I explained yesterday why I believed that the Victorian Government’s planned mass sell-off of the state’s assets to pay for infrastructure investment was a dud deal for taxpayers and users, who are likely to end up paying more for services as the new private monopoly owners gouge customers.
Now, David Hayward – a professor of public policy at RMIT – has penned a stinging critique of the Victorian Government’s privatisation agenda. From The Conversation:
…the scale of the PPP commitment built up over the last decade is now a story in itself, although not one easily discovered.
Fully one-third of Victorian Government debt is now accounted for by borrowings entered into with private parties to build, own and operate public assets.
Even more remarkably, almost half of the Government’s interest bill is accounted for by private lease payments.
It sounds a bit like a magic pudding, except there are none in public finance.
Asset recycling has so far involved the sale of income producing businesses like the Port of Melbourne, which are sold to pay for new roads, which don’t directly produce any return.
The family silver is being sold to buy some family bronze. It might be good politics, but it certainly isn’t good for the budget bottom line.
PPPs are rather costly, thanks to the high interest rates attached to private debt, compared to that issued by the Treasury Corporation of Victoria (around 3-4 percentage points).
Ironically, were the Government to rely on its Treasury to raise debt (in the way it once always did), it might well end up with even more revenue to play with.
It’s a pretty efficient business delivering $104 million as dividends next year.
The budget anticipates even more privatisations are on the way, not that there’s much left to sell.
Money has been set aside to scope the sale of the land titles registry, which will probably happen early in 2018…
These privatisations wouldn’t be so bad, of course, were it beyond dispute that they delivered value for money to end users and not just a nice return.Trouble is the Auditor-General keeps pointing to evidence that goes in the opposite direction.
From trains, trams, and buses to prisons and even electricity and gas, the one thing that is common is the lack of transparency in performance measures.
Also consistent is how well the private operators manage to game the measures, whether by skipping stations or stops or using pricing systems that are so obscure, no-one knows what they are buying, on what terms or for how long.
CityLink still does not show signs to motorists as to how much they will pay as they drive onto their increasingly lengthy toll roads.
Electricity companies have pricing regimes that are so complex the Essential Services Commissioner has found it necessary to give them a lengthy and increasingly testy serve.
It is quite striking that in the case of Victoria — Australia’s most ardent privatiser over the last three decades — there is no evidence of user charges falling, or government spending abating.
This is what you’d expect were the privatisers to deliver the promised efficiency gains.
In the case of public transport we know that the state is now spending more today than was the case under inefficient public ownership.
The one difference is that these days the private owners of Victoria’s infrastructure tend to be overseas owned and, in the case of energy, increasingly from China.
The metropolitan trains are run by a company from Hong Kong; the trams, a fifth of the metropolitan buses and the massive desalination plant by firms from France; and about 40 per cent of prisons by an American corrections company.
Profits from taxpayer payments are repatriated overseas in a nice little twist that sees privatisation down under contributing to globalisation on top.
Victoria is not the only state to see privatisation as a convenient solution, and it is but the first of the states and territories to tell us its budget plans for coming years.
We can expect the others to look to Victoria as a model, raising important policy questions about whether our governments are leaving an expensive legacy that someone else might one day have to fix.
Brilliantly said.
As I noted yesterday, the first rule of any privatisation should be that it boosts competition within the relevant market, and at a minimum does not lessen competition.
Yet most 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 he believes it will allow him to deliver both lower taxes and reduced public debt simply by transferring the ownership of monopolies from public to private ownership. He also seems to presume 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.
But as experience shows, 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, public transport, toll roads, and utilities. In many cases, the cost-of-living burden for users is worse than raising their taxes, with the added drawback that it is less transparent since monopoly profits are easier to hide from public view.
The end result is likely to be higher costs for users along with possible increases in taxation as the State Government seeks to replace dividends that were formerly derived from the publicly-owned assets.
Tim Pallas’ privatisation plan is all-but assured to short-change Victorians. We know this because that is precisely what many of the privatisations over the past 20-plus years have done.
