KPMG exposed for dodgy Hobart stadium report

Big four audit firm KPMG tried to dictate how a government body should assess the case for a new stadium in Hobart, omitted obvious inclusions that would have undermined the case for the stadium, and made some bizarre assumptions, independent economist Nicholas Gruen has revealed in evidence to the Tasmanian Parliament.

Earlier this year, in the wash-up from the Tasmanian election and after a demand by Jacqui Lambie Network MPs, Gruen was commissioned by the minority Tasmanian government to prepare an independent report on the building of a new stadium in Hobart. His report found that the cost of the stadium had been significantly understated by the government.

Giving evidence to Tasmania’ Parliamentary Accounts Committee, Gruen took aim at the work of KPMG, which was commissioned by the government body building the stadium, the Macquarie Point Development Corporation, to provide economic analysis for the project.

Gruen identified a number of howlers in KPMG’s work, as well as the fact that it refused to comply with a request from the Tasmanian Planning Commission (TPC) to provide an alternative public project scenario to enable an understanding of the opportunity cost of the project.

The TPC’s guidelines are explicit that “the economic impact report should also consider the opportunity cost of domestic investment — for example, a ‘counter-factual’ estimate of the impact of an alternative investment of equivalent public funds.” Gruen’s own report provided a counter-factual case of an educational facility.

But KPMG point-blank refused to comply, and criticised the commission for its “false premise that the opportunity cost of the stadium is an alternative investment that the government may choose to do.” It’s a bizarre argument: trying to determine whether a major project involving both public land and extensive government spending should proceed must surely involve some consideration of what alternative uses such assets could be put to.

As Gruen put it to state MPs “it takes some nerve to argue that your requirement is based on a ‘false premise’. It is, rather, based on the textbook application of the most fundamental concept in economics — that of opportunity cost.”

Infrastructure Australia’s Guide To Economic Appraisal also states that “the capital costs should include the opportunity cost of the land used, even where this is currently owned by government”. But KPMG did not include the opportunity cost of the land on which the stadium will be built in its costings for the project, thus understating the costs by over $150 million.

KPMG’s work contains other serious problems. Gruen estimates that overall “there are an additional $322 million of costs on top of the cost estimate presented in the Project of State Significance project, bringing total capital costs to $1,096 million compared with the claimed $775 million.”

And KPMG wildly overstates how many interstate visitors would attend matches — thereby inflating the benefits from interstate tourism. KPMG based its figures on how many interstate visitors attended AFL matches in Launceston. Problem is, those matches featured two interstate teams, whereas the new stadium would host matches involving the local Tasmanian team and one interstate team. Then KPMG inflated that number based on the assumption that matches in the new stadium would attract bigger crowds than in Launceston.

Nor does KPMG anywhere respond to Gruen’s earlier report. In fact, in its late January addendum for the corporation, KPMG rather ostentatiously pretends that Gruen’s report, which raised a large number of concerns about KPMG’s assumptions, simply doesn’t exist. It suggests KPMG lacked the wherewithal to mount any sort of intellectual defence of its overly generous assumptions — and conjures memories of its outrageous and deeply conflicted role in the TAHE scandal in NSW.

Gruen told Crikey it’s symptomatic of a broader problem in public policy. “There is no-one in the system whose job it is to get to the truth. Rather we have a ‘for’ and ‘against’ position and they fight it out in front of an audience of partisans. As this system reaches its end point it’s no-one’s job to seek or speak the truth. Ultimately the Westminster system has been slowly drowned by the party system and media imperatives.

“The only way to rescue democratic accountability from this unaccountability machine is a crossbench with the balance of power — the thing that empowered me to seek and speak the truth about the stadium.”

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