ACCC head Rod Sims demolishes privatisations (again)

By Leith van Onselen

Over the past 18 months, Australian Competition and Consumer Commission (ACCC) head, Rod Sims, has issued a spate of warnings about, and voiced opposition to, the spate of asset privatisations being undertaken across the country.

In March last year, Sims warned that these privatisations risked lessening competition in key markets, harming consumers and stifling the economy’s productivity:

“The ACCC 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.

In July this year, Sims stepped-up his opposition to further privatisations, claiming that Australian users and consumers are being gouged:

[Sims] said he was now “almost at the point of opposing privatisation” because state and federal governments were becoming increasingly blatant about structuring sales to maximise proceeds at the expense of competition.

“I am getting more exasperated. I just think governments are more explicitly now privatising to maximise the proceeds – including the Commonwealth,” he said…

“They are explicitly saying the reason they don’t want to do this or this is that it’ll damage the proceeds they are getting. They’re not even playing the rhetorical game any more.

“I see it getting worse. I think a sharp upper cut is needed in this area. That’s why I am saying, ‘let’s just stop the privatisations’. It is increasing prices – let’s just call it out”…

“I believe it’s severely damaging our economy,” he said… “I think it’s a serious issue facing Australia. I think it’s damaging our cost structure considerably.

As reported today in The AFR, Sims gave a speech to the Centre for Independent Studies (CIE), whereby he warned that Australia’s governments are risking the erosion of their social licence by pursuing asset sales to maximise proceeds rather than boosting productivity and user outcomes:

…”we’re doing it wrong” in our national approach to privatisation and the public’s increasing scepticism of what should be a lever of enhanced economic efficiency is well justified.

“In my view, it is seeing prices rise. In my view therefore the public – who associate privatisation with higher prices – they’re more right than wrong. And so we shouldn’t single the public out in saying ‘What do they know, they just don’t understand the argument?’

“They understand it very well. They see that we have been privatising in ways that push up prices and we shouldn’t be doing it because we’re actually harming the whole concept of privatisation itself”…

“Privatisation is not popular if you take a vote, because people believe it leads to high prices. They’re right. Often privatisation does lead to higher prices because we privatise for the wrong reasons and in the wrong way… we [should] privatise for the economic efficiency reasons, not to raise money”…

“The examples abound of privatising in the wrong way… Sydney Airport, [where][ the government doubled – I’ll say it again, doubled – the landing charges prior to selling it. They put no constraints on parking fees or anything else and they also gave the [new] owner the first right of refusal over the second Sydney airport so that there would be no competition and you boost price. [It was] a terrible example of how not to privatise”.

“The Port of Melbourne tried to increase the rents on the land by 750 per cent as they were privatising the port… You have to ask, what were they thinking?”

Well done Mr Sims. Thank you for fighting the good fight and continuing to pressure our short-sighted governments on this issue.

As I keep saying, the first rule of any privatisation should be that it boosts competition within the relevant market, and at a minimum does not lessen competition.

Unfortunately, recent privatisations have broken this golden rule, placing achieving a heavy sale price above the interests of users, in turn stifling competition and productivity.

Our politicians pursue this approach because it allows them to deliver both lower taxes and reduced public debt simply by transferring the ownership of monopolies from public to private ownership.

But there’s a catch: the new private owners will almost always use their market power to force-up user costs and boost their profits. We have seen this time and time again with ports, airport parking, toll roads, and utilities (e.g. electricity, water and gas). In most cases, the cost-of-living burden for users is the same as raising their taxes, albeit it in a less transparent manner since monopoly profits are easier to hide from public view.

What is most concerning about the Coalition’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.

Indeed, the Productivity Commission’s (PC) report on the provision of public infrastructure, released in 2014, noted that the Coalition’s financial incentives to the states (“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”.

The Coalition’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-off their major 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?

