PwC tax leaks: Parliament demands names of 63 partners and staff caught up in saga
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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 21 in our series for 2023 and today’s date is Friday June 23
First, I’ll be talking to Ross Sharman, founder of EnergyIQ, an energy switching site for those looking for renewable energy options. And I’ll be talking to Indeed economist Callam Pickering about the latest jobs figures.
But now, let’s talk to Ross Sharman
But what’s happening in the news.
Parliament will demand that PwC name the 63 partners and staff caught up in the firm’s tax leaks scandal, as senators investigating the breach of confidentiality rules put pressure on the Australian Federal Police to explain why they did not pursue the matter as far back as 2018. The Senate’s Finance and Public Administration Committee is expected to recommend in an interim report to be released on Wednesday that the firm make the list of names public. The list includes the names of 63 current and former partners and staff who received at least one email based on confidential information from the federal Treasury, including advice to clients on how to sidestep new multinational tax avoidance laws relying on leaked intelligence from disgraced tax partner Peter Collins. It has some crossover with the list of 36 PwC staffers that Greens senator Barbara Pocock attempted to table publicly during a parliamentary hearing last month. Members of the committee were finalising recommendations focused on PwC and the AFP on Tuesday afternoon. The report is due to be released during Wednesday’s parliament session. The Greens are understood to have pushed for the disclosure recommendation. PwC maintains that this group was not aware the emails were based on confidential information and should not be publicly identified. The Senate separately voted on Tuesday to require that Treasurer Jim Chalmers make public by June 28 the documents detailing historic communications between the Australian Taxation Office and the AFP. A motion requiring that the documents be presented to the Upper House covers all correspondence, file notes, briefing materials and communications dating back to January 2016. The motion was passed with the support of the Coalition and the Greens, despite Labor warning against the move. Emails, notes and other correspondence dating back to 2018 and information about the decision that “there was insufficient information to refer the PwC tax scandal to an Australian Federal Police investigation” are also covered by the vote.
The federal Treasury failed to carry out its key role in shining a light on the country’s $75 billion black economy, effectively abandoning its job during the depths of the COVID pandemic, a scathing independent examination of the department has revealed. Compiled by the Australian National Audit Office, the report found Treasury is still struggling to carry out the work for which it was given extra funding in 2018-19, even after a special taskforce warned the black economy was an “urgent, pervasive and damaging problem”. In October 2017, the black economy taskforce made 80 separate recommendations to the then Turnbull government. The recommendations – including a ban on cash transactions of more than $10,000, special public awareness programs and banning from government contracts companies with poor tax records – were prompted by the taskforce’s report that found the black economy had doubled in size between 2012 and 2017 to 3 per cent of GDP. In today’s dollars, that’s the equivalent of $75 billion.In tax alone, the Tax Office estimates economic activity outside the legal system accounts for $12.4 billion, or 30 per cent, of the annual shortfall in expected collections.In response to the taskforce’s report, the government agreed with 27 of the proposals, agreed in principle with another 21, noted 18, supported six, rejected three and did not respond to five. Then treasurer Scott Morrison committed in the 2018-19 budget to provide Treasury ($12.3 million), the Home Affairs Department ($153 million) and the Tax Office ($313.2 million) extra funds to deal with the black economy. Both Home Affairs and the Tax Office were found by the auditor-general’s office to have been effective in carrying out their responsibilities. But the audit office said Treasury, which had a pivotal role co-ordinating the response to the taskforce’s proposals, had largely failed to implement recommendations it was charged with overseeing. It said Treasury “had not clearly defined responsibilities and accountabilities for the co-ordination of the implementation of the taskforce report”. One of the taskforce’s recommendations was to ban any person or business from making a single transaction in cash worth more than $10,000. The idea was ultimately dumped by the government after facing backlash from Coalition supporters. The taskforce also recommended an ongoing shadow economy research program. While supported by the government, as of February this year it had yet to be implemented.
Investment in new, clean electricity supply is not happening fast enough to replace closing coal power stations and the grid build-out lags what is needed for the energy transition, the head of the Australian Energy Market Operator warned on Tuesday. Daniel Westerman said that investments are also urgently needed in “firming” technologies – such as pumped hydro, batteries and gas – to fill in the gaps when renewable energy is not available, with storage needing to expand by a factor of 30 by 2050. There is heightened nervousness around the ability for the country to meet Labor’s 2030 targets including 82 per cent renewable energy. No new renewable energy generation projects reached a final investment decision in the March quarter, despite investors lining up to invest billions of dollars in proposed new projects, while some major new projects are running late.
