From there, the scandal has developed the way Ernest Hemingway once described a bankruptcy: gradually, then suddenly …
For too long, too big to fail institutions have been content to wait until a crisis and then deploy ad hoc measures …
The PwC tax leaks scandal has raised serious questions about who governments get advice from – and whether turning to the private sector has fatally undermined the public service. By Martin McKenzie-Murray.
The incestuous world of tax and how it may give birth to conflicts of interest
A journalist I have known for thirty years once told me that there were two places he wanted to be quoted in. One was the New York Times, but most especially he wanted to be in the Washington Post. That was making it, he reckonEd. When I'd done both he admitted to jealousy. I was amused.
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Consequences of the PwC tax leaks scandal
On budget night 2015, then treasurer Joe Hockey announced details of a proposed law designed to mitigate multinational corporate tax avoidance. “Tomorrow night I will be releasing legislation that strengthens our anti-avoidance regime,” Hockey declared. “I have been working on this for more than a year now ... This is not a new tax in Australia. We don’t need to have a new tax in Australia. We need to strengthen our anti-avoidance measures.”
What wasn’t mentioned that night was the involvement of PwC’s senior international tax partner, Peter Collins, in helping design those laws. It was a risky appointment. Only a year before, a United States congressional subcommittee was investigating allegations made by a former PwC accountant that the consultancy firm – the largest in Australia by revenue, and with offices in 157 countries – had helped design for its client, the heavy-machinery firm Caterpillar, a creative tax-avoidance structure known as the “Swiss tax strategy”. The congressional inquiry accused the firm of fraud, and the American tax office did not resolve the non-payment of billions of dollars in taxes by Caterpillar until last year.
That same year, the International Consortium of Investigative Journalists published the so-called “Luxembourg Leaks” – a giant trove of commercial documents, leaked by another PwC whistleblower, that showed how the firm had long assisted companies such as Pepsi, IKEA and Heinz to avoid federal taxes. Regardless, the Australian government had invited the fox into the henhouse.
Almost a decade passed. Then, in January this year, Australian Financial Review senior writer Neil Chenoweth trawled the website of the obscure federal regulator, the Tax Practitioners Board (TPB), while looking for a story. It was there he found that Peter Collins had been deregistered last year. Pulling on this thread, Chenoweth helped unravel an epic scandal: back when Hockey was overseeing the development of his tax-avoidance legislation, Collins was allegedly serving as a double agent, helping major tech firms dance around the very taxation laws he was helping the government create. His contract was just one among thousands the Australian government had signed with PwC for consultancy services from 2012-2022, worth more than $420 million.
After the news broke, the chief executive of PwC Australia, Tom Seymour, sought to pacify alarmed staff and international partners, and fortify his own position, by asserting that the matter, while regrettable, was both historic and singular. Collins was a rogue actor, he said, and the matter didn’t reflect any broader cultural or systemic rot in the firm. He insisted he would not be resigning.
From there, the scandal has developed the way Ernest Hemingway once described a bankruptcy: gradually, then suddenly. Early this month, the corporations and financial services committee, chaired by Labor senator Deborah O’Neill, released 144 pages of internal PwC emails that had been acquired by the TPB and the Australian Taxation Office in their investigations and requested by O’Neill. Heavily redacted, the emails nonetheless destroyed the narrative of Tom Seymour. Far from being the actions of a rogue individual, the emails show dozens of staff, both in Australia and overseas, were aware of the intelligence – including Seymour himself, who was included in several email chains.
Staff discussed the profitability of the information, how it might serve their clients, and recommended dismissing the impropriety as “rumour and speculation” if asked about it. Spooked, global executives of PwC flew into Australia to engage in crisis management. Eventually, and reluctantly, Seymour resigned as chief executive.
An “abomination” is how Liberal senator Andrew Bragg described the scandal this week. Greens senator Barbara Pocock has suggested PwC be banned from all future government work. Deborah O’Neill is on the warpath. “This is a major cancer on the way that information that is vital to the national interest is being undertaken by those at PwC,” she said in the senate chamber earlier this month. “We have had a resignation from Seymour as a chief executive. He remains a partner. There are many more questions than answers and I will not let this go, in the interests of the nation.”
Beyond PwC, and the faith the former government showed Collins, the scandal has asked significant questions about the federal government’s increasing dependency on external consultants, the various conflicts of interest and values inherent in these arrangements, and the cost to the quality and morale of the Australian Public Service.
