Life on the West Island - Consulting practices

West Islanders are beginning to wake up to what the Norfolk Island community has known for many years – federal governments have become overly dependent on large consulting firms to give them policy advice. Worse, most of the “independent consultants” are nothing of the sort, parroting back to politicians what they know they want to hear (at high prices) while usually failing to consult with those who will be most affected by the recommendations in their reports.

Norfolk Island has seen dozens of these expensive consultancies since the abolition of self-government in 2015, with the recommendations in many of their overly long reports concealed from the community for spurious reasons such as “commercial confidentiality”. On occasions when they are made public, federal bureaucrats and politicians continually claim that the consultants are “independent’, by which they mean that the advice has not come from within the professional public service.

The Albanese government is bemoaning the “hollowing out” of the public service and the transfer of much research and policy advice to the Big Four accounting consultancies and has vowed to reverse this privatisation trend. Not only would that most likely result in better legislation and governance but it would also save some of the billions lavished on consultants by previous national governments.

The main catalyst for concern in Canberra has been the alarming revelations about how one of the nation’s largest consultancy firms apparently leaked the “confidential” advice it was giving to the former government about cracking down on tax avoidance to many of its corporate clients, thus enabling them to adjust their affairs to continue to minimise their contributions to federal revenues. Professor Andrew Podger of the Australian National University was one of many eminent observers to outline the implications of this dubious behaviour:

The PwC scandal reveals appalling behaviour by an individual consultant and his company that provided consulting services to the federal government. PwC reportedly used its insider knowledge to advise multinational firms on how to continue to avoid tax when the legislation it advised on came into operation. Confidentiality agreements were broken and the central objective of the contracted advice – to address tax avoidance by multinational companies – was directly subverted.

In light of this case, a Senate committee is investigating the use of consultancy firms by the federal government. While the terms of reference focus on conflicts of interest, committee members are also interested in the growth in the use of consultants and contractors in recent years, how they are managed by government, and the impact this is having on the public service.

So far, no evidence has been provided that the PwC case is representative of widespread abuse among consulting firms of their contracted obligations, or of extensive and systematic failure to properly manage conflicts of interest. But the scale of the use of consultants raises questions about how well conflicts are managed and, indeed, about value for money in the use of such external advice by federal government agencies.

Professor Carl Rhodes of UTS gave more detail and was less circumspect in his analysis:

Australia’s Treasurer Jim Chalmers called it “an appalling breach of trust”. But the scandal involving the local arm of PricewaterhouseCoopers (PwC), the world’s second-largest professional services firm, is much worse than that.

PwC Australia’s chief executive Tom Seymour and two other board members, Pete Calleja and Sean Gregory, last week finally resigned their leadership positions over the use of confidential information about Australian tax policy to help PwC clients avoid paying tax.

In January, it was revealed the Tax Practitioners Board had (in late 2022) terminated the registration of PwC Australia’s former head of international tax, Peter-John Collins, for sharing information he gained at confidential Treasury consultations. Collins left PwC last October. Seymour downplayed the leak as a “perception issue”.

Things only substantially changed after the inquiry this month published internal PwC emails showing that (in the words of the Australian Financial Review) “for years, dozens of PwC operatives used confidential updates on government tax plans obtained by Collins to drum up new tax clients”.

The whole fiasco stands in stark contrast to PwC’s stated corporate values that “celebrate doing the right thing”. These are warm sentiments, but the proof of the pudding is in the eating, and a key social responsibility of any business is to pay taxes that fund schools, roads, hospitals and protection of the vulnerable. It’s hard to reconcile the statements about values with the apparent laxity around the Collins case.

The fundamental conflict that underlies the scandal is what makes it bigger than just PwC. In any area where governments make decisions affecting business profitability, there are incentives for vested interests to influence the process. There are, however, few areas where the government has so blatantly left its processes open to abuse as through its reliance on external consultants. Federal spending on consultancy-related contracts rose from $352 million to $888 million a year between 2012–13 and 2021–22, according to the Australian National Audit Office. Reversing this trend, and separating corporate and public interests, is now as crucial as separating church and state.

Norfolk Islanders might well echo these sentiments. The consulting practices they have suffered over many years have often resulted in very bad governance and public policy outcomes for the community. Meanwhile, federal governments claimed that the exorbitant costs paid to consultants were “funds spent on Norfolk Island.” All too often, not a cent of those taxpayer dollars was actually spent on Norfolk Island, but instead went into the pockets of greedy “independent” consultants who, despite their titles, did very little actual consultation with Islanders themselves.