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?