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RUBY:

From Schwartz Media I’m Ruby Jones, this is 7am.

It’s been revealed the very people meant to be closing loopholes in the Australian tax system have been turning around and using that information to advise their big corporate clients.

The scandal engulfing Price Waterhouse Coopers is one of the biggest to ever hit the cosy relationship between the government and private consultancy firms.

And, it goes beyond a few bad actors - pointing to a broken system, and a demoralised public service.

Today, associate editor of The Saturday Paper Martin McKenzie-Murray, on what happened when the Australian government trusted PwC to fix our tax system.

It’s Thursday, May 25.

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RUBY:

So, Marty, PwC PriceWaterhouseCoopers is this huge multinational company that has clients all over the world. And what it does is help them with their money, advises them on things like tax law and contracts. So it's a consultancy firm and it's a very trusted consultancy firm. That is until recently. So tell me about when PwC's reputation started to publicly unravel.

MARTIN:

Well, let's first go back to 2015 and budget night

Archival tape -- Speaker:

“I call the Honourable the Treasurer.

Archival tape -- Joe Hockey:

“Thank you, Madam Speaker.”

MARTIN:

When the then Treasurer Joe Hockey announced details of a proposed law that was designed to mitigate multinational corporate tax avoidance.

Archival tape -- Joe Hockey:

“Tonight, I am releasing the details of a new tax integrity multinational anti-avoidance law. This will stop multinationals using complex schemes to escape paying their tax. Under this new law, we will catch companies cheating and they will have to pay back double what they owe plus interest.”

MARTIN:

Hockey was at pains that night to say that this wasn't a new tax. This was simply a new, improved regime to ensure that multinational corporations, those with reputations for, let's say, creative accountancy, were paying their fair tax.

Archival tape -- Joe Hockey:

“So I say to all Australians, rather than introducing new taxes on you, we simply want people or companies who are avoiding paying their tax to pay their fair share.”

MARTIN:

What wasn't mentioned that budget night in 2015 by Joe Hockey was that a panel was assembled by the government to help them design these laws. And one of the members of that was Painter Collins, the senior international tax partner at PwC. And this certainly in retrospect, but perhaps alarm bells should have rung at the time. It was a risky appointment and the government showed, I think, a naive faith in Peter Collins.

And the reason for that is just the year before, a US congressional subcommittee began investigating alleged tax avoidance by the large heavy machinery firm Caterpillar.

Archival tape -- News:

“Today, a Senate hearing looked at the taxes paid by manufacturer Caterpillar,”

MARTIN:

And it accused the firm and PwC of designing tax avoidance measures

Archival tape -- News:

“Caterpillar has shifted $8 billion in profits to Switzerland to avoid $2.4 billion in U.S. taxes.”

MARTIN:

what they called the Swiss tax strategy.

Archival tape -- Carl Levin:

“After Caterpillar put that strategy in place, it went from reporting about 85% or more of its foreign parts profits on its U.S. tax return to reporting 15% or less and shifting the remaining profits offshore to its Swiss affiliate.”

MARTIN:

And it was the same year, 2014. So just the year before, Joe Hockey announces these proposed laws that the International Consortium of Investigative Journalists publish this huge trove of commercial documents known as the Luxembourg leaks.

Archival tape -- News:

“An international investigation into tax deal struck by some of the world's largest multinational corporations with Luxembourg has uncovered hundreds of tax avoidance schemes”

MARTIN:

These documents showed how PwC had assisted for a long time major corporations like Pepsi and IKEA creative ways to avoid federal taxes.

Archival tape -- News:

“this is being perpetrated by Pepsi, IKEA, the likes of Pepsi, IKEA, FedEx, Dyson huge corporations, household names, 340 in total. They've been working with, have often have Price Waterhouse Coopers, one of the largest accountancy firms in the world, operating on their behalf, creating secret deals with the Luxembourg tax authorities.”

MARTIN:

So in a way, you might say that the Fox was invited into the henhouse. Peter Collins sits on this panel, advises the government on the drafting and design of these new laws. And now we fast forward to earlier this year. So some time passes before what is alleged Peter Collins did is revealed.

RUBY:

And so at that time, it sounds like PwC is already somewhat of a controversial company. So when it comes to this particular agreement that was set up between PwC Peter Collins and Hockey, what do we now know about it?

