EY under fire as senators slam ‘very unusual’, ‘not correct’ economic modelling
Senator Pocock pointed out that the EY report disclosed that the work “represents solely the ‘interests’ of the MBA and so does not have regard to other evidence”, that it did not verify data it relied on in the report, and that the modelling was contingent on assumptions “agreed with the client”.
“That is a very unusual form of modelling,” she said. “There’s no economic theory that would suggest you should ask your client for the assumptions that should be built into your model.”
Senator Pocock also pointed to research by University of Sydney economist Phillip Toner, as previously reported by this masthead’s Rear Window column, which found faults with EY’s methodology, rendering the work “effectively anecdotal, empirically empty, and useless”.
Mr Schmitke said the MBA “disagreed with that, obviously”, suggesting that Dr Toner was generally opposed to “employers in building and construction”.
Faced with a barrage of evidence about Dr Toner’s qualifications, the MBA executive said he was “not suggesting” Dr Toner was not a “very well-respected researcher”.
He said the EY report was “written by very smart economists”, adding that he himself was “not a smart economist at all”.
Labor senator Linda White added: “We can all write reports. If they are not factually correct or don’t provide evidence that we can rely on, are they not worthless?”
Mr Schmitke again “disagreed with the premise of [this] question”, saying MBA had gone “to a great deal of trouble to ensure that report was created at arm’s length”.
Asked how much MBA paid EY for the report, he said it “certainly wasn’t cheap” but that he would have to get back to the committee on the total cost.
The Master Builders report is among several pieces of work by EY economists for lobby groups or companies that have recently been dismissed by other economists, courts or government reviews.
‘Confusing’, ‘grossly misleading’
EY’s economic assessment of an open-cut coal mine in Rocky Hill, NSW, for Gloucester Resources in 2019 was slammed by a NSW judge as incorrect, lacking “evidentiary foundation”, and at odds with government guidelines.
It used the same methodology for British mining and energy company SIMEC Group last year in its quest to expand the Tahmoor coking coal mine south-west of Sydney, even though another economist found these calculations were “unorthodox” and “plainly wrong”.
A NSW government review also dismissed EY’s calculations for Glencore on emissions from its proposed Glendell mine expansion as “inconsistent with government guidelines and [standard] practice”, with the firm valuing the emissions at $70,000 compared with independent estimations of $64 million to $294 million.
A report for CarbonNet on how carbon capture and storage could increase Victoria’s gross state product by $1.1 billion was also “grossly misleading”, Australia Institute economists found, as was a report for gas industry lobby group APPEA.
“The Australia Institute has long called for a code of conduct for economic modellers,” the think tank’s executive director Richard Denniss said in research paper this week.
“EY’s recent work shows that the need for professional discipline in economics is increasing rather than decreasing.
“EY is far from alone in this business. Similar reports are churned out by big-name firms such as Deloitte and ACIL Allen and a host of smaller consultants.
“There are no consequences for publishing confusing assessments such as this as there are no professional standards for economists.”
The Australia Institute’s proposed code would require economists disclose the key assumptions, context and comparisons behind their work, and who commissioned it. An EY spokeswoman said the firm “stands by the quality of [its] work”.
