Studying the for sale list makes me nervous, as most of the assets appear to be essential infrastructure, whose sale could potentially lead to deleterious outcomes for taxpayers.
As argued previously, it is the degree of market competition that usually determines whether an asset sale is positive for the public. And essential infrastructure like ports, water and electricity generation are by definition natural monopolies, and their transfer to private ownership confers significant pricing power to the new owners, which they generally pass on to end users.
According to Monash economics professor, Stephen King:
…privatisation without competition is like a hidden tax. The government gets more today because we will all be paying more tomorrow…
Privatisation without competition risks turning a public monopoly into a private monopoly. The owners may change but the public will get ripped off just the same.
This is why ACCC head, Rod Sims, has recently spoken out against the Abbott Government’s privatisation agenda, warning that the forecast $57 billion of federal and state-owned assets expected to be sold over the next few years could substantially lessen competition and push-up prices, particularly in the areas of electricity distribution, ports, and other essential infrastructure.
It is also why I remain so skeptical of the Abbott Government’s “asset recycling” incentive payments to the states, which will effectively reward states for selling-off assets and seems to presume that private ownership is superior in all cases, rather than being based on objective economic criteria, and on a case-by-case basis.
The Productivity Commission’s new report on the provision of public infrastructure, released earlier this month, raised similar concerns, noting that asset recycling “could act to encourage privatisation in circumstances that are not fully justified and encourage the selection of new projects that do not have demonstrable net benefits”.
Asset sales can be in taxpayers best interests, but generally only when the government enterprise is subject to significant market competition, thereby reducing the new owner’s ability to price gouge. While this appears to be the case with the proposed sale of Medibank Private, which competes with a large number of private health funds, it is less likely to be the case where essential infrastructure is involved, as with Queensland’s privatisation program.