MARTIN:

So what we now know and what's alleged is a very severe and very sleazy duplicity. And that is, as Peter Collins is advising the government on designing these laws. To mitigate against massive tax avoidance from major corporations. He is then taking this privileged confidential information and passing it on to those firms that these very laws are designed to mitigate against. So what is alleged is that he is effectively a double agent.

RUBY:

When that starts to come to light. How does PwC respond?

MARTIN:

Classically – In short. So the CEO PwC Australia, Tom Seymour. After these allegations are revealed, earlier this year, invokes that classic corporate defence of the bad apple.

So he says as severe and regrettable as these allegations are, Collins has since left the firm and it did not reflect upon any systemic or cultural rot at the firm. So in asserting that this was just a rogue actor who has since been punished and we have nothing to say or worry about anymore, he said that he would not be resigning.

RUBY:

Right. But that defence, the bad apple defence. It isn't true, is it? We're seeing now that this wasn't a one off and this wasn't the only time that someone at PwC used confidential information that they got from one client to help another one.

MARTIN:

Absolutely not. So quite dramatically.

Archival tape -- News:

“Labour Senator Deborah O'Neill has been chasing down answers on the PwC scandal for months and she plans to use the coming Senate Estimates hearing to push the Tax Practitioners Board and the Australian Tax Office to out as many as 50 PwC partners”

MARTIN:

And what Deborah O'Neill released publicly was 140 plus pages of internal PwC emails about this matter

Archival tape -- News:

“The crisis at consultancy firm PwC is intensifying amid growing calls for the company to be banned from lucrative government contracts after confidential information was used to help clients work around anti tax avoidance laws.”

MARTIN:

And it destroyed Tom Seymour's narrative about the bad apple, the rogue actor. This isolated and historic incident absolutely shredded it, what it revealed is that this information had been shared with several dozen staff, perhaps 50, both in Australia and internationally, and on some of these email chains it included Tom Seymour himself.

Archival tape -- Deborah O’Neill:

“The deception was designed and known by at least 53 as yet largely unidentified partners and participants in the PwC email chain, references in Singapore, the United Kingdom, Ireland, in the United States and Europe throughout the correspondence. And it's clear this is an issue with global implications.”

MARTIN:

Some of the discussions, not had by Tom Seymour, but other staff whose names are redacted in these documents. They were to dismiss it as rumour or innuendo.

So this was a dramatic development and I think Tom Seymour's position was always untenable, but it became very obvious to him finally that it was and he eventually stepped aside as CEO.

RUBY:

So Tom Seymour has been forced to resign from PwC. And the company itself, I think, is assessing the damage that's been done to its international reputation. But what does all of this say to you about the way that our government, the Australian government, has acted and the assumptions that have been kind of built into the agreements that the government has made with PwC since it became involved with them.

MARTIN:

Yeah, it's an incredibly dramatic and very explicit conflict of interest and the scandal is sizeable obviously, but there are much larger questions, I think, about what this accelerated dependency of the government upon private consultants, what that means about conflicts of interests and values, and what it means to the quality, the capacity and the morale of the Australian public service.

And so this week I spoke to several former very senior public servants about that dependency upon consultants and what it means for the health of the Australian Public Service.

RUBY:

We’ll be back in a moment.

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RUBY:

So, Marty, tell me a bit more about these conversations you've been having about the health of the Australian Public Service and what's happened to it over the past decade or so. What would you sort of point to show, I suppose, the way that modern politicians see the public service and how different that is to the role that it used to play?

MARTIN:

Yeah, I'll go even further back. There's been several, I think, quite substantial changes. In the 1980s, the public service was subject to quite significant reform. There was a kind of ideological contempt or indifference for the public service. And on the other hand, an ideological assumption of the superiority of the private sector.

And additionally to this, there's a sense that if you went to the private sector for feasibility studies or advice or consultancy, you might better get the answers that you want.

In the past decade that has increased quite dramatically. And I think that ideological indifference to the public service is captured quite explicitly in a speech that then Prime Minister Scott Morrison gave not long after his quote unquote, miracle win in 2019. He gave a lengthy address to the Australian Public Service and it was a rather muscular and hectoring speech.

Archival tape -- Scott Morrison:

“We've got to get that relationship right between ministers and the public service…”

MARTIN:

He reminded public servants of their humble subservience.

Archival tape -- Scott Morrison:

“The teams where everyone knows what their job is, what their role is, and focus on that. Those teams win”

MARTIN:

And he told them this thing that's very popular with especially conservative politicians, which is that public servants don't understand true accountability like he does. They don't understand true accountability until their name is on a ballot paper.

