Treasurer Joe Hockey has announced that the Government is considering selling $130 billion worth of public asset sales in a bid to raise funds for new infrastructure projects – a move designed to see Australia off the mining capex cliff:
Hockey said the government had identified up to $130 billion in state and federally owned assets that could be sold to raise capital and reinvest in new projects including airports, roads, rail and ports...
”We need to facilitate private-sector investment in infrastructure, and in Australia in particular, because mining investment is coming off,” he said. ”We’ve got to recycle precious capital – taxpayers’ capital. It’s not a case of selling the family jewels, it’s asking another member of the family to buy the jewels so that we can then go down the road and buy some more.
”We’re not selling assets particularly to reduce debt, we’re selling assets to allow us to put money into other things that are going to build the economy of tomorrow.”
In principle, Hockey’s asset-recycling approach is a good one. With the huge expansion of Australia’s population and decades of underinvestment, the nation’s infrastructure is straining, becoming a drag on productivity and living standards. Well targeted infrastructure investment offers Australia the double dividend of supporting growth and jobs as the mining investment boom fades, whilst also expanding Australia’s productive base and improving living standards.
But in order for such a scheme to be effective, it requires two things.
First, any sale of existing assets needs to strike a good bargain for taxpayers. This will require balancing:
- whether the upfront funds received from the asset sales will outweigh the expected net present value (NPV) of future profits; and
- the economy-wide efficiency benefits from shifting assets to private ownership.
Asset sales that are significantly below their NPV and simply transfer a public monopoly to a private monopoly are likely to be detrimental to the public interest, whereas assets sold close to their NPV and which facilitate increased competition are likely to be beneficial.
The second requirement is that the selection of new infrastructure projects is based on rigorous cost-benefit analysis, rather than being politically motivated. What Australia wants to avoid at all costs are flashy “white elephants” that cost taxpayers a fortune but do little to boost the nation’s productive capacity or raise living standards.
The important thing is that productive infrastructure investment takes place, which can soften the blow as the once-in-a-century mining investment boom fades, whilst setting the nation up for the future.
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