Anthony Albanese: The PwC PM (Lisa Maree Williams/Getty Images)

June 30, 2023   5 mins

PricewaterhouseCoopers claims it was created to fulfil one purpose: “To build trust in society and solve important problems”. Inevitably, its mission statement contains a list of platitudes explaining how it hopes to achieve this; among them is the insistence that employees should “act as if our personal reputations were at stake”.

Whether or not this commandment was ever read out in its Australian HQ — and the evidence suggests it was not — it certainly now makes for uncomfortable reading. In May, accusations that had been bubbling under the surface since late last year exploded into the headlines. Between 2013 and 2015, PwC Australia allegedly advised the government on how to design a system to get more tax out of multinationals — and then used its insider knowledge to advise corporate clients on how to dodge the very same measures.

At the centre of the scandal is PwC Australia’s former head of international tax, Peter-John Collins, though as many as 160 other staff could be implicated. Collins signed three confidentiality agreements with the federal government between 2013 and 2018, before circulating information about the tax plans to 63 PwC partners and senior managers in a long email chain — yes, in writing. His interlocutors didn’t seem too perturbed, either.

In the ensuing kerfuffle, politicians, including prime minister Anthony Albanese and treasurer Jim Chalmers, clamoured to express their outrage at PwC’s conduct. The company was dragged through the coals before a parliamentary inquiry and promised to publicly name all responsible staff. To save the firm, PwC parachuted a new British boss into its Australian division and then sold off its government consulting arm for $1. This section of the business, by the way, employs 1,700 staff with an annual turnover of $300 million — around 20% of PwC’s income in Australia. It seems reasonable to assume the bargain price represents the possible extinction of its entire income stream.

While PwC’s days of having it both ways appear to be over, it remains unclear whether the scandal will be enough to force the Government to wean itself off the consultancy sector. Australia’s management consulting market is the world’s biggest per capita, and fourth-biggest overall, remarkable for a country of only 25 million. And the federal government has been leading the way. Between 2013 and 2022, its annual spending on consultants shot up from $352 million to $888 million per annum. Over the same period, the Big Four professional services firms — PwC, KPMG, Deloitte and Ernst & Young — pocketed $1.2 billion in federal government consultancy contracts, and a whole lot more in professional services fees. Fellow consultancy giants McKinsey & Co. and BCG have also been having a swell time in Australia, rapidly expanding their government business.

Inevitably, since these firms all provide services to both the government and the private sectors, conflicts of interest risks abound. This week, for instance, KPMG launched its own internal review of its contracts advising both the Government on quality and safety audits of aged care facilities, and operators on passing these audits and gaining accreditation. Even the Australian Federal Police, which is now investigating Collins for potential criminal conduct, has awarded PwC consulting contracts worth over $20 million over the past two years, and another $30 million to the other “Big Seven” consulting firms (a group that also includes Accenture). Rather ironically, PwC is also the AFP’s external auditor.

As ever with giant professional services firms, the rot runs deeper than mere conflict-of-interest problems. While these matter, focusing solely on conflict of interest is to miss the bigger point about government consulting; even if it were addressed by splitting up firms, as PwC is doing now, administrations would probably remain reliant on external consulting — and that is far more concerning prospect.

In Australia, as in many other countries, external consultants have become integral to core government operations, winning lucrative contracts without tangible improvements to performance. This became impossible to ignore during the Covid-19 pandemic. In one notable example, the federal government outsourced the planning, logistics, monitoring and delivery of vaccines. It awarded McKinsey $3 million in contracts for strategic planning, consulting and professional services, while Ernst & Young received over $1.5 million to conduct vaccine system readiness reviews.

Did they get a return on their investment? Not quite. Until it was centralised under the command of Lieutenant-General John Frewen, the bungling of Australia’s vaccination campaign became the stuff of legend, earning the nickname “the strollout” — the Australian National Dictionary’s 2021 word of the year. State governments also relied heavily on consultants in their pandemic responses, to much the same effect. In Victoria, the public service’s consulting expenditure jumped by over 300% between 2014 and 2022. KPMG, for example, earned $36.7 million in Victoria in 2022, with almost $20 million coming from its work with the Department of Health on the pandemic response, including for contracts entitled “Covid-19 emergency management support”. And yet, the state government’s response to the pandemic was notoriously underwhelming, with Melbourne becoming the world’s most locked-down city.

When criticising the increasing reliance of our political elites on this new consultancy class, it’s common for critics to refer to the “hollowing-out of the state”, whereby functions previously performed by government are increasingly outsourced to private providers. This process has a self-reinforcing dynamic: once work is done outside government, public servants lose vital skills and capacities, becoming even more reliant on the private sector, especially in a crisis.

A common error, however, is to attribute this process solely to the neoliberal ideology of “small government” and to public administration fads such as “new public management”. It’s certainly the case that outsourcing is often justified on the premise that the private sector is inherently superior to cumbersome public bureaucracies; moreover, the erosion of capacity within the public service also provides fodder for those who would like to see governments become even smaller. But in Australia, even as the public service’s share of the workforce has shrunk since the Seventies, government spending’s share of GDP has increased. If neoliberalism isn’t to blame, what is?

In Australia, at least, the bigger story behind governments’ increasing usage of external consultants is the erosion of democratic accountability. Here, outsourcing to the private sector is one of several measures designed to provide governments with plausible deniability by distancing themselves from policymaking and implementation processes. In the same vein, there has been a growing trend towards empowering state agencies whose operations are insulated from democratic politics. The Reserve Bank of Australia, for instance, became operationally independent in the Nineties and was given an inflation target that has since overridden other possible policy goals, such as full employment, higher pay or the survival of manufacturing. Just as in the UK with the Bank of England, elected governments lost the ability to set monetary policy.

Crucially, however, this has suited them well — since they could claim that the distributional outcomes of monetary policy decisions were no longer their responsibility. Indeed, the government has recently expressed its displeasure with the RBA’s rapid interest rate hikes and its calls for higher unemployment to stem inflation. Yet at no point did political leaders suggest reclaiming authority over monetary policy. At most, the government is proposing to tinker with the RBA’s process for setting interest rates, while maintaining the Bank’s independence. The logic here is straightforward: better to blame the RBA than open up yourself to criticism.

Here we can see the real issue behind such excessive use of consultants: the existence of a political class that has no genuine interest in representing the society it supposedly governs. Where once political parties were anchored in civil society, a yawning “void” now exists between the rulers and those they rule. And it is into this void that an army of consultants have marched. In doing so, they have allowed Australia’s political elites to claim they are following “best practice”. And if things go awry, all they need to do is blame particular contractors — and quickly move on.

Shahar Hameiri is a Professor in the School of Political Science and International Studies, University of Queensland, Australia