The 2017 pre-Budget submission from the body representing Australian largest infrastructure firms, Infrastructure Partnerships Australia (IPA), has urged the Federal Government to allocate at least $5 billion to a revived asset recycling scheme. The program provided the states with financial incentives to reinvest the proceeds of asset sales in infrastructure projects, but it was terminated in 2016. From The AFR:
…the IPA argues the Coalition should re-institute the Abbott government’s asset recycling initiative which rewarded states for privatising assets but was abandoned by the Turnbull government last year.
Chief executive Brendan Lyon is calling for the May budget to allocate $5 billion to this “at a minimum” next year despite the government’s fiscal problems, insisting the benefits will outweigh the immediate costs to the budget…
I was never a fan of the Abbott Government’s ‘asset recycling’ program because it encouraged the state governments to sell-off essential infrastructure without giving due regard to longer-term consequences, leaving taxpayers worse-off. .
The Productivity Commission had similar concerns, warning 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”.
Over the past two years, Australian Competition and Consumer Commission (ACCC) head, Rod Sims, has also issued a spate of warnings about, and voiced opposition to, the spate of asset privatisations being undertaken across the country, which he regards as lessening competition in key markets, harming consumers and stifling the economy’s productivity.
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 reintroducing another “asset recycling” program is that it presumes 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.
Besides, IPA itself has argued that there is already more than enough financing available for projects, and that additional investments from the government would “crowd out” private investment. So where’s the need for another ‘asset recycling’ program?
I suspect the key motivation behind the IPA’s call for ‘asset recycling’ is that it sees an opportunity to buy-up publicly-owned assets on the cheap, which it can then use to gouge consumers and line its member’s pockets – exactly the types of deleterious privatisations the PC and ACCC have warned about.
