Scandal-hit accounting firm PwC will continue to audit the Reserve Bank, including over possible underpayment of staff, but won’t get new contracts unless it can demonstrate “complete” transparency and accountability, governor Philip Lowe said.
Addressing a Senate estimates committee on Wednesday, Lowe said he was “appalled as you are” about PwC sharing of confidential tax design information with its corporate clients.
“The use of private information of this sort for commercial gain is wrong,” he said. “It should come with very serious consequences for those who did the wrong thing.”
“Trust is the cornerstone of [PwC’s] profession,” Lowe said. “They’ve got to rebuild that. It’s a challenge.”
“We’ve taken the decision to enter no new contracts with PwC until a satisfactory response has been forthcoming,” he said. The RBA would need to see “complete transparency” and “complete accountability” before entering any new contracts with the firm.
Separately, Lowe also repeated the bank’s commitment to raise interest rates if needed to ensure inflation continued to sink towards its 2-3% target band. The RBA currently expects inflation to reach that range by mid-2025.
Lowe did not detail the claims of underpayment but said PwC had just one ongoing audit and risk management contract with the bank. It would continue because it “isn’t worth the benefit” from switching to another firm.
“There has been underpayment of people when they are leaving the bank,” he said, adding that the shortfall had involved “some non-salary benefits”. “We’re in the process of fixing that up now.”
PwC had been hired late last year, prior to the tax scandal becoming public.
Lowe said he was “100% confident” that PwC had no access to its monetary policy information.
Addressing a question from the Greens Treasury spokesperson, Nick McKim, about what steps the RBA was taking so that “PwC can’t run the same scam on the RBA as they ran on Treasury”, Lowe said he was “100% confident” the firm had no access to its sensitive monetary policy information.
The RBA has spent between $100,000 and $900,000 annually over the past five years with PwC, a relatively small amount compared with some government departments and agency. The existing contract was worth $300,000-$400,000, Lowe said.
The global accounting company is facing rising demands to name the PwC staff involved in the mistreatment of sensitive tax details, and to state what action they will face. Treasury said earlier this week it had referred PwC to the Australian federal police.
Ahead of the senate estimates grilling of RBA governor Philip Lowe, investors were assessing the chance of an interest rate rise in June as 10%. However, they place the odds of one more hike - the 12th in this series - as about 90% by August. pic.twitter.com/MPs45I66GD
— @phannam@mastodon.green (@p_hannam) May 30, 2023
Lowe also told the committee the 2023-24 federal budget was “broadly neutral” concerning interest rates and had not that shifted “our needle at all”.
Extra spending would add about $3bn-$4bn this year to the economy, and was “mildly expansionary” but was not significant in an economy generating more than $2tn a year in activity.
On the other hand, bracket creep that saw inflation push people into higher tax levels was contractionary for the economy.
The budget “hasn’t affected our outlook for the economy or interest rates”, Lowe said.
“I don’t think that the budget is adding to inflation, it’s actually reducing inflation in the next financial year,” he said. ‘[T]he electricity price intervention and saving most of the upgrades of the revenue, I think they’re helpful.”
The energy price intervention involving price caps on domestic supplies of gas and black coal burnt in power stations would shave half a percentage point off the coming year’s inflation rate, Lowe said. The states’ energy rebates would trim off another quarter percentage point.
Those changes, though, weren’t enough to halt big power price increases for the year starting 1 July, with default market offers set to jump by about a quarter, regulators said last week.
Lowe repeated his mantra that the RBA will “do whatever’s necessary” to curb inflation, including lifting interest rates again. While wages growth remained subdued at about half the pace of inflation, the absence of any productivity growth over the past three years meant a 3.75% annual rate of wage gains meant unit labour costs increases remain “quite high”.
The lack of productivity growth was “a problem for the country and a problem for inflation as well,” .
