When Labor outlined plans to cut government spending on consultants and contractors by $3 billion before last year’s election,it was based on the party’s growing suspicion that then-prime minister Scott Morrison’s brutal cuts to the public servants were merely transferring the costs to at inflated prices.
Finance Minister Katy Gallagher says it was a shock when the $20.8 billion cost of public service outsourcing was revealed.Alex Ellinghausen
“This privatisation of the APS[Australian Public Service] by stealth is not only costing Australian taxpayers more – it is condemning tens of thousands of public sector workers to the risks and stresses of insecure work,” senator Katy Gallagher said at the time.
Underlining his government’s position weeks later,Morrison said that if the Coalition was re-elected,it planned a further $3.3 billion cut to the public service to fund fresh election promises.
“That is something that is entirely sensible and,frankly,taxpayers would be demanding that these types of sensible efficiencies are achieved,and that is part of the process of managing a good budget,” Morrison said in May last year.
A year on,the Albanese government dropped a bombshell this month when it revealed the results of an audit to find out,for the first time,how much was being spent on what turned out to be an army of private consultants.
In the final year of Morrison’s government,nearly $21 billion was spent on privately owned businesses providing Commonwealth government services.
This shadow public service equated to just under 54,000 full-time workers,compared to an APS workforce of about 144,000.
“Until we did this work,nobody really understood the extent of it across government,nobody had asked about it,” Gallagher,now the minister for finance and public service,said.
“It shocked the people when they actually did it to understand the extent of it,and the price … $20.8 billion on external labour costs in 2021-22 alone,is a quarter of all departmental expenses.”
‘It is simply false to suggest that the appropriate use of contractors and consultants increases government expenditure.’
Opposition public service spokeswoman Jane Hume
A cap on public service numbers,and Coalition government indifference to its own bureaucracy,opened the floodgates to the private sector,which increasingly handled core government work but without the safeguards against conflicts of interest that are embedded into the public service under the Public Service Act.
“To them[the Coalition],as long as the work was being done,they didn’t care if it was EY or PwC or some of these other ones. It didn’t matter,” Gallagher said.
Opposition public service spokeswoman Jane Hume denies this,and said that under the former Coalition government,departmental funding provided to administer government services fell as a proportion of total government spending.
“It is simply false to suggest that the appropriate use of contractors and consultants increases government expenditure,” Hume said.
“The Commonwealth has and must maintain its world-class public service,which is an integral part of policy development and administration. However,we need to ensure government costs are as low as possible without impacting the delivery of essential services or policy development.”
Nevertheless,clearing up some of this financial wastage has been a straightforward exercise.
In some cases,contractors were earning less than the public servant working alongside them despite costing the government department much more. The department would be paying a fee of up to 30 per cent of that worker’s salary to a labour hire firm,or consultancy with no additional benefit – other than the fact it circumvented the cap on hiring public servants.
Gallagher said Labor made additional savings in the recent May budget by putting more than 3000 labour-hire workers who were already doing full-time hours on the government books.
The big four accounting firms.Supplied
“We know that there was a saving generated from four agencies from just the first 3000 that we have converted in this budget that have gone through that process,” she said.
The next stage,she said,would be keeping an eye on what people were using consultants for.
“People are getting the message that this government doesn’t want,essentially,government by consultancy,” she said.
Just before the release of the report,a Senate inquiry into the consulting industry highlighted the inherent dangers of this shadow public service – beyond the $21 billion financial shock that was later revealed.
In the words of experts brought before the Senate committee last month,there is enormous scope for conflicts of interest when highly secretive organisations such as the global consulting firms work so closely with the government while servicing corporate clients that are affected by government decisions.
The inquiry was told that government spending on the large consulting firms had grown from about $400 million in 2013 to $3 billion as of 2022.
Dr Erin Twyford appearing before the Senate inquiry.Supplied
That number may not capture the full extent of the spending. The recently completed government audit report shows the various government departments spent about $5.5 billion on consultancies and contractors.
The Senate inquiry was triggered by two recent:the burying of a million-dollar robo-debt report that the former Coalition government did not want to see,and the tax scandal where were involved in marketing confidential government plans to combat tax avoidance to the global companies being targeted.
Acting PwC chief Kristin Stubbins on behalf of PwC Australia and Global said:“We recognise we need to rebuild trust … And will engage openly and transparently as we move forward.”
Dr Erin Twyford,a senior lecturer at Wollongong University – and a former employee with one of the major firms – told the inquiry that PwC’s behaviour was consistent with a broad corporate culture of conflict of interest,as the global firms sought to secure fresh business with private sector clients that provide far more business than the consulting for government.
“There is a disincentive to providing advice that might adversely affect key clients and industries,even where this is the appropriate course of action to achieve government goals or to benefit society,” Twyford said.
“At the same time,having that seat in government decision-making also presents a potential source of influence and information for future clients.”
The latter point has also been highlighted by examples brought before the inquiry.
Michael Tull,the assistant national secretary of the Community and Public Sector Union,told the committee of the situation in the Aged Care Quality and Safety Commission accreditation program,which has been largely outsourced to third parties,including consulting firms such as KPMG.
“KPMG,as well as providing people to do the assessment of aged care residential facilities,also has a business line providing advice to the providers of those facilities,” Tull said.
He was not suggesting that KPMG was acting unethically,just pointing out the potential conflict.
Greens senator Barbara Pocock highlighted other contracts where the Department of Industry,Science,Energy and Resources spent more than $15 million on consultants to help administer and assess government grants.
‘They all do it. PwC,EY,KPMG and Deloitte. They design and administer programs for government and they also help private sector clients chase government grants.’
Ken McAlpine,former Victorian government staffer
That contract meant consultants had the potential to advise private clients how to win grants while the consultants’ own staff were part of the apparatus approving them.
Ken McAlpine,who was a policy adviser and a chief of staff in Victoria’s Brumby government,tweeted this week how widespread the practice is.
“They all do it. PwC,EY,KPMG and Deloitte. They design and administer programs for government and they also help private sector clients chase government grants. They’ve been doing it for years,” tweeted McAlpine,who now works as a lobbyist.
“The pressure to share this information must be intense.”
The Defence Department is one of the biggest sectors when it comes to outsourcing,with sections where contractors outnumber permanent staff.
“As the strategic review found,what that leads to is a situation where contractors are essentially hiring contractors,” Tull said.
Professor Andrew Podger,an ANU academic and former bureaucrat who has worked in Defence,said it was getting to the point where government departments lacked the expertise to even manage their external contracting.
“How can you be an informed buyer of external expertise if you don’t have some considerable expertise yourself?” he told the Senate inquiry.
While motivations differ in some respects,Pocock said the inquiry into consulting services had united the major political parties,which should send a shudder through the entire consulting sector.
“The Senate inquiry which I instigated,which is currently looking into the management and quality assurance of consultants working for the government,will be asking more questions,not just about PwC,but the whole consulting industry,to determine the extent to which we should be using their services and under what terms.”
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