Secret knowledge a valuable commodity
It is on the face of it a hugely complicated story about corporate tax arrangements involving a global consulting company about which most Australians know little. It is actually a really simple story about power.
It is also one of the most important stories in Australia today, as it goes to the heart of people who operate on the fringes of democracy. This story has exposed a world where those who are closest to our democracy get the most out of it in a material sense.
They do so away from the gaze of the rest of us, where they have monetised what they know and let others share in its value.
Forget saffron or lithium or diamonds or truffles. The most valuable commodity is knowledge.
For professional services and consulting firm PwC, its covert acquisition and dubious dissemination of knowledge now threatens the existence of the Australian arm of the company itself.
What did PwC know and what did PwC do? It acquired confidential tax advice from its consultations with senior members of the government – Treasury and Finance officials and so forth – then passed that information to clients so they could minimise their tax obligations. PwC made money out of what it knew, and tried to help its paying clients save money by sharing that knowledge with them.
The ATO was “shocked” by sudden moves by almost 44 companies to change their tax structure soon after the introduction of new
Multinational Anti-Avoidance Laws in 2016. That move by those
companies could only have happened with inside knowledge.
The ATO said PwC had engineered 15 schemes to help multinationals avoid their tax obligations, but only three of them (all PwC clients) did so, with others then warned off by the ATO against making similar changes.
The fallout from the revelations has been huge already, but in a way it is only starting.
The federal government has confirmed it has frozen the awarding of any contracts to PwC, as has the Reserve Bank. The NSW government has announced a review into its use of consultants. Other states are expected to follow suit.
The rise of these consulting firms took off in the 1990s as governments started outsourcing project work and decision-making, especially for contentious decisions.
It meant fewer public servant costs, a wider talent pool beyond the public service and a chance for governments to arm themselves with contentious policy options much
harder to sell if generated within government.
PwC in the past two years secured $537m in federal government contracts alone.
Total contract value rose from $282m a decade ago to $1.4bn last year for consulting done by the socalled “Big Four” firms: PwC, Deloitte, Ernst and Young and KPMG.
Many ex-pollies and political staffers work for these consultants.
The people at these firms know people in power, which is how they win so much government work. They know people at the top end of town who are happy to pay them for their insights, gleaned from their closeness to those in government.
And not only do we pay through our taxes to line their pockets with consultancy money, we have now learned that one of these firms has onsold secret tax advice to which none of us mere mortals are privy.