The Courier-Mail is reporting that the final Queensland Commission of Audit report has been presented to the Government, although the Commission’s website is yet to publish the document.
Not surprisingly the report apparently recommends selling ports and electricity assets in order to reduce government debt. The Australian indicates that the report says it would take 50 years to pay off Queensland’s debt if nothing was done – which says nothing at all about whether the debt is a good or bad sign about the state of the economy, nor whether the economy would be better or worse without the debt. It is pretty irrational advice to argue that debt should always be zero. What kind of company would be run like that?
So what is this report really all about?
The Newman government defeated a Labor party that was heavily criticised for selling public assets. But their ideology is more strongly in favour of privatisation and they want to continue the privatisation process. But knew they had to sell these decisions better to the public. So they started early and engaged Peter Costello and friends to produce a document that can be used as an excuse, or reference point, for future decisions to fully privatise State assets.
If the government was genuinely concerned about their finances, we would have seen something different occur . First, a report would have been prepared by existing institutions, with expertise in the financial structures of Queensland government entities. Perhaps Treasury, or the Queensland Audit Office might be an appropriate place to start.
If the exercise was genuine we would see some public discussion about the merits of public debt and the financial benefits to the State from privatisation. When the Bligh government sold State asset in 2009 20 economists produced a letter explaining that their are benefits to government ownership of assets that could outweigh any burden of the debts that could be reduced by selling. Again, there is no argument about the merit of debts, and the costs of privatisation.
Would you decide to sell your business simply because you had debt, even if that business was profitable and had solid future prospects? No. The best thing is to keep the debt and the business, as the returns from the equity in the business outweigh the cost of debt.
By definition the price the government would receive for any asset sales is a price that reflects a market level of return on equity, which would surely be higher than the rate of interest on the debt that is being repaid. Thus, by definition the government is in a financially better position to own the assets.
Unless there are likely to be massive innovations in these businesses, that can’t be achieved in a situation of partial or full government ownership, then it is not a financially effective decision to privatise. It is pure ideology.
Expect very little analysis of this report in the media. Expect this propaganda to work. Expect the friends of the government to make a mint during the privatisation process.
Welcome to Queensland.
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