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Regulators and advisers need more diversity of thought, and taxation is more than a cost to be minimised, a lecturer has said.
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PwC scandal goes deeper than a few bad apples, academic says
21 February 2024
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The PwC scandal is only the tip of the iceberg, it’s symptomatic of a lack of diversity in Australia’s tax governance, said Dr Mattia Anesa, lecturer in strategy, innovation and entrepreneurship at the University of Sydney.
In 2019, Dr Anesa published research that found a “staggering lack of diversity" in educational backgrounds among those charged with advising on Australia's tax policy.
Of the 76 survey participants, all of whom helped to craft Australia’s tax system during the 2014–2016 Senate inquiry on corporate tax avoidance, every participant was trained in “law and neo-classical economics.”
These voices are important, said Dr Anesa, but they need to be complimented by others who recognise “how much tax contributes to the well-being of the public or the taxpayer.”
“The corollary of these entrenched assumptions has seen the development of tax systems – not only in Australia – where there is less focus on genuine restriction of tax minimization and more on improved collaboration between the regulator and the regulated,” he said.
A collaborative approach to tax regulation is based on the idea that the regulated should be consulted in the drafting and implementation of regulations that might affect them. The idea holds sway in countries all over the world.
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“There is some truth in it. Of course, from an economic perspective, you get more uptake when you get the regulated to understand and even to help the regulator to come up with something more viable,” he said.
The downside, however, is that “you open up the risk” of creating a regulatory framework that focuses too much on tax as a business cost to be avoided. It was these circumstances that contributed to the PwC debacle to occur in the first place, he said.
According to Dr Anesa, when the advisory panel to the Board of Taxation – the body charged with advising the federal government on tax – last published a list of its members, 43 out of 48 members were current or former practitioners of advisory firms.
“Don’t get me wrong, we need these people,” he said, “but I think we’re missing the social justice side who look more at the impact [of taxation] down the line.”
In June of last year, the advisory panel was dissolved. In announcing the dissolution, the Board of Taxation said the panel “no longer provides an optimal mix of expertise for the [Board of Taxation’s] current needs.”
Dr Anesa said the announcement was “promising” in that it signalled an awareness of the board's lack of diversity, adding, however, “there hasn’t been any update since.”
A similar show of awareness was displayed last year when, following the PwC scandal, the Treasury laws were amended to bar partners and executives with financial links to the big four accounting firms from serving as members of the TPB.
The collaborative regulatory approach goes beyond the drafting of policy, to its enforcement. Currently, policymakers and regulators appear to prefer “soft” regulation over stricter enforcement actions.
“I think with the voluntary tax code and the ATO yearly tax report, those are, to me, soft measures…There should be a bit more impetus on the hard measures rather than the soft measures,” he said.
Transparency and reporting requirements are one kind of soft regulation. Australia is a world leader in terms of using transparency to guide business activity.
Compared to other areas such as human rights or environmental sustainability, Dr Anesa said tax performance is difficult to judge through transparency measures.
“It’s much more difficult with tax because it’s not as straightforward as ‘you pay less taxes, that’s bad.’” A dollar amount in paid taxes can oversimplify the discussion. For example, it can overlook the use of offset schemes designed to incentivise research and development or environmental investment.
Transparency is part of the solution, said Dr Anesa, but it must be complemented with other reforms, such as harder regulation.
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