Peter Costello’s alleged conflicts of interest

Fairfax is reporting that a complaint was made to the Crime and Misconduct Commission (CMC) on January 24 this year about a potential conflict of interest by Peter Costello during his role as an ‘independent’ Commissioner  for the recent Queensland Commission of Audit.

An executive summary of the Audit report was released last week, and not surprisingly it suggested that extensive privatisation of public services is necessary to reduce Queensland’s public debt.  This is despite the rather basic fact that the sale of equity to pay off debt usually reduces cash-flows in profit-making businesses and could make the interest cost of debt worse for the government.

As I wrote last week, this is Propaganda 101 by the incoming government looking to stamp its ideology, rather than its election promises, on Queensland while it has a large majority. As Professor John Quiggin notes:

Although the Costello Commission is often presented as if it’s something new, appointing a Commission of Audit has been routine piece of political theatre for incoming conservative governments since the early 1990s. The recommendations almost invariably involve spending cuts, and usually asset sales.

Now it seems that Costello’s independence is in question, having played an intricate role in Queensland’s political process through his positions as a lobbyist and relationships with party insiders.  As Fairfax reports, Costello owns one third of ECG Advisory Solutions, a lobby group formed by Mr Costello with two of his former parliamentary staff members, David Gazard and Jonathan Epstein, in August 2011. You can see the list of clients they represent at the Australian Lobbyist Register.

Major recommendations of the report included privatising electricity and ports infrastructure.  ECG clients include SP Austnet, which manages private electricity generation and Dubai Ports, which runs private port operations.  Other clients are Primary Health Care Limited, who specialise in private provision of medical services, and TransUrban, who specialise in private transport infrastructure.

It is now up to the CMC to determine whether to pursue the allegations over the conflict of interest between Costello’s roles as ‘independent’ Commissioner and lobbyist for clients who are all likely to gain immensely from the recommendations of his Audit report.  With its budget cuts from last year, and a full plate with other controversial conduct by new Ministers, who knows how the CMC may proceed.

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Comments

  1. hubris_and_hyperbole

    Replace public monopolies with private monopolies and in the process increase senior management salaries ten fold and pay huge fees to bankers. The general consumers become, if anything, worse off.

    How long are we going to be hoodwinked by this sh1t?

  2. This isnt a real conflict of interest.

    Theres no more substance to it than suggesting that Canberra bureaucrats and politicians who want to nationalise and tax things (like minerals) have a conflict of interest because they will own or control more wealth as a result of their policies.

    • Rumplestatskin

      What is your definition of a conflict of interest?

      I’d say you are pretty off base with your example. Do you really think that politicians have less power when they privatise assets? Or do they simply have more power to influence private interests rather than public interest? After all, they are law maker regardless of what is in principle ‘owned by government’.

    • drsmithyMEMBER

      Theres no more substance to it than suggesting that Canberra bureaucrats and politicians who want to nationalise and tax things (like minerals) have a conflict of interest because they will own or control more wealth as a result of their policies.

      I wasn’t aware politicians were remunerated on a commission basis.

  3. Former politicians who set up consultancies, lobby outfits, etc should not be contracted to any service to government. Neither side is blame free on this front.

    Oh, and as an aside, this is clearly political – Labor desperate to have some modest ‘questionable activity’ to pin on the Libs – anything to counter the AWU/HSU/Obeid/Thomson matters currently being investigated and no doubt to be utilised in an electioneering onslaught against Labor.

    • Probably is but the Obeid issue tars both sides given that one of his family companies recieved a 25 yr contract from the Libs and he has a Lib senator on the board.
      Serco always seems to be a front runner with any privatisations which annoys the hell out me regarding the indirect control they have over things likes, defence installations, corrective services, hospitals etc.

        • Yeah i suppose so the Libs can always blame Richo for getting Obeid into politics, but you know what I reckon most punters think the whole debacle is a non event and confirms that the whole lot are corrupt and the choice is basically between two shit sandwhichs

          • Could well described public sentiment – but I guarantee you in the hands of a good advertising campaign Labor are screwed on this front.

    • Rumplestatskin

      “Former politicians who set up consultancies, lobby outfits, etc should not be contracted to any service to government. Neither side is blame free on this front.”

      Agreed. And I add that both sides of politics play the same games.

        • Mind you…those who oppose the asset sales (including me) need to outline how this debt is going to be covered.
          Apologies to Rumples but your post on the subject (IMO only 🙂 ) did not cut it.

          • Rumplestatskin

            “those who oppose the asset sales (including me) need to outline how this debt is going to be covered”

            By the returns on those assets. Isn’t that the point?

            Say an asset is sold for $100million. The investor who buys it has capitalised the expected returns of $8million at 8%. Government will pay off $100million of debt that was costing them say $5million per year in interest.

