collins, took the information and shared it widely inside the firm. It was then sold to the targets of the crackdown, teaching them how to sidestep the same anti-avoidance measures PwC was helping to draft. The misuse of the highly confidential material was given a name reflecting the targeted market – ‘‘Project North America’’. PwC probably made many millions of dollars.

Disgraceful conduct, but highly lucrative for the partners at PwC.

So how do we know about this? Well, we did not hear it from PwC. In fact, PwC was obstructive: when the Australian Taxation Office sought information, PwC declined to cooperate, claiming legal professional privilege – a tactic commonly deployed by those clients of PwC. Instead, we only know about this from the outstanding work of two journalists at the Australian Financial Review digging into the reasons why the Tax Practitioners Board was resisting the reregistration of Peter Collins as a tax agent. If not for them, this sorry tale would not have come to light.

As usual, there seem to have been few adverse consequences for those involved. Collins and the chief executive of PwC, Tom Seymour, have left PwC, but we don’t know upon what terms – they may have received handsome payouts. We don’t know how much money PwC made from its Project North America because the partners won’t say – and they have not made an offer to disgorge their wrongful profits. PwC has not told us to whom they sold the information, so we have no idea how much tax has been avoided. PwC has announced it will commission an internal inquiry, but that is obviously insufficient.

But this is much more than a story about misconduct by a Commonwealth contractor; it is far darker than just that. There are many questions, all unanswered.

The first question: Why on earth was PwC – a substantial contributor to the global problem of crossborder tax minimisation – involved in designing Australia’s response to that very problem? Anyone could see this was going to be a problem.

That raises the second and even larger question: Why is Australia outsourcing so much of its governing to private enterprise? Policy development and implementation are now routinely taken from the public service and turned over to private ‘‘consultants’’. Some will say this is because the most highly skilled and experienced people are in the private sector and, you know, this is probably true – but it is only true because the private firms have poached the most skilled and experienced public servants from the public service. This makes good economic sense for the big firms who can charge those services back to the Commonwealth at high rates.

I am not exaggerating. Look at the audit results published by the APS for 2021-22. The Commonwealth paid $21 billion for external labour – i.e. consultants, contractors and labour-hire contracts – in a single year. To give some perspective, that is roughly the same as the federal government spent on secondary education that year. This spending was not made public. The Coalition had boasted of massive costs savings through cuts and caps on public service employment without telling us the holes were filled by payments to private enterprise. Our government was being privatised by stealth.

It may be a coincidence but, over the last decade, the major beneficiaries of mass privatisation were donating heavily to both sides of political power – Labor and the Coalition. PwC was one of the largest donors. It is another sad story of inadequate federal election funding laws and the pernicious role of big money in our election cycle.

Will Labor be better? So far, the new government’s response to this debacle has been strangely muted. Existing contracts with PwC must be investigated. Negotiations with PwC for further contracts must be frozen. Heads must roll. We need an inquiry – surely we should not be outsourcing that to PwC.

We need to take a deeper look at the way in which we have been outsourcing government. It seems we have been going down the wrong path. It is time for change.

Geoffrey Watson SC is a director at the Centre for Public Integrity.