“There is no consultation without trust, and we want to be able to consult in a meaningful way when changes to the tax system are in prospect,” he said on Wednesday.
“And so this is a shocking breach of trust, an appalling breach of trust and as a government that wants to be consultative where we can, this puts that sort of consultation at risk.”
Is Chalmers confident this was a one-off? He did not sound confident at all when asked this question on Wednesday. He said the government was being “diligent” in making sure it was not happening elsewhere and would not happen again.
So we know the government is angry. We don’t know what it will do about it.
It is easy to dismiss this as a minor breach. Collins was one of a group of private sector tax experts called in by Treasury at regular points to seek guidance on potential tax rules for multinational companies in what is known as base erosion and profit shifting – that is, recording revenue in low-tax places like Luxembourg to avoid tax in places like Australia. It is impossible to quantify the damage to actual tax revenue.
Yet the stakes are huge and arcane information can have immense value. Australia has been trying to crack down on base erosion and profit shifting, or BEPS, for at least a decade. Digital giants have recorded sales from Australia in places like Ireland and the Netherlands using what is known as the “double Irish Dutch sandwich” and mining giants have posted sales of Australia ore in Singapore.
The OECD estimates that BEPS costs anywhere from $140 billion to $340 billion a year in foregone tax revenue worldwide. It thinks the net revenue loss ranges from 4 to 10 per cent of corporate income tax revenue.
Applied to Australian company tax receipts, that would be worth anywhere from $5 billion to $13 billion this financial year. This is a simplistic calculation, and probably far too simplistic for professional tax experts. But can the government trust those experts?
Collins did not appear to be alone at PwC in using the information from Treasury, although the onus was on him because he had signed confidentiality agreements in December 2013, April 2016 and February 2018. The investigators checked emails within the firm to discover that others knew about the leaked information.
“Internal communications within PwC indicated an awareness among the internal PwC recipients, including PwC taxation partners, that the confidential knowledge gained from the consultations with Treasury would be leveraged to market PwC to a new client base,” the tax board said.
So the firm gained business, or at least tried to. The board said PwC had a “potential market advantage” in using the confidential information to “advance the position of its existing taxation clients as well as marketing its services to attract new clients”.
PwC Australia chief executive Tom Seymour says the firm is “deeply disappointed” that it failed its standards. He says it has strengthened its approach to avoid conflict risks by setting up a “confidentiality agreements register” with a single contact point for all Treasury and similar consultations.
This is all very cosy. The professionals in the public and private spheres have come to a settlement about how to improve the Chinese walls. But it is less than four years since the Australian Federal Police raided the ABC and searched the home of Annika Smethurst, now the state political editor of The Age, over leaks about the war in Afghanistan and the Department of Home Affairs. Some leaks seem to alarm officials more than others.
Consulting firms are making big money in Canberra with a business model that relies on access to valuable policy information and the claim that they can deliver sound advice. The top five firms – Accenture, KPMG, Deloitte, PwC and EY – gained contracts worth $2 billion last financial year, according to an analysis by Ron Mizen at The Australian Financial Review.
That consulting work is often about implementing government policy and is separate from the Treasury consultations involving specialists like Collins on draft law. But the common theme is the government’s increasing reliance on outside experts to do its job.
So the lesson from the PwC affair should ripple through the public service.
“Outsourcing inherently creates conflict of interest risks and this example demonstrates just how damaging that can be,” says Melissa Donnelly, the national secretary of the Community and Public Sector Union. It is a fair point. The government says it wants to reduce the use of those outside contracts, but it is not an easy change to make after the weakening of the public service over more than a decade.
What took place at PwC is a serious scandal. The erosion of federal revenue by big companies, helped by their guns for hire in the tax business, imposes real costs on Australians. And the government relies on those same hired guns to help design the policies to deal with the problem.
If you cannot trust them, why rely on them?
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