Consultancy firms should pay their fair share in payroll tax!

Today in Parliament, Abigail moved for the Big Four consultancy firms to finally pay their fair share in payroll tax. Unfortunately it didn't pass, but the consultancy sector and the Labor government have been put on notice. 

Ms ABIGAIL BOYD (16:28): I move Greens amendment No. 1 on sheet c2023‑071C:

No. 1Wages—consultancy firms

Page 11, Schedule 5. Insert before line 2—

[1A] Section 13A

Insert after section 13—

13A Profit distributions by consultancy firms taken to be wages

(1) An amount paid or payable as a profit distribution to a partner of a consultancy firm is taken to be wages for the purposes of this Act.

(2) To avoid doubt, subsection (1) applies regardless of whether the consultancy firm is a partnership formed under the law of this jurisdiction or another jurisdiction.

Example— The consultancy firm may be an incorporated limited partnership formed under an Act of a State or Territory, other than New South Wales, that relates to partnerships.

(3) In this section— consultancy firm means an Australian accounting partnership that—

(a) is covered by a professional liability scheme, and

(b) has more than 100 partners.

 

Abigail said:

Unless members have been living under rock, they will be aware that the large consulting firms in this country have been subject to a reckoning in the past six months. It started with the PwC scandal at a Federal level, which inspired a number of Senate inquiries as well as our own inquiry here in New South Wales. The Public Accountability and Works Committee is up to its seventh hearing for that consulting inquiry, with many more to come. To be honest, at every single hearing, we are getting more and more revelations. For a start, the New South Wales Government could not tell us how much it spent on consulting firms. It cannot tell us how much it spent in the past year or the past 10 years. We know that when it comes to the big four—EY, KPMG, PwC and Deloitte—we are talking hundreds and hundreds of millions of dollars.

We are also finding a concerning trend of revolving doors between government and the public sector—even members of government—and these consulting firms. There is a real bleeding of one type of work into another when firms walk both sides of the street. For example, EY worked both as the auditor for Santos and as a consultant on the Future of Gas Statement, which happened to recommend matters that went in Santos' favour. We heard about the conflicts of interest of current partners sitting on government agency boards. A number of the local health district boards, which have not been subjected to the same reporting requirements as the rest of the government bureaucracy, have spent, again, hundreds of millions of dollars on consultants without disclosing that in any way that we could make sense of. Even after two months of the inquiry, we are still having to go back to Health to try to get a proper record of exactly what has been spent.

The secrecy and the obfuscation and the way in which consultants have been infesting government, by sitting in our departments as secondees and writing policy advice, are coming out. They have failed to disclose conflicts of interest, but when we probe that we find it is because the consulting firms did not think there was a conflict of interest. They are making those decisions themselves. The additional scrutiny on these firms means we are finding out more and more about them. One current Senate inquiry is looking into the structure of those organisations. They have been set up as partnerships. Back when partnerships were first around as a corporate structure, they were what the name says: a partnership between a handful of partners who were sharing business liabilities and profits as opposed to setting themselves up as a corporate structure.

Over time and across the globe a new partnership structure has developed which is a quasi‑pseudo corporation where 1,000 people are called partners of a partnership, with levels of seniority within those partnerships: senior partners who might be akin to a board-level executive and mid-level partners who are probably more akin to an employee. But critically they do not share the liability like they used to because of the types of corporate structures that they can now take advantage of. Another thing that has not been well understood, certainly not by the public nor by most of the media until recently, is that the big four are subject to a New South Wales regulation that gives them special legal protections and, if sued, limits their liability to a maximum of $10 million in most circumstances. The New South Wales Government is granting those special protections and benefits. We found out that in doing this fancy corporate structuring, these partnerships pay no Commonwealth company tax or State payroll tax. They do not have directors' and officers' duties, nor do they have to provide audited financial statements. They are living the best of both worlds. They sit in our board rooms and our cabinets across Australia but face no oversight.

The Greens' amendment is a simple amendment to the Payroll Tax Act. It requires the big four to pay payroll tax on partnership earnings in the same way a CEO would. Taking advantage of that corporate structure and only paying payroll tax for those people who are seen as employees, while having a thousand-plus partners getting, effectively, a partnership drawing on which the firm avoids paying payroll tax, is not good enough. The amendment is saying, "We see your corporate structure. We understand that you are a protected species because, perhaps, you have had such unfettered access to our governments and our politicians. But that time is up." New section 13A (1) changes the definition of wages by including "an amount paid or payable as a profit distribution to a partner of a consultancy firm", being "an Australian accounting partnership that is covered by a professional liability scheme"—like the one we give in New South Wales—"and has more than 100 partners." They are the big partnerships—the ones that make it hard to believe that 100 people are equally running them. If a firm has 100 partners, it should be operating more like a business—more like some other more familiar types of corporate structure—and it should be paying payroll tax like everybody else.

It is not a radical idea. New section 13A (2) states that to avoid doubt subsection (1) applies regardless of whether the firm is a partnership formed in New South Wales or somewhere else. We have the power to do that. We absolutely can capture those drawings and distributions as wages in New South Wales. I would encourage other jurisdictions to follow the lead of New South Wales, if we were to implement this, in doing the same. There will not be a double taxation system. Our Payroll Tax Act is clear that if you pay in one jurisdiction you do not have to pay in another. Let's start the process of holding these firms to account and making them pay payroll tax like everybody else does.

I take a moment to express my sorrow for the partners at these big firms who have been reported inThe Australian Financial Review today as finding this suggestion that they pay payroll tax like everyone else as being a bit of a punitive measure and a bit unfair. What is unfair is that the New South Wales Government has paid them hundreds of millions of dollars for work over the past 20-odd years. They have taken advantage of every aspect of the corporate structure they currently sit under and of the liability caps. They are now being investigated and have been found wanting when it comes to upholding ethical standards. There is no reason for these firms to continue to be treated as though they are some special, ethical, mythical creature because we know now that they are not. Step one is treating them like everyone else and raking in a quarter of a billion dollars over the forward estimates into the State budget from these firms that we can use to pay teachers, nurses, paramedics and midwives.

Every time I hear the Treasurer talk about the terrible state of the budget—which I understand and agree with—and that we have to make some difficult decisions, The Greens' statement has been, and will continue to be, that we understand there is a limited pool of cash but the Government must do everything it can to expand that pool of cash from those in our economy who are not paying their fair share in order to ensure fair wages and conditions for those people who have been pulling our economy along for decades with inadequate reward. Before I hear that the Government is reneging on the deal with teachers and before I hear talk of any kind about a cap on wages, let's rake in a quarter of a billion dollars from the big consulting firms that can more than afford it and that have absolutely no excuse for continuing to avoid payroll tax like every other business in our State. I commend the amendment to the House.

 

The Labor government, the Coalition and the conservative crossbench all opposed Abigail's motion, and so it did not pass. 

Read the full debate in Hansard here.

Join 50,459 other supporters in taking action