Geoffrey Watson, SC, a former counsel assisting the Independent Commission Against Corruption and a director of the Centre for Public Integrity, has described this as the privatisation of government by stealth. “It is important to remember that our system of government is an accountable system of government … By transferring that role to the private sector, you’re just removing that entirely,” he tells The Saturday Paper.
Soon after last year’s election, the Albanese government commissioned an audit into the previous government’s use of external consultants and contractors. The Morrison government often crowed about its cuts to “wasteful” public expenditure – and the wisdom of its 2015 cap on public service staffing numbers – but was much quieter about the subsequent ballooning of contracts with the private sector.
The audit’s results, which were released this month, were remarkable: in the 2021-22 financial year, the Morrison government spent $20.8 billion on consultants and service providers – accounting for almost 40 per cent of the 144,000 people employed by the public service.
A review of the APS, overseen by the minister for the Public Service, Katy Gallagher, began last year. One of its reform goals, Gallagher said in a speech in October, was to “deliver on the government’s commitment to reduce reliance on consultants” and “to develop an in-house consulting model for the APS to strengthen core capabilities and functions that have been contracted out”.
Andrew Podger, a professor of public policy at the Australian National University, says the original shift to private consultants was “entirely sensible”. Prior to academia, Podger had a lengthy and distinguished career in the Australian Public Service, including as a deputy secretary of Defence and secretary of the Health and Aged Care department. “Back in the 1980s, we went through the new public management reforms of that time, and part of that was to open things up to contestability,” he tells The Saturday Paper. “So you’ve got contestability in service provision, you’ve got contestability in corporate services, and so on. And that was driving efficiency.”
He says the change came with governments that decided they liked outside advice better than the frank and fearless advice of the public service. “I guess in part, they were getting what they wanted, where the public service, if it was being brave, wasn’t always giving what government wanted. And then you got the ideological view that the outside was better anyway. As if it was better by definition, rather than through careful assessment … The scale of it just went up so much and became a preference without consideration of value for money, or the impact on the capability of the public service.”
Stuart Hamilton largely agrees. Hamilton is a director of the Accountability Round Table, a group of former judges, public servants, politicians and journalists dedicated to improving accountability and transparency in state and federal parliaments. In 1995, he was made an Officer of the Order of Australia for his services to public administration, which included being secretary of the departments of Community Services and Health and Environment, Sport and Territories, and deputy secretary of the prime minister’s department under Bob Hawke.
“When in government, I was always acutely aware that getting advice from consultants who have got a broad remit, such as the big accountancy firms, always carried the risk of, you know, in whose interest were they actually acting?” Hamilton says. “But my most serious concern I had was what it was doing to the public service, to its quality and expertise.
“We were turning public servants into managers of contracts rather than policy advisers. And there was a definite risk of reduction in the quality of what was happening in government administration. We were co-conspirators in our own execution, you could say.”
In August 2019, just a month after his “miracle” win, then prime minister Scott Morrison addressed the Australian Public Service in a lengthy speech hosted by the Institute of Public Administration Australia. Morrison reminded public servants of their humble subservience and told them they would not know true accountability until, like himself, they found their names on a ballot paper.
“One of the worst criticisms politicians can make of each other is that a minister is a captive of their department,” Morrison said, and then reminded bureaucrats the public service was “about telling governments how things can be done, not just the risks of doing them, or saying why they shouldn’t. The public service is meant to be an enabler of government policy, not an obstacle.”
In hindsight, there’s a chilling resonance between Morrison’s speech and the shameful servility of senior public servants revealed in the recent royal commission into robo-debt. “There’s no doubt that the [public servants’] determination to please ministers overrode their responsibilities,” Podger says of the robo-debt scandal. “They went out of their way not to give the advice that they thought the government would not want to hear. There’s always an issue with frank and fearless advice and how far you go. But there’s a red line when it’s an issue of law. Under no circumstances do you fail to tell ministers what the legal situation is. And that, to me, is just an enormous surprise.”
Podger says the robo-debt scandal was a shocking and egregious failure and the public service must assume responsibility and reflect deeply on its integrity. But there is also a responsibility of governments, he says. “When they start to not see the protection and nurturing of the public service as an important part of their job, we have a problem,” Podger says. “I remember John Howard, when he first became prime minister, one of the first things he said … was that a responsibility of government was to leave the public service in a better state than when they got it.
And we haven’t seen that line coming until the current government. So, I think at the moment, the public service is feeling a bit better because it’s feeling as if the government respects them. I think, though, they’re still waiting to see how that plays out. Now, the initial reaction is very positive. But I’ll still wait and see whether the attitude is sustained.”
