PwC finishes up internal investigations into tax leaks, booting out people. It still faces the Switkowski review, on-going Senate inquiries, the AFP criminal investigation and the potential National Anti-Corruption Commission probe.
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I am Leon Gettler. My job is to review and monitor the week’s news in business, finance and economics. I bring it all to you, every week.
This is episode number 23 in our series for 2023 and today’s date is Friday July 7.
First, I’ll be talking to Andrew Curnow who created the MeToo Foundation, which manufactures Australian made personal care products and donates 100% of all its profits to registered charities supporting survivors of domestic violence in Australia. And I’ll be talking to RMIT economist Professor Sinclair Davidson about the likelihood of recession.
But first, let talk to Andrew Curnow.
So what’s happening in the news.
At their July meeting, the RBA left rates unchanged at 4.1%. The cash rate is currently at its highest level since April 2012. The Reserve Bank decided to wait for more information on inflation, the labour market and household spending to better determine the impact that existing rate hikes have had. I t doesn’t mean that the tightening cycle is over. The RBA still anticipates that further rate hikes may well be needed to contain the current inflation outbreak. With inflation still elevated and the unemployment rate near half century lows, it’s hard to argue with that assessment. However, the RBA is also mindful that the economy hasn’t yet felt the full impact of the first round of rate hikes last year and so you should expect a pretty measured and cautious approach to policy over the next few months. The RBA is particularly concerned about the stickiness of inflation, particularly in the service sector. Domestic sources of inflation appear to be holding up, even as foreign sources of inflation start to subside. If high inflation becomes entrenched in expectations then it will require aggressive hiking – above and beyond what we have seen thus far – to contain
Psychedelics can now be legally used as medicine in Australia in a world-first approval that’s aimed at treating acute mental health conditions. From Saturday, MDMA and psilocybin — better known as ecstasy and magic mushrooms — are cleared for post-traumatic stress disorder and treatment-resistant depression. The approval was granted because of the lack of effective treatment options and preliminary data suggesting the hallucinogens may be uniquely positioned to benefit patients, according to the Therapeutic Good Administration, the country’s regulatory authority. Still, a raft of rules will make it difficult for most people to get their hands on the psychedelics. Only registered psychiatrists who have the ethics approvals normally needed to conduct clinical trials and who have gained regulatory authorization through a provider program will be allowed to prescribe them. The TGA said no medical professionals are currently approved to prescribe the treatment as applications only open on July 1. The cost may also be a barrier for many people. Daniel Perkins, co-executive director of the Psychae Institute and a senior research fellow at the University of Melbourne, estimates that a course of treatment including psychedelic-supported therapy sessions could cost between A$15,000 ($9,900) and A$25,000. It’s still early days when it comes to research on the use of psychedelics for the treatment of health conditions. Their long-term benefits and risks aren’t known and it’s unclear how long the initial improvements seen among many patients will last. No specific products have been approved in Australia, which means health-care providers or the facilities they work with will have to import the hallucinogens for their patients. The decision to regulate MDMA and psilocybin as controlled substances, first announced in February, was made by an unidentified senior medical officer at the TGA and reversed previous rulings — including as recent as October 2022 — that classified both as prohibited substances. While the TGA said that the therapeutic value of the chemicals hasn’t been established, the restrictions they put in place around administering them and the known benefits and risks make the approval appropriate. Outside of the narrow medical setting, both MDMA and psilocybin remain illegal in Australia.
Troubled accounting and consultancy giant PwC has been referred to the new National Anti-Corruption Commission after revelations that staff at the firm leaked confidential government information to clients. The firm is one of the first issues to be referred to the new independent agency, led by former NSW judge and war crimes investigator Paul Brereton, when it opened operations on Saturday. Greens senator Barbara Pocock made a formal referral of the consulting firm to the commission over the weekend. The PwC scandal has been high on the Greens’ list of issues the party says should be investigated by the national corruption watchdog, which has been set up to detect and investigate corrupt conduct in the Australian government sector with the power to compel witnesses. However, the NACC does not have to investigate a referral that has been made to it. Attorney-General Mark Dreyfus has stressed the independence of the agency, saying that while any Australian can refer any matter they believed may have constituted serious or systemic corruption, “only the commission can determine what matters it investigates”. Senator Pocock said the watchdog would be able to shed further light on PwC’s use of confidential government information. The Australian Federal Police began a criminal investigation into the consulting firm and its former partner Peter Collins in May. A joint report from Labor, Coalition and Greens senators released last month accuses PwC of a “calculated breach of trust” over the scandal and the group’s attempts to minimise the seriousness of the situation. The firm last week said its global clients and industries leader Kevin Burrowes would become the new chief executive of its Australian business. It also confirmed the sale of its government business to private equity group Allegro Funds for $1. There were also 47 roles made redundant at PwC last week, in the lead-up to the end of the financial year.