            So they give up a revenue of $8million for a reduction in interest outlays of $5million.

            That’s foolish. The cost of debt is reduced, but revenues are reduced by even more.

          • That’s on the assumption that the government is getting the same return on the asset as the private sector would. A big assumption.

          • So what if the Govt was only getting $5m return on the asset, if they only break even? The private buyer needs to get $8m to cover the extra borrowing costs and they get the difference out of our pockets

          • Stephen Morris

            The more important question is whether the proceeds from asset sales will in fact be used to reduce debt.

            Extensive evidence suggest that while assets sales reduce debt in the short run, they have no effect on debt in the long run.

            For example, after the most famous and extensive asset sales program in history, the UK National Debt – both in absolute terms and as a percentage of GDP – is higher today than it was in 1979!! (See here: http://en.wikipedia.org/wiki/File:UK_GDP.png)

            Likewise in Australia, the proceeds of asset sales under the Howard/Costello government were used INITIALLY to reduce debt. But once the debt had been reduced, they couldn’t resist ramping up spending in their final years trying to win the 2007 election. And the subsequent Labor government soon burned through the rest.

            The problem – as identified by the late Nobel laureate James Buchanan – lies in the system of “government-by-politician” which adversely selects the very worst political agents and gives them on monopoly on power.

            See, for example, here.

          • Rumplestatskin

            @Stephen Morris

            Good question. It is a bit hard to tell whether proceed from asset sales will be used to reduce debt if you think of the government budget a single bucket of money with inflow and outflows. You can’t say whether and particular inflow was also an outflow.

            As to the nature of government and the pervasiveness of this problem, I agree.

            All human systems of organisation typically involve the concentration of power. It is very typical at all scale. Just look inside an club, association, team, business or whatever – someone is playing politics and gaming the system for their own benefits.

            It’s a bit like the financial system – stability creates instability. In politics, groups and organisation, stability creates instability in terms of fracturing group alliances into sub-groups etc. Yet when an external threat is present, the group will bind together again and put aside internal politics.

            Actually my PhD research is on the very topic of group formation, alliances, favouritism and what not.

          • They should also explain how an income generating asset is going to be replaced the lost income. Higher state taxes and charges or reduced services anyone?

    • Oh, and as an aside, this is clearly political – Labor desperate to have some modest ‘questionable activity’ to pin on the Libs

      There is a fly in your conspiracy theory ointment.. The complaint was from a “former Liberal Party donor” and businessman.. *cough* Clive *cough*.

  4. Good of you to give Costello the benefit of the doubt, but there is a clear conflict of interest here. But as you have said previously, this is an exercise in political theatre. No one looking for an objective review of this matter would have appointed Costello and Doug McTaggart – they had their answer from the outset, everything else is pure spin.

  5. I don’t think there’s anything alleged about it – it’s a clear conflict of interest. Note that this doesn’t mean that there is necessarily any wrongdoing or corruption (and in this case, one look at Costello’s ideology would tell you what his report would have recommended even without these clients).

    https://en.wikipedia.org/wiki/Conflict_of_interest

    “A conflict of interest (COI) occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation for an act in another.

    The presence of a conflict of interest is independent from the execution of impropriety. Therefore, a conflict of interest can be discovered and voluntarily defused before any corruption occurs

    A widely used definition is: “A conflict of interest is a set of circumstances that creates a risk that professional judgment or actions regarding a primary interest will be unduly influenced by a secondary interest.”

    Primary interest refers to the principal goals of the profession or activity, such as the protection of clients, the health of patients, the integrity of research, and the duties of public office.”

  6. What I liked best from the Fairfax report is this paragraph:

    “Mr Costello helped raise funds for the Liberal-National Party ahead of the 2012 Queensland election. He was subsequently appointed chairman of an ‘independent audit’ of the state’s finances.”

    Is anyone watching Boardwalk Empire? Just askin’!

  7. Good’n Rumps. Whose assets in exchange for whose debt (as is the normal situation)?

    Why can’t asset distribution have a generic component? i.e. distribute to exisiting and former contributors re the format of of super etc.?

    What happened to our collective shares in Telstra?

    The answer lies back in time, as Flawse would say, but the undoing of the “collective grab bag” that is called consoolidated revenue would be an fn good start. The andidote to complexity is simplicity.

    Show our investment, or show me the money, or where the f’s my divvies!!! The bastards can’t show any!!

    We ain’t got no good horses so let’s resurrect one from about five years ago. the mug punters love it and us smartarses can make a shitload from you know how.

    PS i’m still waiting for any divvies from asset sales that can eitheir benefit me personally in past present or protect my future. SEND MONEY.CON

  8. As mentioned above. Pure political theatre – with a slash of cronyism on the side.

    The parties suck dogs nuts.