Booming business for Big Four comes at a high cost

Over the last ten years, the Big Four (KPMG, PricewaterhouseCoopers, Ernst & Young and  Deloitte) have donated $4,289,253 to the ALP and Coalition. Over the same period, total contract volume for the firms jointly has increased by over 400 per cent, from $282 million in 2012-13 to over $1.4 billion in 2021-22. While business has boomed for the Big Four, the Australian Public  Service (‘APS’) – one of the pillars upon which our Westminster democracy depends – has been left with static staff numbers and a diminished policy capability. The increased outsourcing of crucial public interest policy work to private contractors who are not directly accountable and financially back both parties raises both questions of integrity and public value-for-money. To  arrest the decimation of Australia’s public service, the Centre for Public Integrity recommends:

1. Recentring the APS as the main policy advisory body in government, with resort to  external advisors only where there is a demonstrated and acute need for such services;
2. Imposing a cap on each department’s use of consultants (with exceptions available for  circumstances of national emergency);
3. Requiring rigorous reporting by departments to Parliament in respect of the use of  consultants;
4. Removal of the APS Average Staffing Level Cap introduced in 2015-16;
5. Implementation of a donation cap and spending caps to reduce undue influence of well-resourced corporations;

Persistent donors  

The Big Four have jointly averaged donations of over $400,000 to both the Coalition and Labor since 2012-13, though this figure has been closer to $500,000 per year since 2016-17. While there was previously greater equality between donors, PricewaterhouseCoopers (‘PwC’) has emerged as the major donor of the Big Four since 2016-17. Since 2012-13, PwC has donated over  $2 million.

Figure 1: ‘Big Four’ Aggregate Real Donations by Firm – 2012-2022

	KPMG	EY	Deloitte	PwC	Annual totals
2012-2013	$99,000	$15,000	$54,600	$219,600	$388,200.00
2013-2014	$208,845	$20,358	$46,800	$-	$276,003.00
2014-2015	$145,475	$-	$46,000	$31,625	$223,100.00
2015-2016	$142,945	$84,637	$31,075	$93,225	$351,882.00
2016-2017	$109,890	$107,134	$30,525	$259,185	$506,733.87
2017-2018	$107,910	$54,988	$63,874	$226,175	$452,947.32
2018-2019	$89,100	$85,724	$51,300	$332,100	$558,223.92
2019-2020	$58,300	$29,150	$58,300	$347,150	$492,900.00
2020-2021	$88,400	$85,800	$57,200	$287,783	$519,182.56
2021-2022	$98,000	$82,581	$87,500	$252,000	$520,081.00
Company  Totals	$1,147,865	$565,372	$572,174	$2,048,843

Figure 2: ‘Big Four’ Donations by the firm and by year – 2012-2022

 

A peculiar feature of the Big Four’s donations is that they are largely party indiscriminate. Between  2012-13 and 2020-22, 47.8 percent of their donations were to the Labor Party, whereas 52.19 per cent were to the Coalition (though the proportion given to the Labor Party steadily increased between 2017-18 and 2020-21 before falling in 2021-22).  

Figure 3: ‘Big Four’ Aggregate Real Donations by Party – 2012-2022

 

Analysis of donations going back to 1998-99 reveals that the Big Four donations tend to move in political ‘cycles’, whereby the firms prefer to move their donations away from incumbent governments and towards opposition parties as presumptive future governments.

Figure 4: ‘Big Four’ Proportion of Donations by Party 1998-2022

As seen in Figure 4, during the Howard Government, from 1998-99 to 2007-08, the Big Four gradually transitioned their donations to the Labor Party. After the Rudd Government was elected in 2007-08, donations to the Coalition started increasing proportionally before peaking in 2012-13  immediately before the election of the Abbott Government, after which their donations started gradually moving towards the Labor Party before their victory at the 2022 election.  

This donation behaviour is distinct from most other donors. Most interest groups donate to political parties in furtherance of their own ideological interest to one rather than both major parties. Unions, for example, donate typically to the Labor Party in furtherance of their interests, while business associations will typically donate to the Coalition in furtherance of theirs.  