Victorian Premier Daniel Andrews is facing growing pressure to pause all work with PwC, including with Sayers Group, the new consulting firm of former PwC Australia CEO Luke Sayers, and carry out a full audit of state spending on consultants. The push comes as Mr Andrews faces questions over his close connection to billionaire Lindsay Fox, one of the business identities in Mr Andrews’ inner circle and a financial backer of Sayers Group. The recently proposed $250 million motorsport complex is on land leased by LinFox next to its Avalon Airport that will be overseen by former Major Projects Victoria director Tim Bamford. Pressure is now growing on Mr Andrews over the PwC tax leaks scandal amid reports the firm has made close to $80 million from the Andrews government over the past five years, according to a state Auditor-General office report. The PwC scandal involves a former PwC partner leaking confidential tax information to partners and staff at the firm between 2014 and 2017. In response to the scandal, the Commonwealth has effectively cut PwC off from new contracts, NSW has banned the firm from winning new tax-related advisory work and the Queensland government is reviewing its ties to the firm. In contrast, Mr Andrews has played down the scandal, telling a public accounts committee his state government would not act in a “unilateral fashion”.
Australia’s four largest banks have downgraded their growth forecasts for the economy for the year ahead as households pull back on spending in response to aggressive interest rate rises, while the treasurer claims the country is in good stead to face economic challenges thanks to strong employment. Following strong jobs growth in May and a surprise interest rate rise earlier this month, Westpac, NAB, Commonwealth and ANZ have downgraded their forecasts for economic growth for 2023 and 2024, and both Westpac and ANZ economists believe a per-capita recession – two quarters of negative growth in gross domestic product per person – is likely in the next year. The weaker forecasts come just weeks after the Reserve Bank painted a rosier picture of economic growth, forecasting gross domestic product would lift by 1.2 per cent in 2023 and 1.7% in 2024 in its Statement on Monetary Policy in May, and after Treasury’s forecast of 1.75% growth this year in the May budget. Since then, the Reserve Bank board has lifted interest rates by another 0.25 percentage points to 4.1% in June – the 12th rate rise in just over a year – and governor Philip Lowe warned more rate rises were a possibility as the bank tries to bring down high inflation. The rate rises have been eating into consumer spending, national economic data from the Australian Bureau of Statistics showed earlier this month, as households cut back on non-essentials to help pay higher interest bills.
Communications Minister Michelle Rowland has requested an urgent briefing from ABC management over the controversial move to cut 120 jobs as part of the national broadcaster’s plan to target a “digital-majority audience”. The ABC’s push to “adapt and evolve” – as outlined in its five-year plan announced earlier this month – met its first significant hurdle last week when the taxpayer-funded media giant endured a torrent of criticism over its redundancy program, with the axing of political editor Andrew Probyn prompting particular outrage. The acting president of ABC Friends, Michael Henry, also sent a letter to managing director David Anderson on behalf of the organisation’s 71,000 members to express concern over the redundancy program, and the axing of the position of political editor, In its announcement last week that the ABC was transitioning to a digital-first media organisation, Mr Anderson said: “We have made clear our vision for the ABC to be an essential part of everyday life for all Australians through our high-quality journalism and content, wherever they may live across the country.” One of several press gallery journalists to express outrage at the axing of the political editor role at the ABC was John Kehoe, economics editor at The Australian Financial Review. On Friday, he posted on Twitter: “Andrew Probyn redundancy exposes sad agenda of ABC news bosses. Woke, bias, out of touch with mid Australia & captured by Twitter far left. Probes – newshound, tough/fair on all parties & decent man. As taxpayer & journo, I’m flabbergasted.”