[email protected]

Leith van Onselen

Comments

  1. “We have seen this time and time again with ports, airport parking, toll roads, and utilities (e.g. electricity, water and gas). In every case, the cost-of-living burden for users is the same as raising their taxes, albeit it in a less transparent manner since monopoly profits are easier to hide from public view.”

    Really? Then why is Victorian energy so much cheaper than NSW?

    See here:
    http://www.abc.net.au/news/2015-03-25/fact-check-does-privatisation-increase-electricity-prices3f/6329316

    VIC and ACT, privatised across the board. Also cheapest in 2014.

    And the finding:
    “The data shows no clear link between electricity bills and privatisation.”

    And that’s from a left-leaning website…

    • I have changed the sentence to “In most cases, the cost-of-living burden for users is the same as raising their taxes, albeit it in a less transparent manner since monopoly profits are easier to hide from public view”.

      Happy now? Clearly the ACCC head, and I, do not agree with your assertion that privatisations have been beneficial to users. Sure, there are likely some exceptions. But not very many.

      • “I am getting more exasperated. I just think governments are more explicitly now privatising to maximise the proceeds – including the Commonwealth,” he said.”

        ACCC head Rod Sims is right; governments cannot be trusted on some issues.

        With some considered thought, I am sure you will agree, Leith, that Land Tax and the ease with which governments can exploit it is another such issue where governments cannot be trusted to be prudent and serve the people.

        • Seriously, how can you conflate privatisation with a broad-based land tax? Have you no shame? The whole “governments cannot be trusted to be prudent and serve the people” applies to all taxation. Are you suggesting that we have no taxation at all? Personally, I’d rather have the least distorting taxes as possible. And land tax fits this bill.

          I don’t expect a large land owner like you to agree. You are too busy talking your own book.

      • Land Tax increases by stealth are comparatively easy to do, Leith.

        1: Gradual annual increases in the percentage payable each year go unnoticed by most payers and the small increase provides a large increase in government income because a Universal Land Tax has such broad coverage of so many assets..
        2: When land prices fall the government increases the percentage payable to recover the same amount of Universal Land Tax. Then, when land prices rise the government takes in the extra income and does not reduce the percentage of Universal Land Tax payable.

        There are few, if any, taxes that are as pernicious and easily exploited by government. State governments currently do what I have described to commercial, industrial and investment residential properties.

        Just look at Land Taxes’ cousin Stamp Duties, for example. How often does State Government return stamp duties as property prices rise? They don’t!

        Contrary to your claim Land Tax IS very distorting: One example of many examples is the race, by developers and retail purchasers, to smaller and smaller allotments to reduce Land Tax.

        Your assertion that we have no taxation at all has no merit.

        PS Your attempt to conflate Land Tax with privatization is conflationary. I am not conflating these two factors.

      • Contrary to your claim Land Tax IS very distorting: One example of many examples is the race, by developers and retail purchasers, to smaller and smaller allotments to reduce Land Tax.

        As has been pointed out to you numerous times, even in the absence of an LVT, developers have been racing to smaller and smaller allotments for decades (along with narrower streets & verges, and less greenspace). They do it to increase profits. Why would they care about Land Tax, which is paid by the purchaser ?

        Of all your nonsensical arguments, this is probably the most egregious.

      • drsmithy….

        Allotment size compression is just like parking lots, it makes more money for the developers… natch…

        Now if some want to bang on about it they should get to the agency behind it and not focus on band aids like land tax e.g industry writing its own legislation thorough lobbyist and controlling information processes.

        Disheveled Marsupial…. If Henry were exhumed today he would not have the foggiest clue about anything…

    • scootytootyMEMBER

      My father worked for the SEC when they privatised it and many years after that, he told me that when it was sold to Texas Utilities they gutted the place and left it barely operational. then sold to Singapore Power who purchased it just as everything was falling apart and they copped all the flak for it. I would bet that some of our bush fires came from the mess that Texas Utilities left behind.