The Big Four’s persistent donations to both major parties show that their donations are unrelated to any ideological goal or end sought but are rather focused on currying favour with whoever may be in power. This trend in bipartisan donations has been observed among other large

industries in Australia and characterised by some as a form of ‘state capture’.1This is consistent with the increasing reliance of the Big Four on government contracts as a significant source of revenue. In this sense, such donations are not bona fide attempt to genuinely support a cause but to create a sense of interdependency. This interdependency is amplified by the extremely  limited public routine financial support for political parties at the Commonwealth level.2 

The major parties’ reliance on Big Four donations leaves the parties vulnerable to corruption in the form of ‘clientelism’, whereby ‘patron-client’ relationships emerge and ‘political support is exchanged for privileged access to public goods’.3 Clientelism was contemplated in McCloy v  New South Wales as creating the risk that ‘officeholders will decide issues not on the merits or the desires of their constituencies, but according to the wishes of those who have made large financial contributions valued by the officeholder’.4 

Clientelism aside, it is not difficult to see the increasingly close relationship which has developed between the Big Four firms and their political patrons. For example, Christopher Pyne accepted  an employment offer from Ernst & Young (EY) while still Minister for Defence in 2019;5former  Trade Minister Craig Emerson joined KPMG as an economic consultant three years after leaving  office in 2016;6recently elected Labor member for Hawke, Samuel Rae, formerly worked at PwC  after having been State Secretary of the Victorian Labor Party;7former Labor Party National  Secretary Noah Carroll joined KPMG after the 2019 election loss;8 and Jamie Briggs, former  Minister for Cities in the Abbott Government from 2013-15, joined PwC in 2017.9 

Return on investment?  

The Big Four’s donations and access have been handsomely rewarded: total contract volume for the firms jointly has increased by over 400 per cent from $282 million in 2012-13 to over $1.4  billion in 2021-22.  

 

Figure 5: ‘Big Four’ Total Contract Volume – 2012-22 – Constant 2021-22 Dollars10 

The blowout in AusTender public contract volume to these firms is consistent with the above  mentioned account of ‘clientelism’. Samuel Issacharoff argues that the ‘pathology’ of clientelism benefits incumbent politicians ‘for an expansion of the public sector in a way that facilitates […]  rewards to constituent groups’.11 While these firms undoubtedly provide some necessary work to the Commonwealth Government, a 400 per cent increase in demand over 10 years is inexplicable.  

At what cost?  

While the Big Four, among other consultants, have a rightful place in the public policy environment, the overreliance upon them has had a deleterious impact upon the increasingly tenuous role of the Australian Public Service (‘APS’). Since the 2015-16 Budget, the Government  has constrained the size of the APS to be at or around the 2006-07 average staffing level (‘ASL’)  of 167,596.12 

 

  Figure 6: Australian Public Service Staffing Level 2010-2021

The explosion in private contracting, while APS staffing remains stagnant, has been characterised as ‘privatisation by stealth’,13 and led Australia to maintain arguably the heaviest reliance on external consultants for public advisory in the world.14 

In 2019, the Thodey Review of the APS found that external consultants, such as the Big Four, are increasingly being used to perform work that had previously been part of the core capability of the APS.15 The Review concluded that the cap, along with the increased use of external consultants,  had led to a significant decrease in the capability of the APS. Big Four consultants had otherwise become a ‘para-public service’.16 The Review ultimately recommended the abolishment of the  Average Staffing Level (ASL) cap.17 

Similarly, in 2021, the Senate Standing Committee on Finance and Public Administration expressed grave concern about the ‘excessive use of consultants within the APS and the relationship of dependence that has formed’.18 The Committee concluded that such use was  ‘utterly unacceptable’ and that while frank and fearless advice by an impartial public service is a  ‘key characteristic of a properly functioning Westminster democracy’ when the government  ‘consistently chooses to spend exorbitant amounts of taxpayer money on commissioning strategic policy advice from private consulting firms, public sector capability is undermined’.19 The  Committee ultimately recommended that ‘as a first principle, all strategic policy development  work should be performed in-house by the APS unless there is a demonstrated and acute need  to engage consultants’.20 

John Quiggin has similarly noted that the ‘state capacity of the Commonwealth government is a  shadow of what it was in the mid 20th century’ can be significantly attributed to the rapid increase in use of external consultants.21 International academic research on use of consultants in the public sector have found a ‘significantly positive relationship between consulting expenditure and organisational efficiency’.22 

Policy choice  

It must be remembered that the capping of APS staff numbers and the consequential outsourcing of government functions to external consultants such as the Big Four is a policy choice rather than an inevitability. The ASL cap introduced by Joe Hockey in 2015-16 under the guise of ‘fiscal responsibility’ has in fact just pushed lucrative work to external consultants while the APS loses core capabilities.  

