Government awards more than $190bn to contractors in 2022, with political donors winning big

Government spending on contractors such as PwC has surged from $33bn to $190bn in less than a decade, an explosive new report has found.

Finance Minister Katy Gallagher and Treasurer Jim Chalmers. Picture: Getty Images

Government spending on contractors such as PricewaterhouseCoopers has surged from $33bn to $190bn in less than a decade, and disproportionately favours firms making political ­donations, an explosive new report has found.

Figures from the economic ­research body the e61 Institute ­revealed that while only 2 per cent of contract winners were political donors, they received 8 per cent of total contract value in 2022.

The report said firms that were also political donors won $5m more a year in government contracts than non-donors. “There’s no doubt they are getting disproportionately rewarded,” said e61 ­Institute research director and ­report author Dan Andrews.

“It’s clear more resources in the private sector are dedicated to servicing the government. We have to ask ourselves what kinds of firms are getting it.”

The e61 Institute also revealed the government was awarding contracts to the same firms, with its report finding 75 per cent of value of government contracts went to companies that had won a contract in the previous year.

And the portion of contracts awarded to the richest firms – or those with an annual revenue of more than $100m – increased from 65 per cent in 2014 to 80 per cent in 2022.

“New firms that secure government contracts are more likely to succeed, and thereby increase pressure on existing firms to ­improve their offerings. But what we’re seeing is a complete ­entrenchment of a few big players,” Mr Andrews said. “Perverse incentives” were created in the environment where the same firms were given contracts, and organisations making political donations had an advantage, he said, arguing this had manifested itself in the PwC tax scandal.

“This report should raise some eyebrows, particularly in the wake of recent scandals where these ‘insider’ organisations have used their political connections to ­benefit themselves in illegal or ­improper ways,” he said.

However, he warned the trends revealed in the report pointed to broader economic risks as well, given government contracts had grown from representing less than 2 per cent of firm income in 2014 to more than 11 per cent last year.

In an opinion article published by The Australian online, Mr Andrews said the country needed to be cognisant of “the threat that the cosy interplay between government and politically connected firms poses to our economic competitiveness”.

“The government has now become a large enough purchaser to shape market competition, affecting which firms succeed and fail,” he said.

“If governments increasingly turn to the same large firms, they may tilt the playing field in favour of tired incumbents, crowding-out growth opportunities for dynamic upstarts.”

Mr Andrews said the government needed to “apply a laser-like focus to ensure that its spending practices are not excessively tilting the playing field in favour of large incumbents”.

Jim Chalmers said on ­Thursday it was clear the federal government had become “too reliant on contractors and consultants and labour hire”. “There’s a role always for expert external advice but the balance has gotten way out of whack over the last decade or so,” the Treasurer said.

“PwC and other consultants have been involved in government work over the years, there will be a role for that in the future but we want to rebalance it and we want to tighten it up.”

Mr Andrews warned that without correction, the government risked not only another PwC scandal, but potential economic stagnation by creating a market where companies were “unlikely to innovate but instead forge strong political connections”.