KPMG Struggles Amid Public Sector Spending Reductions

Federal government spending cuts aimed at reducing dependence on external consultants have stripped $200 million from KPMG’s public sector revenue, creating significant challenges for the firm's advisory division.

In the past year, KPMG’s federal contracts have dropped sharply from $303 million to $106 million. At their peak, these contracts were worth more than $500 million. This decline reflects a broader government initiative to bring capabilities back in-house and limit reliance on private consultants.

The Department of Defence has been central to this shift, reducing KPMG-related work from $450 million to $45 million after concerns were raised about the firm’s billing practices, which KPMG denies. During this transition, thousands of public servants have been rehired and a government-run consulting unit has been established to reduce external dependencies.

While firms such as Deloitte and EY have either maintained their positions or experienced relatively small reductions in government contracts, KPMG has faced the most significant decline apart from PwC, which has completely withdrawn from this area. At the same time, Accenture has significantly expanded its footprint, nearly doubling its contracts to $600 million as agencies like the ATO and Health Department award new work.

In response to the downturn, KPMG is undergoing a major internal restructuring. The firm is cutting hundreds of advisory roles and dozens of partners as part of an $80 million cost-saving plan. Revenue in the consulting division has dropped 14% to $915 million as clients become more cautious and push back on advisory fees, particularly for services involving AI, which are increasingly expected at reduced rates.

KPMG’s future in the advisory sector is becoming more uncertain. Its audit wins limit its ability to take on additional advisory work within the financial sector. As a result, some partners are leaving the firm to explore more stable opportunities with competitors amid growing instability in the market.

Source: Australian Financial Review, KPMG Australia

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