After releasing yesterday’s State Budget, Victorian Treasurer, Tim Pallas, confirmed that more asset sales are on the agenda, which will be used to fund more infrastructure spending:
“I have said since before we formed government that we were committed to the idea of asset recycling”…
On Pallas’ immediate privatisation agenda is selling the states monopoly Land Titles business, with Pallas hoping to emulate the NSW Government’s recent $2.6 billion sales of a long-term lease over the business:
“…we are identifying in this budget that we’ll start the work of looking at the processes of how we might better commercialise the value and the asset that is the land titles office, Certainly we’ve seen in NSW a commercialisation of the land titles office which has returned $2.6 billion to that state”…
“You’ve got to ask yourself: why would a government hang on to it?. Why should the government pay for upgrades to its database when the private sector can do it and provide a return for the taxpayer?”
Pallas believes there are many state assets left that could be sold and run by the private sector. And the funds raised could be used to build new infrastructure to cater for Victoria’s fast growing population.
There are clear dangers to taxpayers in this “sell everything” approach.
In late 2014, the Productivity Commission released a report on the provision of public infrastructure, which explicitly warned 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”.
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 has gotten so bad that ACCC head and longtime supporter of privatisation, Rod Sims, recently called for a moratorium on further privatisations because of the damage that they are 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”.
The sale of NSW land titles business is a case in point. It is an essential government service and profitable monopoly that was sold without consultation and amid widespread protest from professional groups. All so the NSW Government could build a few football stadiums (see here).
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.
Tim Pallas wants to pursue this approach because it would allow him to deliver both lower taxes and reduced public debt simply by transferring the ownership of monopolies from public to private ownership.
But here’s the 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 (or worse) 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 Tim Pallas’ ‘asset recycling’ privatisation agenda 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.
Perhaps Tim Pallas feels like Victoria has no choice. With Victoria’s population growing at a break-neck pace, which is expected to continue for decades into the future (see below charts).
Pallas knows that without major ongoing investment in roads, schools, hospitals, and all other forms of physical and social infrastructure, infrastructure will become even more crush-loaded, destroying living standards for the incumbent population and leading to a voter backlash.
This is why the Victorian Government has chosen (correctly) to ramp-up infrastructure investment, albeit paid for by the Port of Melbourne’s sale, along with other dubious planned privatisations.
There is another option at hand for Tim Pallas that does not require borrowing: publicly demand that the federal government slashes Australia’s immigration intake, which is the primary driver of Victoria’s rapid population growth, and/or provide direct funding to the states to cope with population growth.
It is the population influx bestowed on Victoria by the federal government’s mass immigration program that has caused the pressures on economic and social infrastructure (e.g. roads and public transport, schools and hospitals). Therefore, the federal government should share responsibility for providing a solution.
