External contractors have become so entrenched across the federal government that even operating the IT systems requires outside help, a leading expert says.

It underscores a tough battle for the Albanese government as it begins a monumental crackdown on the big four consultancies amid scandals rocking both PwC and – as revealed by the ABC on Monday – KPMG.

Veteran public servant and governance expert Stephen Bartos says Australia is now paying for a long-running erosion of government capabilities that has left core functions like IT to third-party contractors.

“It’s only a matter of time before even more comes to light,” Mr Bartos said. “This is a problem that has been 20 years in the making.

“Consultancies have embedded their way into the public service. The bus has already left on IT [information technology].

“The Commonwealth has so little IT expertise that it’s going to be – at least for the foreseeable future – heavily reliant on external firms.”

Treasurer Jim Chalmers moved to address widening consultancy issues on Sunday, unveiling reforms that target the exploitation of tax schemes following the PwC revelations.

It comes in addition to an election pledge to cut at least $3 billion from taxpayer spending on external consultants over four years.

But Mr Bartos, a former Commonwealth deputy secretary, said a true rebalancing of the scales will require rebuilding internal capabilities across the federal government – which is a long and difficult process.

“It’s clear these issues are not going to go away,” he said.

“It’s not as though PwC was just one isolated leak – it’s a big systemic problem.”

Scandals expose ‘weaknesses’

The reforms unveiled over the weekend by Treasurer Jim Chalmers are no panacea, but they do seek to cauterise key issues brought to bear by PwC’s misuse of confidential tax policy data.

“The PwC scandal exposed severe shortcomings in our regulatory frameworks that were largely ignored by the Coalition … we’re taking significant steps to clean up the mess,” Dr Chalmers said.

The reforms will increase fines, enhance whistleblower protections and better allow government agencies to investigate wrongdoing by allowing them to bypass secrecy protections in tax law.

Institute of Public Accountants general manager of technical policy Tony Greco said the PwC revelations had exposed “weaknesses” across the government that need to be addressed.

Mr Greco said there’s a tension between the work done by KPMG, Deloitte, PwC and EY, all of which which do auditing and assurance work in addition to their huge consulting operations.

It raises serious conflicts of interests that evidently haven’t been managed well, he said.

“One of the things this saga has revealed is the transparency around the big four is not ideal.”

“It’s hard for an external party like you and I to say: ‘How do we know they’re doing their job’?”

Mr Greco said that even for the government it is difficult to understand how the consultancies tick because partnership structures shield them from the same scrutiny as other companies.

And while the crackdown will go some way to fixing some of these problems, Mr Greco warned the wider issue around an over-reliance on external consultants is tough to fix quickly.

“The public service has been run down over many years. You can’t just rebuild that expertise overnight,” he said.

“You’ll always need to go to the commercial world. There’s a balancing act.”

Untangling the public service

As things stand, about 19,400 of the 144,000 equivalent full-time staff in the federal government are either consultants or contractors.

That figure has increased multiple times in the past two decades, with hundreds of billions of dollars of taxpayer cash flowing to big consultancies.

Mr Bartos said several changes could begin limiting the outsized role that external consultants and contractors play across the government.

That includes rules which would prioritise internal contracting over external tenders, and limiting the ability of public servants to take jobs at consulting firms that do business with departments.

But for such reforms to work a broader rebuilding of capabilities will be needed, something Mr Bartos said will involve giving workers the space to take on tougher tasks and potentially even fail, rather than pushing difficult assignments onto consultants because it’s easier politically.

“It’s one of the great ironies that the way you build capacity is by giving people tough assignments so they can learn,” Mr Bartos said.

“I have no doubt in the capability of public servants to do things, but they haven’t been given the experience of doing the tough, difficult assignments.”