These consultants, of whom the Big Four are the most prominent, ‘operate with an ethos vastly different from that characterised by the values of service, integrity and impartiality which define the APS’.23 In fact, the work of these firms can be inimical to the values of the APS. For example,  in 2011 Deloitte sought to undermine plain packaging legislation with arguably erroneous research about illicit tobacco in Australia,24 and more broadly, the Big Four make a significant amount of revenue assisting companies to avoid their tax liabilities both in Australia and overseas.25 

Australia’s overreliance on the Big Four is not inevitable. As early as 2018 Jim Chalmers committed to getting rid of ‘the Liberals’ arbitrary ASL cap’ and the ‘false economies’ it had created.26 Since  Labor formed government in May 2022, there have been consistent commitments to cut external consulting fees, remove the ASP cap, and reinvigorate the internal capability of the APS.27 In the  October Budget the Government committed to ‘addressing excessive reliance on […] consultants’  via focusing on ‘practical reforms’ to the APS.28 The budget also forecasted a higher ASL across the whole of government for 2022-23, yet did not openly address the ASL cap.29 Only time will tell whether these commitments will be realised.  

Conclusion  

The Big Four consistently financially support both of Australia’s major political parties, though they prefer to donate to presumptive winners. The last ten years have seen a ballooning in  Commonwealth contracts going to these firms to perform work previously done by the APS, and an increasingly active revolving door between these firms and the prominent positions in government and party administration. This relationship is arguably one of clientelism and comes at significant cost to the taxpayer, to the capability of the APS, and accountability. This outcome is not inevitable but is rather the consequence of conscious decisions by successive governments to outsource crucial functions to a new ‘para-public service’ while the public service is sidelined. These outcomes are not inevitable. To remedy any potential for undue influence, and  to recentre the role of the APS, the Centre for Public Integrity recommends:  

1. Recentring the APS as the main policy advisory body in government, with resort to  external advisors only where there is a demonstrated and acute need for such services;
2. Imposing a cap on each department’s use of consultants (with exceptions available for  circumstances of national emergency);
3. Requiring rigorous reporting by departments to Parliament in respect of the use of  consultants;
4. Removal of the APS Average Staffing Level Cap introduced in 2015-16;
5. Implementation of a donation cap and spending caps to reduce undue influence of well-resourced corporations;  

References

1 Stephanie Tran, ‘State Capture: top corporations identified as members of both Liberal and Labor parties’, Michael  West Media (online, 11 March 2021) <https://michaelwest.com.au/two-party-state-top-corporations-lobbyists revealed-members-of-liberal-and-labor-parties/>.  

2 See Electoral Act 1918 (Cth) pt XX div 3.  

3 Samuel Issacharoff, ‘On Political Corruption’ (2010) 124(118) Harvard Law Review 118, 127.  

4 McCloy v New South Wales (2015) 257 CLR 178, 204 [36]-[37] (French CJ, Kiefel, Bell and Keane JJ).  

5 See Finance and Public Administration References Committee, Parliament of Australia, Compliance by former  Ministers of State with the requirements of the Prime Minister’s Statement of Ministerial Standards (Final Report,  September 2019) 13.  

6 ‘The Hon Dr Craig Emerson’, KPMG (Web Page) <https://home.kpmg/au/en/home/contacts/e/craig emerson.html>.  

7 Samantha Hutchinson and Kylar Loussikian, ‘PwC picks up outgoing Victorian Labor boss Sam Rae’, The Sydney  Morning Herald (online, 11 September 2019) <https://www.smh.com.au/business/banking-and-finance/pwc-picks up-outgoing-victorian-labor-boss-sam-rae-20190911-p52qe6.html>.  

8 Kylar Loussikian, ‘Former Labor party boss Noah Carroll lands KPMG gig’, The Sydney Morning Herald (online, 30  September 2019) < https://www.smh.com.au/business/banking-and-finance/former-labor-party-boss-noah carroll-lands-kpmg-gig-20190930-p52w61.html>.