Background facts are easy to understand: In 2013, Australia participated in an international campaign to crack down on multinationals who avoided corporate tax by transferring assets and income across borders. PwC specialists were brought in to act as consultants, and they had access to highly confidential materials under confidentiality agreements.
Peter Collins, PwC's international tax partner and top tax advisor, took the information and shared it with the rest of the firm. The information was then shared with the target of the crackdown to teach them how to avoid the anti-avoidance measure PwC helped draft. The misuse of highly confidential material was given the name "Project North America" to reflect the targeted market. PwC made millions of dollars.
How did we find out about this?
We didn't hear anything from PwC. PwC obstructed the Australian Taxation Office by refusing to provide information. They claimed legal professional privilege, a tactic that is often used by PwC clients.
We only learned about this because two journalists from the Australian Financial Review did a great job digging into the reasons for the Tax Practitioners Board's refusal to re-register Peter Collins as an agent.
This sad tale would never have been revealed if not for the outstanding work of two journalists at the Australian Financial Review. They dug into why the Tax Practitioners Board was resisting Peter Collins' re-registration as a tax agent.
As usual, it seems that there were few negative consequences for those involved or those who benefited. Collins and Tom Seymour (PwC's chief executive) have left PwC. We don't know what terms they received, but it is possible that they received handsome payouts.
We don't have any idea how much PwC made with its Project North America, because the partners refuse to say. They also haven't offered to return their wrongful profits. PwC did not tell us to whom it sold the information. We have no idea of how much tax was avoided. PwC has announced it will commission an investigation, but this is clearly insufficient.
First question: Why was PwC involved in Australia's response? PwC is a major contributor to the global issue of cross-border tax maximization. Anyone could see that this was going to be a big problem.
This raises a second, even more, important question: Why does Australia outsource so much of its governance to private enterprise?
The public service is routinely transferring policy development and implementation to private "consultants".
Some will say that this is necessary because most highly-skilled and experienced people work in the private sector. This is true, but only because private firms have poached public servants with the highest levels of experience and skill. This is a good business decision for large firms, which can then charge high rates to the Commonwealth.
I am not exaggerating. The audit results published by the APS in 2021-22 are impressive. The Commonwealth paid $21 Billion for external labor. For some context, this is about the same amount that the federal government spent in that year on secondary education. These expenditures were not made public.
The Coalition boasted about massive cost savings by cutting and capping public service employment but did not tell us that the holes were filled with payments to private enterprises. Our government is being privatized in secret.
It may have been a coincidence but in the last decade, the biggest beneficiaries of mass privatization donated heavily to both sides - the Coalition and Labor. PwC was among the biggest donors. This is yet another sad tale of inadequate federal laws on election funding and the pernicious influence of big money during our election cycle.
Will Labor be better than before?
I don't really know. The new government has responded to this disaster in a strangely muted manner. Investigations must be conducted on existing contracts with PwC. Negotiations for new contracts with PwC must be halted. A deterrent is needed. Heads need to roll. We need to conduct our own investigation - we shouldn't be outsourcing it to PwC.
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