The Australian’s Judith Sloan has today called on the Queensland Government to sell-off public assets in order to pay down debt:
According to the projections in the Queensland budget papers, government debt in the state will exceed $81 billion in 2020-21. It is currently $72bn. There is no sense in which the debt is being stabilised, notwithstanding some significant raids of government-owned corporations and the public servants’ superannuation fund…
The LNP is spooked about even mentioning asset sales even though the flipping of some assets makes complete sense — for example, port and loading facilities, electricity assets.
The NSW experience is a good guide for what a Queensland government could do. That government has received top dollar for its electricity and port assets, generally on a lease basis, and has reinvested the money in both paying down debt and in the construction of new infrastructure assets.
Under current financial market conditions, there is not a huge interest rate penalty for having a credit rating below AAA.
But if there is substantial global turmoil, this penalty could quickly blow out and it wouldn’t then be a good time to sell assets. The time to act is now.
The notion that Queensland can ‘save’ the budget and pay down debt via asset privatisation is misguided.
While the Government will receive funds up-front from such sales, it will lose the ongoing cash flow (dividend stream) from the assets – in effect substituting a future income stream for a lump-sum. Whether such privatisations are, therefore, beneficial to taxpayers depends on whether the upfront funds received by the Government outweigh the expected net present value of future dividends. If not, then the sale is likely to be detrimental to long-term budget finances.
Financial issues aside, it is also unclear whether the proposed privatisations would be beneficial from an efficiency or equity perspective.
For example, many argue against privatising essential infrastructure since these type of assets are natural monopolies facing minimal competition from other players.
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.
Indeed, the 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 privatisation issue is obviously complex. But the Queensland Government should avoid looking for a short-term budget fix and proceed carefully on any sale of its essential assets.
