23 February 2024

Fewer APS consultants means less revenue for ACT Government

| Chris Johnson
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Fewer external consultants to the APS are hitting the ACT Government hard. Photo: Michelle Kroll.

Payroll tax has taken a huge hit following the $3 billion cut to Federal Government spending on consultancies in the Australian Public Service and the ACT Government is paying the price.

Chief Minister Andrew Barr recently told Region that the slowdown in spending due to higher interest rates and inflation also meant GST payments for the territory would be reduced.

The payroll tax slump from the engagement of fewer consultants adds to the pain and what is expected to be a bigger-than-expected deficit.

It all adds up to a $189 million hit to revenue in 2023-24 and $99.2 million over the four years to 2026-27. However, the ACT Government expects the deficit to be temporary.

The Chief Minister expects the budget to return to balance and then surplus over the forward estimates.

“We’ve got some revenue hits, but they’re not anticipated to be permanent,” Mr Barr said.

Revised income tax cuts kick in from July, and interest rate cuts are anticipated in the second half of the year, which should boost spending in the ACT and lift GST revenue.

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Core APS work must no longer be outsourced to consultants but done by actual public servants.

Last year, the federal government issued clear instructions to all Commonwealth agencies that the days of over-reliance on external consultants and contracted labour-for-hire are all but over.

All public service bosses must set targets to slash outsourcing by June this year.

The culling of external consultants has been underway for some time, and it is impacting the ACT economy.

When announcing the directive, Public Service Minister Katy Gallagher said the former Coalition government had relied too much on consultants and contractors and wasted too much taxpayer money.

“We have an ambitious plan to reform the APS, and this framework will ensure that from now on, core work will only be done by APS employees,” she said.

“Agency heads will lead this work, determining their core work, setting targets to bring it back in-house and reporting on their progress.

“Information on progress will be publicly available.”

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An in-house APS consultancy entity called Australian Government Consulting has been created and is currently running two pilot projects.

One was partnering with the Centre for Australia-India Relations to analyse opportunities for closer collaboration between federal, state and territory governments on economic engagement with India.

The other is partnering with the new Net Zero Economy agency to develop its vision and undertake strategic business planning.

Under the edict, if a job can be done by APS staff, it must be done by them.

Day-to-day functions such as drafting Cabinet submissions, drafting regulations, leading policy development, or occupying a role on an agency’s executive must not be outsourced.

According to the government, if external arrangements are currently being used for these core functions, knowledge must be transferred to the APS.

Core functions should also be expanded to include managing contracts, procurement, cost-benefit analyses, delivering programs and managing grants. These functions should be brought back in-house as a matter of priority.

Outgoing Australian Taxation Commissioner Chris Jordan has publicly lamented the move away from external consultants, saying it could dampen the movement between the private and public sectors.

“I think it’s a shame that you might see less willingness of senior private sector people wanting, for all the right reasons, to come and give back and do good things for the public service,” Mr Jordan said in his valedictory address to the National Press Club.

“I think we might see that there’ll be less interest in that. But you can’t just be a closed shop.”

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Perhaps the hit to the ACT budget is not as large as the article suggests. Or more correctly, perhaps the hit should have been much higher.

In my day as an IT contractor, many of my fellow contractors used the services of payroll companies. These companies exist solely to get around the payroll tax provisions – they provide no value add service to the ACT economy whatsoever.

How the ‘scam’ works is simple.
Normally a contractor will be “employed” through a recruitment agency, e.g. Paxus. Paxus will find the contractor work and negotiate the contract with the agency needing the contractor’s services. Paxus will pay the contractor – plus pay the (current) 6.85% payroll tax, as their total payroll bill will be well above the $2m per annum threshold.
Enter a third-party payroll company (let’s call them PayRoll Pty Ltd). PayRoll Pty Ltd will have access to a number of small registered companies which have an annual payroll bill below the threshold – typically single (or maybe 2 or 3) employee companies and there are many of them. For a nominal fee (maybe $2,000 pa), PayRoll Pty Ltd will use the small registered company (let’s call them SmallCo Pty Ltd) as the ’employer’ of the contractor. So now Paxus doesn’t employ the contractor – they have a contract with SmallCo Pty Ltd who “provides” the contractor’s services which they “on sell” to the agency where the contractor will work.
The critical thing is that SmallCo Pty Ltd is under the payroll tax threshold so there’s a tax saving of 6.85%. Typically, PayRoll Pty Ltd and the contractor will spilt the “spoils” say 3.85%/3.0%. For doing absolutely nothing other than finding ScallCo Pty Ltd (who receives $2,000 for nothing other than signing a contract) to use them as a ‘faux employer’, PayRoll Pty Ltd gets a tidy 3.85% windfall. Paxus is happy as they are still getting their ‘admin fee’ for providing the contractor’s services to the agency.
Everybody wins.
Well NO! Through this clever payroll tax chicanery the ACT public purse is being dudded to the tune of many multiples of 6.85% of revenue.
Remember, every dollar that someone avoids in paying tax will have to be offset – either by a reduction in service or further tax impost on others. The government will still need to exact it’s ‘pound of flesh’.