Tom Seymour has headed a list of eight partners that PwC has kicked out of its business over the leaking of confidential Treasury information to help its big tech clients avoid paying tax. PwC Australia named the eight partners as the culprits of the consulting firm’s tax scandal as it released the main findings of its own investigation into the handling of the Treasury information and “past failures in professional, ethical or leadership responsibilities”. This compares with 63 partners that parliament named as receiving the confidential information but not necessarily acting on it. The Australian understands one partner who is subject to the investigation is on medical leave, while the firm has no reason to believe the remaining partners and staff who were named in the Senate submission have disseminated confidential government information. Mr Seymour – who took over from Luke Sayers as chief executive of PwC Australia in 2020 – has been given notice of his dismissal from the partnership, which has been brought from his planned “retirement” in September. He has been at the firm for 21 years. Richard Gregg, Peter van Dongen and Wayne Plummer have also been given notice of their sacking from the partnership. The reason why they have been given notice and not immediately dismissed is because it is understood they haven’t agreed to leave. As owners of the firm, they have been given notice of the findings against them and a process has started under the partnership agreement to remove them.
Labor Senator Deborah O’Neill has called on accounting firm PwC Australia to provide more detail of the tax leaks scandal which has seen eight partners, including former chief executive Tom Seymour, pushed out the door. The Labor senator, who chairs the joint parliamentary committee on corporations and financial services which has been investigating the scandal, said more questions needed to be answered by the firm following Monday’s announcement of the forced exits, which also included former chairman Peter Van Dongen. This follows four partners who were previously named as being involved in the confidentiality leaks, following PwC’s work with the Australian Taxation Office on legislation to crack down on multinational tax avoidance. Senator O’Neill said PwC also needed to detail what action it was taking to hold the PwC Australia leadership team to account – including former chief executive Luke Sayers, who now runs his own consulting firm based in Melbourne, and the legal counsel from 2015, when the alleged leaks of confidential material from PwC’s dealings with the tax office occurred. Senator O’Neill said the announcement that eight partners were being removed from the firm, in addition to the earlier four, marked “the beginning of some indication of redress by PwC”. “But in no way should (it) be perceived as a definitive resolution to this matter,” she said. She said PwC needed to provide more detail on the internal investigation which had led to their dismissal, details of the misconduct they had allegedly been involved in, and whether any had been referred to bodies such as the Australian Securities & Investments Commission, the Tax Practitioners Board or professional accounting bodies.
The ratio of tax to GDP has breached the 23.9% benchmark after a bigger-than-expected budget surplus from surging income tax receipts and resources companies’ profits, and risks becoming permanently entrenched, economists warn. As Prime Minister Anthony Albanese and Treasurer Jim Chalmers face pressure to spend a surplus now nudging $20 billion, business groups also warn splurging the windfall could fuel inflation and further interest rate rises. Finance Department monthly figures released last week showed in the first 11 months of 2022-23, the budget was in surplus by $19 billion, much higher than the $4.2 billion forecast in the budget less than eight weeks ago, with company and personal taxes reaching record highs. Economist Chris Richardson estimated the tax-to-GDP ratio for the financial year was hovering about 24.2%, which is the first time it exceeded 24% since 2007-08. The former Coalition government self-imposed a cap of 23.9% for tax revenue’s share of the economy, based on the average during the second half of the Howard government. But Treasurer Jim Chalmers has dismissed the cap as arbitrary and a target set for political reasons, and does not feel bound by it. Mr Richardson said high prices for Australian commodities caused by the war in Ukraine, bracket creep, inflation and low unemployment had pushed Australia’s tax take passed 24%. While the ratio would fall as these temporary pressures eased, Mr Richardson said, “the trend is not the friend” and the 23.9% limit could be permanently exceeded with higher taxes required to fund government.
Workers in Australia’s fossil fuel industry, deemed most at risk of losing their jobs due to the energy transition, can seamlessly switch into the offshore wind industry with only little training, a new report has found. The findings, if proved correct, will temper fears about the impact on workers and local communities of Australia’s rapid transition away from fossil fuels that is reshaping the country’s $2 trillion economy. Australia has earmarked offshore wind as central to providing the electricity currently generated by coal, and a report from Star of the South – the country’s most advanced offshore development – said there is significant crossover of skills required by workers. As a result, many workers displaced by the transition in Gippsland – Australia’s first offshore wind region – can find employment in the emerging industry. “What we found is that around 70% of workers in traditional power generation sectors have those core skills needed to work in offshore wind with just a little bit of additional training,” Erin Coldham, chief development officer at Star of the South, said. “In the maritime industry it was even higher, close to 90% of the existing maritime industry are well equipped to work in offshore wind.” Star of the South’s findings mean it is likely to have a large talent pool to choose from as it undertakes development with several major fossil fuel generators winding down operations. EnergyAustralia’s Yallourn coal power station is expected to be retired in 2028. The coal power station is Victoria’s second largest electricity generator, and employs about 500 permanent workers, many of whom will need alternative employment in the next few years. Star of the South, which is targeting its first generation by the end of the decade, expects to create up to 2000 jobs in the state over its life, including 760 in Gippsland during construction and 200 long-term local jobs during operations.
