Interview with Kieran Gilbert, Newsday, Sky News

Subjects: regulation of accounting, consulting and auditing firms, housing, 1 July measures Kieran Gilbert: Welcome back to the program. Let’s bring in the Assistant Treasurer, Daniel Mulino. Thanks for your time.

Can you give our viewers an update – you’re looking at this reform when it comes to the big 4 accounting firms. What have you announced today? Daniel Mulino: Well, thanks for having me on, Kieran.

And look, there’s been a lot of behaviour, frankly, that is quite shocking, that has been unearthed in recent years. So, first there was the Pricewaterhouse scandal, and that involved Pricewaterhouse advising the government on tax reforms and then using confidential information with some of their clients to advise them in ways to minimise tax. Then recently, of course, KPMG, where they were using confidential information on their own clients to bid for work with other clients.

Now, what I’ve said is, that is just simply not good enough, and we need to look at regulatory arrangements to see if there are areas where we need to strengthen regulatory arrangements. And one area we’re looking at is what’s called operational separation, which would be to say if you’re a large auditing firm, you can’t engage in non‑audit services with a client that is using you for your audit functions.

Another intervention, which would be even stronger, would be to say that firms can only either do audit functions or non‑audit functions. And then finally, there are other changes we’re looking at also, such as reducing the maximum size of partnerships. Currently, it’s 1,000, which is significantly more than legal firms, for example, which are limited to 400.

So, we’re looking at a range of possible options to try to bring back trust to auditing functions and other consulting functions, which are so critical to our financial services sector. They are critical, but they’re also global, aren’t they? I mean, when you’re talking about the separation elements that Australia might impose on the big 4, I mean, they’re called the big 4 because they’re global organisations.

Is there a chance that they just pack up and walk, or is it too lucrative for them to stay? I mean, can we impose certain elements like separate, structural separation in Australia when it’s a firm that operates globally? Yeah, so, I don’t think there’s a risk that companies will up and leave Australia.

It is true that they are global firms and that there are different regulatory arrangements around the world. I think what we need to make sure is that we are at the leading edge, that we have arrangements that ensure that people who rely on auditing services in Australia can be confident that we have world’s best practice regulation. I’m confident that whichever option we look at, we will have a vibrant auditing and accounting and consulting services ecosystem.

So, you can, you can have a fit‑for‑purpose setup in Australia, different to the United States, and they’ve just got to accommodate the different rules in the different jurisdictions. Is that essentially how it works? Well, so they’re already accommodating different arrangements in different jurisdictions.

Not every country regulates audit or accounting or consulting in exactly the same way. You’re already dealing with – So, you could have a situation where you basically split a company? So, you do the consulting, you do the auditing, but you can’t have that firm together.

Yeah, that’s something which is entirely possible. And in fact, it’s been recommended that government look at this by a number of experts. A Parliamentary Joint Committee on Financial Services and Corporations has recommended that we look at this, and a number of other competition experts – including people like Allan Fels and Graeme Samuel – have said that we need to look at various ways to strengthen our regulatory arrangements.

Now, far be it for me to be the advocate for the big 4, but I do know that they have a lot of very talented people and it’s got a lot of intellectual capital within those 4 organisations in this country. Is there a risk that you throw the baby out with the bathwater here? Because they do do a lot of good work, and I know that they’ve been the subject of criticism, quite rightly, for the scandals you spoke about, but day to day, there’s a lot of good people doing good work in those organisations.

You’d accept that, wouldn’t you? In fact, what we’re saying is it’s the importance of their work, their work underpins people’s faith in our financial services sector. And that’s exactly why we need to make sure that if there are gaps in our regulatory system that we deal with those gaps.

As you say, people being able to rely on auditing services is key to our system – both the companies themselves that get audited, but also people who are looking to invest in those companies. And so when we think about all the people who have superannuation accounts, the mum and dad investors, they need to be able to rely on a system where those critical services are provided in a way that is as fair and honest and up to standard as possible.

