ACCC warns on privatisation’s competition risks

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By Leith van Onselen

Australian Competition and Consumer Commission (ACCC) head, Rod Sims, has warned that the spate of asset privatisations being undertaken across the country risks lessening competition in key markets, harming consumers and stifling the economy’s productivity. From The Australian:

Mr Sims… said he believed recent privatisations of government assets had focused too heavily on maximising proceeds for the sellers, sacrificing the long-term returns of the assets and disempowering users.

“The ACCC (Australian Competition and Consumer Commission) is doing a bit of high level advocacy to say that we think on privatisation at the moment the dial has moved a bit too much to maximise proceeds, we would like to make sure that the dial moves to get an appropriate regulatory arrangement”…

Mr Sims said for too long the focus of asset being privatised had been on the sale price…

He said a proper regulatory environment needed to be put in place before government assets were sold, especially if they were natural monopolies, and that this included an arbitration regime to settle arguments between owners and users on things such as price.

According to the article, Mr Sims is especially angry that the Port of Melbourne has ramped-up its charges to users – in one case by 800% – in preparation for sale by the Victorian Government.

As I keep saying, the first rule of any asset privatisation should be that it boosts competition within the relevant market, and at a minimum does not lessen competition. The privatisation of the Port of Melbourne seems to have broken this golden rule, placing achieving a heavy sale price above the interests of users, in turn stifling competition and productivity.

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Indeed, what is most concerning about the Abbott Government’s policy of providing states with financial incentives to sell-off their assets (“asset recycling”) is that it presumes that private ownership is superior in all cases, rather than basing decisions on objective economic criteria, on a case-by-case basis, and ensuring that an adequate regulatory framework is put in place first.

The Abbott Government’s privatisation agenda also raises broader questions about non-stop population growth via high immigration. That is, the main reason why the states are looking to sell their major infrastructure assets is to raise the funds necessary to overcome infrastructure bottlenecks caused, to a large extent, by their own population growth fetish (chicken meet egg).

Surely, a more sensible approach would be to dramatically slow the immigration intake, alleviate pressures on infrastructure, and overcome the need to sell-off assets and build new expensive projects?

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.