I didn’t use such companies as I factored in payroll tax, into the rate I wanted to receive when undertaking a contract, but it’s easy to see how this “payroll industry” survives. After all it’s only reducing the ‘unreasonable payroll tax burden’ facing Australian companies.

If companies such as ‘SmallCo Pty Ltd’ are doing this, they are not complying with the ACT Payroll Tax law. There is a thing called ‘Grouping’ which means that commonly owned or controlled entities get only one threshold between them:

In theory, your above scenario does not work.

Unless the ACT payroll tax provisions have changed in the last few years, Karen, I can tell you that what does not work “in theory”, definitely works and was done in practice. What I failed to mention, is that “Payroll Pty Ltd” does not own any of the third party companies (such as SmallCo Pty Ltd). Those third party companies were, in my contracting days, owned by small entities – possibly another contractor – which is why they received a payment from Payroll Pty Ltd for allowing the use of their company for the purposes of signing the contract. I don’t see that the ‘Grouping’ provisions would apply, as none of the entities in the ‘arrangement’ are commonly owned.

Is the “Opportunities for Closer Collaboration on Economic Engagement with India” is a euphemism for let’s outsource to India?

Replacing one bad way of doing things with another bad way of doing things is not a solution.

I’d like to know where this info comes from, as there is squiddly-do on the new agency’s website agc.gov.au.


Considering how rampant consulting profit shifting and paying “partners” from offshore to dodge tax, this is a net benefit to the Australian economy meaning, ironically, more money for contractors who do actually useful things.

Australia 1 / Cayman Islands 0

The ACT bottom line is helped and hindered by the Feds. They are chipping in huge amounts for light rail without any business case or ROI. Yet absent is a few hundred million from payroll. Aren’t we glad the Feds didn’t spent that extra cash and Australia benefited from lower government spending.

Maybe Barr is a believer in the broken window fallacy. Where money is made from inefficiency…

If only we had a competent opposition then, last seen active in Canberra around 20 years ago.

Tom Worthington4:37 pm 23 Feb 24

The work of consultants can now be done by Chat GPT. 😉

Here is an example. I asked Chat GPR to write a report on “Opportunities for Closer Collaboration on Economic Engagement with India”:

“Executive Summary:

In an era of increasing globalization, Australia’s economic engagement with India presents immense opportunities for growth and mutual benefit. This report, commissioned by the Australian federal government, explores the potential for closer collaboration between federal, state, and territory governments in enhancing economic ties with India. Leveraging the synergies between these entities is crucial to unlocking the full potential of the Australia-India economic relationship.


Australia and India share a strong diplomatic relationship, with deep historical ties. However, there is untapped potential in economic collaboration. As both nations seek to diversify and strengthen their economies, it is imperative for the Australian federal, state, and territory governments to work cohesively to seize emerging opportunities in the Indian market.

Current Landscape:

Australia’s current economic engagement with India is primarily driven by the federal government. However, there is room for increased involvement at the state and territory levels. India’s diverse markets and industries provide avenues for collaboration in sectors such as agriculture, technology, education, and renewable energy.

Opportunities for Collaboration:

Industry-Specific Partnerships:

Facilitate collaboration between federal agencies, state governments, and Indian counterparts in identifying and promoting industry-specific opportunities.
Develop joint initiatives to support Australian businesses in navigating Indian regulatory landscapes.
Education and Skill Development:

Foster collaboration between Australian states and Indian states to promote student exchange programs and skill development initiatives.
Establish partnerships between Australian universities and Indian educational institutions to enhance research and innovation.
Infrastructure Development:

Coordinate efforts in infrastructure development, aligning with India’s ambitious projects such as Smart Cities and Make in India.
Create joint task forces to explore investment opportunities in key infrastructure projects.
Trade Missions and Cultural Exchanges:

Organize joint trade missions involving federal, state, and territory representatives to India.
Promote cultural exchanges to enhance understanding and strengthen ties at various levels.
Challenges and Mitigation:

Coordination Challenges:

Implement a centralized coordination mechanism to ensure effective communication and collaboration among federal, state, and territory governments.
Regulatory Harmonization:

Establish a task force to identify regulatory barriers and work towards harmonizing regulations between Australia and India.
Capacity Building:

Invest in training programs for government officials at all levels to enhance their understanding of India’s business environment and culture.

Closer collaboration between the Australian federal, state, and territory governments is pivotal in maximizing the economic engagement with India. By aligning strategies, sharing resources, and fostering partnerships, Australia can position itself as a key player in the dynamic Indian market. The recommendations outlined in this report provide a roadmap for policymakers to navigate the complexities and harness the vast opportunities presented by the Australia-India economic relationship. …”

Is there any difference between ChatGPT writing policy and the Grad writing policy?

Straight up just saved $10 mil on a bunch of low grade consultants charged out at premium rates.

Throw in a ten slide powerpoint pack and that’s $20 million saved, all going offshore and incomes paid from offshore bank accounts.

You do realize the “Opportunities for Closer Collaboration on Economic Engagement with India” is a euphemism for let’s outsource to India.

Replacing one bad way of doing things with another bad way of doing things.

I’d like to know where this info comes from, as there is squiddly-do on the agency’s website. Sus.

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