Archival tape -- Scott Morrison:

“You know, only those who put their name on a ballot can really understand the significance of that accountability. As much as you might appreciate the Westminster system until you put your name on a ballot, that changes everything.”

MARTIN:

And it was kind of hectoring, I felt. And it's also not true. Public servants are accountable in several ways. They're accountable to the law. They're accountable to parliament. They're accountable to their ministers. They're accountable under the Australian Public Service Act.

But there was one thing from that speech that Morrison gave, which I think resonates now retrospectively with the robo debt scandal, and that was that Morrison told them that their job is to help government achieve their goals.

Archival tape -- Scott Morrison:

“The public service is meant to be an enabler of government policy, not an obstacle. The Australian people need to be at the centre of APS service delivery and that is the thinking behind Services Australia.”

MARTIN:

Reading that speech in the light of the public services civility regarding robo debt, I think there's a chilling resonance there. And there is a difference in rhetoric now with the Albanese Government and its respect, I think, for the Australian Public Service.

RUBY:

And you mentioned this idea of being able to get the answer that you might want when you go to a private company, a private consultant. To what extent do you think that is driving government decisions to engage these companies? How much does it come down to that idea?

MARTIN:

Well, we can't be definitive about it, but those with long careers in the public service, you know, retain a certain suspicion or cynicism about the use of private consultants in flattering the government or giving them what they want. I spoke with Stuart Hamilton, who was secretary and deputy secretary of several departments in the eighties and nineties, and he said when the use of private consultants started accelerating, he wondered if they weren't the public servants, that is conspirators in their own executions by kind of transforming the role of public servants, not from policy advisers into effectively contract managers. And I can speak from my own experience in the federal public service, when an interesting work was handed off to private consultants. How demoralising that was to the policy experts within that department. If you have this ever increasing dependency upon private consultants, you have a loss of accountability and commercial and confidence is frequently invoked. You might have a clash of, as in the PwC, which is a very explicit example of this conflicts of interests. But you also have a demoralised and to a point incapacitated public service and loss of institutional memory.
One thing Stuart Hamilton told me is that you'll have a variety of consultancy firms, but those with very broad remits like PwC who cover a lot of stuff, their expertise, their ostensible expertise is broad. At that point, it really invites or makes you vulnerable to these conflicts of interests, conflict of values. The PwC scandal is a very explicit and severe example of conflicted interest, but there are broader examples of conflict of interest, I think inherent in sometimes awkward partnerships between the public sector and private.

RUBY:

And so in the light of everything that has come out, do you think that the Australian Government should be reconsidering all of its contracts or relationships with private consultancies?

MARTIN:

There's very persuasive arguments that it should, and it is.

So when the Albanese government came in, they commissioned an audit into the extent of the use of private consultancy and contractors under the previous Morrison government. The Morrison government had often crowed about cuts to wasteful public expenditure, but it was much quieter on the costs of its use and increasing dependency upon private consultancy. And so what this audit revealed is that in the previous financial year, the Morrison government spent nearly $21 billion on consultants and service providers, and that figure accounts for nearly 40% of the 144,000 people employed by the public service.

So we're talking about the nurturing and the protection and the re empowerment of the Australian Public Service and it not being subject to, as it has for a very long time now, the various kind of vicious cliches and characterisations of the culture wars. It's been subject to a lot of ideological indifference and contempt I think. But at the same time, the Robodebt scandal, the public service need to accept responsibility for that as well and really deeply reflect upon their integrity. So it goes both ways.

RUBY:

Marty, thank you so much for your time.

MARTIN:

Thank you.

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RUBY:

Also in the news

Sexual assault charges are six times less likely to go ahead in the ACT, compared to any other Australian state or territory.

The statistic was revealed in the inquiry into the Lehrmann trial, where Detective Scott Moller is currently on the stand.

Moller was asked about allegations of bias after he liked a post on social media defending Bruce Lerhmann a month after the charges were dropped.

AND

Four people accused of the murder of schoolboy Cassius Turvey have pleaded not guilty to all charges.

The group, all in their 20s, are accused of attacking the 15 year old Yamatji Noongar boy in Perth in late 2022.

They are expected to stand trial later in the year.

I’m Ruby Jones, this is 7am. See you tomorrow.

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