  2. It’s State or Federal income tax capitalised and obtained up front, then recovered from the citizens over time with a margin for the purchaser of the de facto monopoly eg Sydney airport for a glaring example where the purchase price was way above what others would pay and every service is now a gouge.

  3. The NSW government has been bragging about having a budget surplus. Having a budget surplus means very little.

    It is possible to have abudget surplus for many years by selling off ALL government assets. In the end the government owns nothing and must tax highly to continue functioning.

    Privatization is a part of the same irrational economic deceit except for the few times when it does work for various reasons.

    Privatization is usually a smoke screen for poor government management, a way to help out one’s mates or a way to pretend one is a good economic manager by reducing a budget deficit or increasing a budget surplus.

    Consider the NSW government’s intention to sell the NSW Land Registry:

    There is no doubt that this is a monopoly business and must therefore remain in public hands. Unfortunately this is a flaw in our government system whereby selling public assets makes deficits look positive and then the (usually Libs) party in government says ” Aren’t we good we have a surplus” .

    On October 6, 2016 the ABC reported:

    NSW GOVERNMENT DEBT FREE, BUT ONLY DUE TO HOUSING BOOM, ASSET SALES: OPPOSITION

    By state political reporter Sarah Gerathy

    New South Wales is debt free, the Government has said, but the Opposition has questioned its budget priorities.

    New Total State Sector Accounts figures show the final surplus for the 2015-16 financial year was $4.7 billion – more than $1 billion larger than predicted in the June budget.

    General government sector net debt fell from $5.5 billion at June 30, 2015 to negative $57 million at June 30, 2016, meaning NSW is in a cash positive position for the first time on record.

    Treasurer Gladys Berejiklian said the situation demonstrated excellent economic management.

    ””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””’

    It naturally flows from the above statements by Treasurer Gladys that if the government sells off everything they are the best economic managers ever.

    Ultimately, the best economic managers will sell Australia and we can all be happy.
    That is essentially the true (detail free) story about privatization.

  4. ceteris paribus

    Privatisations are the jewels in the crown of the neoliberal conspiracy that is Coalition government. And thanks especially to Paulie, the greatest Coalition PM of them all. Paulie and his big levers certainly lead the banking and finance industries down the cancerous path to where we are today. Men like Paulie and Arty S are heroes of the little guy.

  5. Speaking of private ownership, I was glad to see a Hyperbole and a Half image (Buy All the Things) appearing as a featured image on a locked post, I hope you linked back to her, as she’s a talented artist and makes money off selling stuff with her artwork/memes.

  6. Huzzah! It’s heartening to see a public servant doing precisely what they are supposed to do: speaking the plain truth in service of the public interest. It seems to be an increasingly rare thing in the the APS these days, so kudos to Mr Sims for having the guts to call a spade a spade.

    I think much progress would be made on this issue if we could disabuse ‘certain political ideologues’ of this false dichotomy: private is more efficient than public (or public is more efficient than private). This is the wrong argument to be having; it’s a total red herring.

    The real issues are:
    – Large organisations are generally more bureaucratic and inefficient compared to small organisations.
    – Monopolists are much more inefficient (and have far greater capacity to charge above marginal cost) compared to firms operating in a competitive market.

    These apply equally to private and public organisations. There’s some serious mis-attribution going on here. It isn’t that public organisations are inherently ‘inefficient’ (for…. reasons…). It’s that many (though not all) public organisations are large, monopolist suppliers out of necessity (for example, consider the market for national defence services). People seem to miss the intermediate step (i.e. large and monopolistic), correlate inefficiency with public organisations and reach the specious conclusion that the cause of inefficiency is ‘being a public organisation’.

    That’s the charitable interpretation, anyway. The less charitable one is that a we have a bunch of corrupt and treacherous politicians who are more than happy to sell these monopoly market positions to their private sector mates. These mates subsequently reward them with plum directorships and board positions when the pollies retire from ‘many years of hard work serving the public’. Sickening.