State and territory governments need to set dates to end the use of natural gas as part of a nationwide effort to phase out the fuel and have a chance of meeting 2050 targets for net zero emissions, the Grattan Institute says. In a report that sets it on a collision course with gas pipeline owners, the think tank said Australia will not hit its target for carbon neutrality by mid-century unless it gets off gas, and delaying action will only make the process more difficult. Producing and using gas accounts for 22 per cent of Australia’s carbon emissions. Grattan said alternatives to gas such as hydrogen or biomethane were just too costly and far off to be a realistic replacement, meaning about 5 million households in Australia need to be taken off gas and electrified, despite the difficulties for households, businesses and regulators. Grattan’s energy program director Tony Wood, a co-author of the report, said governments should waste no time before setting deadlines for ending gas use, In Victoria, the state most reliant on gas, about 200 homes will need to be taken off gas every day until 2050 to achieve net-zero carbon emissions. Grattan noted that while all-electric homes are cheaper to run, electric appliances are often more expensive, so governments will need to provide low-interest loans or other funding for homeowners, and tax incentives for landlords to close the gap. The findings look set to be opposed by gas pipeline owners, who are resisting the push to electrification to reduce emissions and are instead campaigning for the introduction of a target for “renewable gas”, including biomethane and hydrogen, to maximise use of existing infrastructure. They cite modelling by Frontier Economics in 2021 that found that developing renewable gases to reduce emissions from gas would save consumers up to $7.5 billion a year in systems cost compared with full electrification. But Grattan said there were “economic, technical, and logistical reasons” why widespread substitution of “green gas” for natural gas wouldn’t work. It said even the most ambitious forecasts for hydrogen envisage it would only match gas on price in 2048, while parts of the gas network would need to be upgraded and appliances switched. .It said while biomethane could be directly substituted into gas pipelines, it is expensive and Australia is unlikely to be able to produce enough to replace its current gas use.
Working from home last year made the average worker less productive and more anxious, depressed and lonely, according to academic research that also found these impacts were lessened by good managers. The study, by researchers from the Australian National University, University of Newcastle and Macquarie University, broadly found that people were less productive the more they worked from home. But amid significant debate over the effects of remote working on workplace culture and productivity, researchers also found that many outcomes improved the longer the study went on, and a large proportion of the negative effects observed could be attributed to poor management. This suggests firms with more skilled managers will have better results and that the outcomes of remote and hybrid working will improve as companies get more used to it. The non-peer-reviewed research was based on roughly 2400 employee responses across five quarterly surveys conducted between the end of 2021 and the end of 2022, and included two surveys that took place when some respondents would have been forced to work from home by lockdowns or stay-at-home directions. It found that each additional day an employee worked from home – up until the fifth day – led to a corresponding deterioration in productivity, efficacy, turnover intentions, depression, anxiety and loneliness. Employees who worked from home five or six days a week, however, scored better than those who worked from home four days a week – the frequency associated with the worst performance scores – on all metrics other than loneliness.
State governments will need to issue almost $100 billion in debt over the next 12 months to fund ambitious infrastructure projects as budgets remain stubbornly in deficit – the first time they have raised more than the Commonwealth. And bond investors expect competition to raise debt could mean states will have to offer generous returns to attract buyers. Queensland, which handed down a budget on Tuesday showing an unexpected $10 billion windfall, still expects to increase future borrowing requirements sharply from $15 billion to between $23 billion and $27 billion, while the South Australian budget, released on Thursday, shows total borrowings rising from $26 billion to $37.6 billion. Debt issuance by Australian states is expected to hit $96 billion in the 12 months to the end of June 2024, according to estimates by analysts at UBS. Two-thirds of that will come from NSW and Victoria alone. The total is $21 billion higher than the Commonwealth’s $75 billion in planned issuance, a situation that is “unprecedented”, according to the investment bank’s strategist, Giulia Specchia. The problem, she says, is that the pool of investors for states is not as large as the Commonwealth’s. The extent of Victoria’s debt path, released last month, was the most surprising. “Victoria failed to show any concrete budget repair,” she said. The state funding arm, Treasury Victoria Corp, intends to raise $34 billion by the end of June next year and $30 billion the following year.