Only one in five women have the highest-paid jobs in the federal public sector despite holding 57% of the roles, a new survey has found. And the gender pay gap in the federal public sector is wider when agencies such as the Reserve Bank, NBN, Australia Post, CSIRO and the ABC are included along with the core public service. The gap for the larger group was 11.6% compared to 7.2% for the core, based on total remuneration. The survey by the Workplace Gender Equality Agency and the Australian Public Service Commission found that women make up 57% of the federal workforce but occupy only 48% of top leadership positions. At the same time, women dominate the number of lower-paid jobs. Almost one in three men (32.7%) are in the top earnings quartile, earning above $141,000, compared to almost one in five women (19.4%), the survey found. This trend was reversed in the lowest earning quartile, with 28.7% of women earning below $94,000, compared to almost one in five (19.8%) men. The survey was the first review of the federal public sector to include the broader business agencies, which voluntarily submitted data.
Optus owner Singtel, Gladys Berejiklian’s ultimate employer, has an official zero tolerance approach to corruption and conflicts of interest and demands staff comply with laws and codes of practice in the jurisdictions where they work. The telco declined to comment on Monday on the implications for Ms Berejiklian’s role with the company stemming from the NSW Independent Commission Against Corruption’s finding last week that the former NSW premier engaged in serious corrupt conduct. “Singtel acknowledges the ICAC report published in relation to Ms Berejiklian’s time as a Member of the NSW Parliament. The Singtel Group has a code of best conduct policy for all staff,” a spokeswoman said. Ms Berejiklian is weighing up a legal response to the ICAC report, which found her to have breached public trust over a series of regional grants and a secret relationship with former state MP for Wagga Wagga, Daryl Maguire. Singtel declined to say if the ICAC findings meant Ms Berejiklian had run afoul of the company’s code of conduct policies, which include provisions on corruption, reputation and wrongdoing – criminal, moral or otherwise. Singtel says its policies commit it to high standards of probity and accountability in its affairs. “It recognises the importance of protecting its operations, employees and assets against … unethical practices, and therefore adopts a ‘zero tolerance’ approach to fraud, corruption,” company policy documents state. A section in Singtel’s seven-page policy on compliance with the law demands employees “comply with all laws, regulations, codes of practice … applicable to the different jurisdictions where it operates”. Another segment concentrates solely on conflicts of interest, requiring employees to disclose relationships with a bearing on their role. “Employees must avoid all situations which could result in conflicts of interest,” it states. “They should comply with reporting and disclosure requirements of potential or actual conflicts of interest, and disclose any matters which could reasonably be expected to interfere with their professional duties.” The ICAC report released on Thursday found Ms Berejiklian was subject to a conflict of interest during her five-year relationship with Mr Maguire that she should have disclosed as she advocated for grant funding for projects in his electorate. The commission said that in supporting the projects, Ms Berejiklian was advancing her relationship. The commission also argued she breached public trust for failing to report Mr Maguire on suspicion of corruption when she had been aware that he stood to benefit financially from a series of land deals he was using his position in parliament to advance. The spokeswoman noted Ms Berejiklian had been a Singtel employee for just over 18 months and referred to her statement in which she said she had always put the needs and interests of NSW above her own.
Struggling business owners face a “horror show” over the coming months as the taxman circles and operating costs spiral in the wake of a 17% spike in company insolvencies over the past financial year. The lingering impact of the Covid-19 pandemic and skyrocketing inflation and interest rates sparked a wave of company failures across Australia worth hundreds of millions of dollars. According to indicative Australian Securities and Investments Commission data there were 5520 administrations and liquidations nationally for the financial year ended June 30, 2023, a 17.2% increase from 4710 the year before. In Victoria the numbers were up 39% to 1476, while Queensland rose 23.5% to 1004 and NSW added 2.5% to 2153. WA was up 53.5% to 485 and ACT by 5.8% to 128. In South Australia the numbers were down 5.4% to 212 and in Northern Territory by 34.4% to 21. In Tasmania insolvencies were flat at 41 for the year. The final national tally will be higher because the preliminary data does not include companies where no state is recorded.
And that’s it for this week. And next week, I’ll be talking to Scott McKinnel, the regional manager for Tenable, to talk about website security. And I’ll be talking to EY economist Cherelle Murphy about the economic outlook for the new financial year.
In the meantime you can catch me on Facebook, Twitter, Instagram, LinkedIn and YouTube. And if you want leave a comment. For the most exclusive access to leading economists and business leaders from around the world, subscribe to Talking Business on the Apple podcast store or on my website leongettler.com.
If you want to contact me, email me at [email protected]. I answer all emails.
Wishing you all a safe and healthy week. And looking forward to bringing you Talking Business next week