So, you’re right, there is really important work being undertaken, and we need to make sure – I totally support, you know, the exposure of the various scandals and so on, but you also feel for those that are tarnished by the same brush, aren’t you? Because, like some of them that would have had zero to do with any of those indiscretions and yet they have flow‑on effects to their careers and business.

Well, for people that are just working hard and living up to their professional standards, I say you are doing important work. And what I’m saying is, for those people, they will ultimately benefit from regulatory arrangements that are more robust. As you say, what they are doing – [Inaudible] not just to everyone in KPMG, PwC, but then on Deloitte, EY.

I mean, they all get a bit of the spray, don’t they, from controversy like this? But I think – the people doing the right thing will ultimately benefit from a system that works better, a regulatory system that is more comprehensive, and they will benefit from the fact that Australia’s trust in auditing services generally and the overall system lifts. On the house prices, they’re down, and right off the back of the Budget.

Is this what the government wanted? What I would say about house prices is, and clearance rates and other aspects of the housing market, is that if you look across the system at the minute, there are different movements in different cities, in different markets, and that’s very normal. So, we’ve seen, for example, with auction‑clearance rates, they’ve ticked up in some markets, ticked down in some markets.

We always have to be careful when we talk about Australia’s housing market. Movements in prices and clearance rates don’t move in the same direction in all markets. But if you look at this – I don’t know if our studio’s got it for you, but the graphic that has the clearance rates this week versus last year, the same week.

You know, same time of the year, winter. I think they’re chasing it up for me now, that number. But it’s down dramatically, the clearance rates this year as opposed to last year.

And it’s straight off the back of this Budget where you had those quite significant tax changes. There are lots of things that affect the housing market. It is one of the most complex markets in our economy.

It’s a huge market. It gets affected by broader consumer sentiment. It’s affected by the interest rate cycle – There’s the [inaudible]. – by the broader business cycle.

But look at that. That’s 37.7 in New South Wales, under 30 in Queensland, 47 versus 67, 48 versus 75. That’s a big shift in one year.

But I really think we’ve got to be careful about attributing any particular change in the housing market to one factor in a very complex market. And we’ve got to remind ourselves that these changes only just passed the parliament. What I would say is that the government still stands by the Treasury modelling, which is that these changes we’re talking about are likely to have the impact of a very slight moderation in house‑price growth.

The modelled impact is around 2 per cent for a couple of years. We’re still expecting house prices to increase over the medium term, but just slightly slower. And what we’re going to see as a result of that is, according to the modelling, around 75,000 families and individuals owning their home rather than renting.

So, these are significant structural changes. There will be big benefits. But the expectation is it’s still going to see a market which, over the medium term, continues to grow just for a couple of years at a slightly moderated rate.

July the 1st today, tax cuts coming in, parental leave out to 6 months. These cost‑of‑living measures – there’s 2 questions I’d ask you. By putting more and more dollars, government dollars, out there, is there a risk here, with the fuel excise reduction continuing, that you’re running counter to the RBA still?

And secondly, do you see this, these measures, as your bulwark or your defence against One Nation, to push back against the surge of One Nation? So, just on the first question, I think when you look back to our first term – and this government inherited an economy where inflation was over 6 and rising fast as a result of supply chain pressures globally – we, throughout the first term, had a whole range of cost‑of‑living measures that were targeted and proportionate.

And we saw the inflation rate fall during the course of that first term, even as we provided those cost‑of‑living measures. So, it’s entirely consistent for us to provide targeted, proportionate cost‑of‑living supports while being in alignment with the RBA’s strategy. And on that second question, what I would say is what we’re doing right now is entirely in line with what we’ve been doing for the last 4 years.

We have been focused, focused in on providing people with cost‑of‑living supports our entire time in government. That remains an integral part of this government’s DNA, responsible economic management that provides people with concrete benefits. Daniel Mulino, Assistant Treasurer, thanks for your time.

Thanks, Kieran.