One of the great contradictions that has developed across Australian public finances has been the production of state government Budget surpluses at the same time as public debt levels have soared.
This contradiction has been managed by shoving massive infrastructure spending off balance sheet, including through privatising assets via budget tricks like Public Private Partnerships (PPPs).
Individual examples of this Budget trickery abound.
In a similar vein, the Victorian Government’s $6.7 billion West Gate Tunnel Project will see Transurban contribute $4.4 billion towards the cost, but in exchange motorists will have to pay additional tolls on CityLink until 2045 estimated at $15 billion. It’s a sweet deal for Transurban and the State Budget, but a dud deal for Melbourne motorists.
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Yesterday, the Victorian Labor Government announced another budget fiddle, this time outsourcing billions of dollars of badly needed repairs and upgrades to Melbourne’s most stressed suburban roads via a PPP that will leave taxpayers repaying the costs over the next 20 years. From The Age:
Private companies will pay the upfront cost of $4 billion of upgrades and maintenance of a network of increasingly congested and degraded major roads in Melbourne’s outer suburban growth zones.
In exchange, they will receive a series of quarterly payments from the state over a 20-year period.
…the successful bidders will also be awarded the right to explore other unspecified commercial opportunities along the roads they manage, from which the state may also take “a share of net revenues”.
The deals also stand to ease the immediate financial pressure on the Andrews government as it juggles a huge $30 billion list of transport infrastructure projects.
The public-private partnerships will enable the government to defer paying to fix key parts of an arterial network that Victoria’s auditor-general found last year was in such poor condition it was making roads less safe and more costly to use…
Rapid population growth, entrenched car reliance and deteriorating roads are combining to threaten the economic wellbeing of Melbourne’s outer suburbs, which are forecast to absorb another 765,000 people in the next 15 years.
Just like the Transurban deal above, this PPP is highly likely to cost Victorian taxpayers/motorists over the long-term. But it also conveniently shifts the costs associated with population growth off-Budget, sight unseen.
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But wait, it gets even worse. As reported in The Age today, Transurban is making millions of dollars each year charging motorists fees that are only meant to cover the toll road operator’s costs, according to leaked documents:
Under its contract with state governments, Transurban is only meant to charge fees reflecting the costs it incurs.
But nationally in 2016 it charged its customers fees totalling $147 million – about 7.5 per cent of its revenue.
The company denies making a profit from customer fees but, questioned on Monday over its charges, said it would next week announce the removal of a number of them…
Fees have grown rapidly as a percentage of Transurban’s revenue…
Don’t just take my word for it. David Hayward – a professor of public policy at RMIT – recently penned a stinging critique of the Victorian Government’s PPP trickery, which have forced-up user costs without reducing taxes:
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…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.
It sounds a bit like a magic pudding, except there are none in public finance…
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)…
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.
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…
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 a similar vein, analysis by the Grattan Institute in 2014 showed that “unprecedented infrastructure spending by states and territories” since the escalation of population growth from 2004 is “largely responsible for a $106 billion decline in their finances since 2006“, and that “after a threefold increase in capital spending over the last 10 years, states are paying 3 per cent more of their revenues in interest and depreciation”.
This folks is Australia’s population ponzi economy in action. It’s a model of growth whereby corporate Australia privatises the gains from mass immigration and socialises the costs on everyone else.
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Former treasury secretary turned NAB chairman, Ken Henry, explained this model in a speech last year:
Research NAB carried out earlier in the year showed that among our customers there’s not wholesale support for a larger Australia. For many, the prospect of a higher Australian population means more stress in the ability to buy a house, to live where you want to live, to get to work with a reasonable commute time. And many in the community are also concerned about our ability, as a nation, to maintain norms of Australian social and economic inclusion, and to continue to provide access to high quality services in areas such as healthcare and education…
But what is the business perspective? The same NAB research showed that most of our business customers would strongly prefer a larger population, which supports better business growth.
With Australia’s two biggest cities desperately trying to build infrastructure to keep pace with the population ponzi, private companies like Transurban are facing further strong profit growth, paid for by ordinary taxpayers like you and me.
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These are the hidden costs of a ‘Big Australia’, in effect giant private taxes, which are being conveniently swept under the rug.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