Treasury has been tasked with investigating how much banks are gouging Australians on international money transfers, as multicultural groups call on financial institutions to come clean on the cost of their marked-up exchange rates and hidden fees. Many Australians — and international travellers in Australia — sending money overseas are paying fees of more than 7 per cent every time they make a foreign currency transaction. There is particular concern that Pacific workers within the Australia, who regularly send money back to their families, are being affected by the marked-up exchange rates and hidden fees. The Australian Competition and Consumer Commission has told financial institutions to “take the necessary steps to inform their customers up-front of the total price”, but there is concern that this doesn’t require them to properly disclose the marked-up rates. The government has asked Treasury to monitor the situation and see whether further action is required, on top of guidance issued by the ACCC, while Australia is working with other members of the Group of 20 nations on a plan to bring the hidden fees down.
The corporate watchdog is calling on banks and stockbrokers to help safeguard market integrity and avoid any “unintended consequences” in their rush to adopt artificial intelligence. Joe Longo, chair of the Australian Securities & Investments Commission, warns that recent developments in generative AI “potentially create new and different risks and issues”. AI is set to be a “high and important priority” for the regulator, he said. ASIC’s new focus on AI will extend beyond its impact on the operation of wholesale markets. It will also look at the role of AI in “the whole economy, including consumers and small business”, he said. The regulator also plans to update its electronic trading guidance for the same reason. It will also look at the role of AI in the digitisation of assets, carbon markets. Moreover, ASIC’s expectation for the financial industry is that “appropriate controls” on the use of AI technology will be “part of the design phase and in place before new tech is switched on”. He sees a “danger” that “the fear of being ‘‘left behind’’ will drive some uses of tech that have “unintended consequences”, and notes the recent cyberattack on service provider ION as a “reminder of just how interconnected global markets are, and the implications a bad actor can indirectly have on market intermediaries – and the markets themselves”. But while calling for “robust governance and operational resilience measures”, Mr Longo notes that there’s “as yet no real consensus on how to regulate AI, if at all”. The European Commission has proposed an AI law that takes a risk-based approach, while prohibiting some particular forms. In Britain a ‘‘pro-innovation’’ devolved regulatory model is proposed. China and Canada are proposing laws directed at regulating uses of AI. The Australian government’s recent discussion paper, ‘‘Safe and Responsible AI in Australia’’, sought input on how Australia should approach the question of AI regulation.
A decision by the Greens to defer debate on the $10 billion Housing Australia Future Fund for another four months has granted the Albanese government the first half of a trigger for an early, double dissolution election. After the Greens sided with the Coalition to thumb their nose at Labor and social housing groups, and defer any further debate on the legislation until October 16, the government said this qualified under the Constitution as the first of two steps towards establishing a trigger. “If the Senate defers the bill to October, the government will regard this as the Senate failing to pass the bill,” Special Minister of State Don Farrell warned before the vote. If the Senate repeats the action with at least three months in between, the government will have a trigger for a double dissolution, which is a full Senate election that must be held more than six months before the expiry date of the House of Representatives. At the very latest, that would be March 29, 2025, but the government could go much earlier if it wished. The earliest it could hold a half-Senate election would be August 3, 2024. Anthony Albanese has told colleagues it would be handy to have a trigger for a double dissolution just in case it was needed. He also believes Labor would boost its Senate numbers in the event of a full Senate election.
Coal exports through the Port of Newcastle, one of the largest terminals in the country, are on track to record their lowest level in at least five years as wet weather, rail maintenance and labour shortages hamper shipments. For the first 11 months of the financial year, to the end of May, about 116.7 million tonnes were exported from Newcastle. That compares with more than 154 million tonnes in the previous two years and more than 160 million tonnes in 2020 and 2019, according to an analysis of shipping data. The shipments would need to jump by a whopping 37.5 million tonnes in June to be on par with last year. Shipments in the first five months to May totalled just 53.2 million tonnes, down 10% on the same period last year, because of poor exports in the March quarter, the slowest start to the year since at least 2019 as wet weather and labour shortages hampered production. East Coast coal shipments for the month of May show total coal exports from the Port of Newcastle were 11.7 million tonnes, down 6% year-on-year, according to separate data compiled by Barrenjoey in a June 9 note.
And that’s it for this week. And next week, I’ll be talking to Janty Ayoub, Founder and CEO of AiiMs who will talk about making the most of digital marketing campaigns. And I’ll be talking to AMO Capital chief economist Shane Oliver about the market outlook for the next financial year.
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Wishing you all a safe and healthy week. And looking forward to bringing you Talking Business next week