In late 2014, the Productivity Commission’s (PC) released a report on the provision of public infrastructure, which explicitly warned that the Coalition’s financial incentives to the states to sell-off public assets (“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”.
Since that time, we have witnessed the states flog-off essential infrastructure and other public assets without giving due regard to longer-term consequences, and without ensuring that adequate regulatory frameworks are put in place first.
This procession of dubious asset sales recently led to ACCC head and longtime supporter of privatisation, Rod Sims, to call for a moratorium on further privatisations because of the damage that it is doing to consumers and the economy:
“I’ve been a very strong advocate of privatisation for probably 30 years. I believe it enhances economic efficiency [but] I’m now almost at the point of opposing privatisation because it’s been done to boost proceeds, it’s been done to boost asset sales, and I think it’s severely damaging our economy…
“It is increasing prices – let’s call it out… I want them to stop and think about the fact that when they’re privatising these things without effective regulation you are going to have increases in prices, and just think about the effects of that on the economy.
Stop and think. And don’t be surprised that your electorates think that privatisations increase prices. Of course they shouldn’t [increase prices] but the history tells you differently”.
Now, we have yet another example of a short-sighted and deleterious privatisation, with the Baird Government passing a bill to sell-off the nation’s largest land titles registry. From The Guardian:
The New South Wales parliament has just passed the land and property information NSW (authorised transaction) bill and the process of selecting new operators for the registry is now under way. The last vote needed to get it across the line came from Christian Democratic MLC Reverend Fred Nile…
The land registry is crucial for the security of property ownership. It guarantees the title to everyone’s land, looks after the integrity of land data across the state, supports the mapping and valuation arms of the Land and Property Information service and returns an annual profit to the government of around $50m. However, it is expected that the sale price could be $700m-plus, which would consist of a one-off payment and an agreed return to Treasury subject to contract which would run for 35 years…
Margaret Hole, a former president of the NSW Law Society, has raised several important issues with the sale, namely:
- The land registry is a natural monopoly and critical infrastructure upon which the security of business and commerce are based.
- There has been no independent assessment of the sale, and whether the expected sale price ($700 million) is suitable compensation for forgoing $50 million in annual revenue.
- The successful operator is likely to require home buyers to pay title insurance, as occurs in the US, and thereby gouge users. Title insurance on the purchase of a $1.4m property is currently about $990. Last year 213,000 land transfers were lodged in NSW, which means that conservatively $210 million in insurance premiums can be raised by the operators holding the concession, or tens-of-billions of dollars over the 35-year term of the lease.
- NSW home buyers will bear the cost of this impost.
- Similar privatisation proposals have been rejected in a number of other jurisdictions around the world.
The Public Service Association has also slammed the sale, noting:
- The State Government currently guarantees that the registered owners recorded in the NSW land titles system are the true owners of their land.
- The State Guarantee is backed by Torrens Assurance Fund and provides compensation for any loss suffered as a result of fraud or error in registration.
- If the service is privatised, the guarantee is lost and disputes over ownership of land or fraud are in the hands of a private company.
- Currently, the State Government Torrens Assurance Fund circumvents the need for land owners to self-insure and contributes to containing costs of land transactions within NSW. At the moment, this is a once-only payment that covers your interests in a property for the life of your ownership.
- If the State Government no longer guarantees titles, consumers may need to take out title insurance, in addition to their home and contents insurance, every year.
- This could mean a hike in price for all of us, or a fall in standards because of cost-cutting measures.
The first rule of any asset privatisation should be that it boosts competition within the relevant market, and at a minimum does not lessen competition. But as Rod Sims has noted, most recent privatisations have broken this golden rule, placing achieving a heavy sale price (or fees) above the interests of users.