PwC scandal goes deeper than a few bad apples, academic says
Regulators, advisers need more diversity of thought. Taxation is more than a cost to be minimised.
In 2019, Dr Anesa published research which found a “staggering lack of diversity" in educational backgrounds among those charged with advising on Australia's tax policy.
Of the 76 survey participants, all of whom helped to craft Australia’s tax system during the 2014-2016 Senate inquiry on corporate tax avoidance, every participant was trained in “law and neo-classical economics.”
These voices are important, said Dr Anesa, but they need to be complimented by others that recognise “how much tax contributes to the well-being of the public or the taxpayer.”
“The corollary of these entrenched assumptions has seen the development of tax systems – not only in Australia – where there is less focus on genuine restriction of tax minimization and more on improved collaboration between the regulator and the regulator,” he said.
A collaborative approach to tax regulation is based on the idea that the regulated should be consulted in the drafting and implementation of regulation that might affect them. The the idea holds sway in countries all over the world.
“There is some truth in it. Of course, from an economic perspective, you get more uptake when you get the regulated to understand and even to help the regulator to come up with something more viable,” he said.
The downside, however, is “you open up the risk” of creating a regulatory framework that focuses too much on tax as a business cost to be avoided. It was these circumstances that contributed to the PwC debacle to occur in the first place, he said.
According to Dr Anesa, when the advisory panel to the Board of Taxation - the body charged with advising the federal government on tax – last published a list of its members, 43 out of 48 members were current or former practitioners of advisory firms.
“Don’t get me wrong, we need these people,” he said, “but I think we’re missing the social justice side who look more at the impact [of taxation] down the line.”
In June of last year, the advisory panel was dissolved. In announcing the dissolution, the Board of Taxation said the panel “no longer provides an optimal mix of expertise for the [Board of Taxation’s] current needs.”
Dr Anesa said the announcement was “promising” in that it signaled an awareness of the board's lack of diversity, adding, however, “there hasn’t been any update since.”
A similar show of awareness was displayed last year when, following the PwC scandal, the Treasury laws were amended to bar partners and executives with financial links to the big four accounting firms from serving as members of the TPB.
The collaborative regulatory approach goes beyond the drafting of policy, to its enforcement. Currently, policymakers and regulators appears to prefer “soft” regulation over stricter enforcement actions.
“I think with the voluntary tax code and the ATO yearly tax report, those are, to me, soft measures…There should be a bit more impetus on the hard measures rather than the soft measures,” he said.
Transparency and reporting requirements are one kind of soft regulation. Australia is a world leader in terms of using transparency to guide business activity.
Compared to other areas such as human rights or environmental sustainability, Dr Anesa said tax performance is difficult to judge through transparency measures.
“It’s much more difficult with tax, because it’s not as straightforward as ‘you pay less taxes, that’s bad.’” A dollar amount in paid taxes can oversimplify the discussion. For example, it can overlook the use of offset schemes designed to incentivise research and development or environmental investment.
Transparency is part of the solution, said Dr Anesa, but it must be complemented with other reform, such as harder regulation.
The $459,056 salary at centre of Sydney Metro executive scandal
Senior executives at Sydney Metro are alleged to have created a role paying a salary of just under half a million dollars a year to avoid a process that would require the agency’s chief to sign off on the recruitment, and to enable them to then award it without a competitive tender.
New details about alleged conflicts of interest and “corrupt conduct” are contained in a trove of internal documents that Sydney Metro and umbrella agency Transport for NSW have fought to keep secret.
The agencies will be compelled to release internal investigation details, contracts between Sydney Metro and two professional services contractors as well as other documents after objections to the secrecy were raised by Greens MP Cate Faehrmann.
Independent legal arbiter Keith Mason, KC, found that boxes of internal documents relating to what Faehrmann alleged were unnamed senior executives “creating a role for $459,056 with no competitive tender”, as well as a preliminary report into alleged conflicts of interest and alleged corrupt conduct, should not be suppressed after he examined them.
Sydney Metro said in a statement that it took the allegations regarding senior executives “very seriously”, and the matters were investigated by Transport for NSW’s workplace conduct investigations unit and appropriate actions were taken arising from the findings.
“These findings were shared with the Independent Commission Against Corruption. It is not appropriate to comment on the details of a confidential investigation,” it said.
The transport agencies had claimed many of the more than 10,000 documents compiled to answer a NSW parliamentary request should remain privileged because they contain personal and sensitive information about complainants, respondents and witnesses involved in two investigations.
However, Mason said the documents “all lie at the heart of the matters of concern” to parliament and nothing he saw suggested there were whistleblowers or people at risk of reprisal wanting to suppress the information as contended by the agencies.
The internal investigations have been completed and there is nothing to indicate a basis for restricting the processes of parliamentary oversight and accountability,” he said in a report.
The Herald revealed last year that hundreds of consultants were being paid more than $2000 a day on the city’s mega rail projects as investigators circled some in Sydney Metro’s senior ranks following allegations of bullying, conflicts of interest, corruption and fraud.
The agency spent more than $50,000 for two private investigators on “fact-finding” missions into “some very senior people”.
Mason’s finding that the internal documents should be released needs to be considered by parliament’s privileges committee on Wednesday before they can be publicly released.
Faehrmann said the release of the documents would allow further scrutiny of the decisions taken by Sydney Metro’s senior executives when it came to the spending of large sums of public money.
“We’re increasingly seeing government agencies returning huge swaths of documents under upper house orders, and slapping a claim of privilege over most of them,” she said.
An investigation code-named Elara began early last year after an internal Sydney Metro evaluation of “corruption, fraud, conduct, performance, grievance (including discrimination and harassment)” allegations.
Heavily redacted documents have revealed that investigators substantiated some of the allegations in the Elara probe. An index of the privileged documents tabled to parliament included a redacted entry titled “confirmation of submission: Sydney Metro to ICAC-Elara”.
The agency also ran a separate investigation code-named Cyllene that examined contractors working in senior positions at Sydney Metro who also ran their own companies that won tenders from the agency worth millions of dollars.
Sydney Metro chief executive Peter Regan told a hearing last November that there was “no evidence that we have seen” substantiating allegations of professional services contractors awarding contracts to their own companies.
The agency said on Tuesday that it had “robust procedures” in place to allow confidential reporting of wrongdoing but also had an obligation to protect the privacy of people who make a confidential report and those who provide evidence to any workplace investigation.