Vic Labor backflips on privatisation

By Leith van Onselen

It’s amazing how an election campaign suddenly forces politicians to speak in the public interest.

Fresh from flogging-off the Port of Melbourne, Victorian Treasurer Tim Pallas last year confirmed that more asset sales were on the agenda:

“I have said since before we formed government that we were committed to the idea of asset recycling”…

At the time, Pallas immediately moved to sell Victoria’s monopoly Land Titles business. Pallas also stated that there are many other state assets that could be sold and run by the private sector.

Labor has also recently completed a shady $6.7 billion deal with Transurban to build the West Gate Tunnel Project, which will see Transurban contribute $4.4 billion towards the cost in exchange motorists paying $15 billion in additional tolls on CityLink until 2045.  Moreover, Labor has outsourced $4 billion dollars of badly needed repairs and upgrades to Melbourne’s most stressed suburban roads via a PPP that will leave taxpayers repaying huge costs over the next 20 years.

With this background in mind, it’s interesting to observe that 100 days out from the State Election, Premier Daniel Andrews has suddenly warned against further privatisations. From The Australian:

Premier Daniel Andrews will warn against privatisation, austerity and what he calls a “free market free-for-all” in Victoria in a speech laying out Labor’s agenda 100 days from a state election…

Mr Andrews will flag more public ownership…

“We should never — and we can never — go back to the days of a free-market free-for-all…

[Andrews] will say privatisation has failed and deregulation has gone too far in the state. “You don’t have to be an economist to realise that something is broken. We were promised that a privatised electricity market would lower prices. Wrong. Privatisation has not worked. It’s only made things harder for families.”

While Labor’s hypocrisy is palpable, its new found concern surrounding privatisation is justified.

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:

…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…

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.

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…

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.

ACCC head and long time supporter of privatisation, Rod Sims, also 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 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.

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.

We know this because that is precisely what many of the privatisations over the past 20-plus years have done.

Let’s hope Labor’s new found caution about privatisation carries over should it win the upcoming Victorian Election.

[email protected]

Leith van Onselen

Comments

  1. Comments not allowed on the idiot-gate article? Come on guys, or are not Fairfax!

    The comments were going to be epic!

  2. MB is afraid they will be called-out for calling PHON “racist”.

    MB censoring comments like the other media bought-out to dig dirt on PHON.

  3. The “ever-greening” of the toll road concession is not in the best interests of the consumers. At the end of the concession period users will tend to be paying to endure the queues on the tollway. What happened to the notion of fee for service?

  4. Ronin8317MEMBER

    Watch what they do, not what they say. Victoria is still going ahead with compulsory use of PEXA for conveyancing. This will create a 1 billion dollar monopoly overnight because you can’t buy or sell without using them.

    • Well not really. Competitors are coming to this space such as Sympli (backed by ASX and InfoTrack) and a few others. PEXA is not the monopoly its shareholders have you think it is. The monopoly is the registry.

      Like the ASX is the monopoly and CommSec is just one of the ways you can put your order in. You can’t use pen and paper at the ASX nowadays and electronic conveyancing is a good reform – you’ll hear a lot of complaints as there is a whole ecosystem of players in the pen and paper space, their future is very uncertain.

  5. Private management is better than government management. Full stop.

    The trick is to get private management but retain some public ownership. NZ do this well with the mixed ownership model and NSW achieved this of sorts with their poles and wires deals. Ausgrid and Endeavour have 49% public ownership that effectively gets to ‘free ride’ on the better private management that is making the entities more efficient.

    • Cmon mate, it’s not the 1970s. That public vs private sector dogma doesnt cut it anymore.
      Kinda like how management of Lehman Brothers wasnt up to scratch as well (and, for that matter, nor was Fannie Mae and Freddie Mac).

      • Nope. I’ve worked around privatisations for years in many jurisdictions – both as an external advisor and government official, and now work in a privatised business. Difference is chalk and cheese.

        The main differences? HR/IR ability, IT competence, and the focus on cash flow (private) vs budget accounting result (Govt).

        One of the worst things Government runs is HR. It is a one-size fits none model where good performers are generally not rewarded and poor performers are hidden (and not performance managed).

        I agree there is nothing technically holding back Government running things better – but in the hundreds of examples I have seen they do not have the stomach for the hard work required. Go look at how many people Aurizon shed after being privatised. Thousands. Google ‘Solid Energy’, this NZ govt owned coal miner went bankrupt during the resource boom!

        There would be so much money to be saved in most government agencies from better management that fiscally a govt wouldn’t actually need to privatise anything. Again, just comes back to proper incentives and alignment.

      • Increased profits and reduced costs =/= better overall performance. A lot of these “savings” are produced by pushing the costs back onto the government that privatised in the first place.
        Case in point is apprentices cost a lot of money to train and aren’t profitable. The first cost saving made by every government enterprise that was privatised was stop training apprentices. Yay, they are more efficient, except for the fact that this comes at increased cost to the community at large from reduction of qualified tradesmen, and the government being required to provide ever increasing subsidies to private companies to train apprentices, with these eating up far more than was saved in the efficiency gains of the original privatisation.
        Overall efficiency is reduced and costs are increased for the populace at large, and all this is before the monopoly price gouging starts. So keep your Bs ideas to yourself.

    • “Private management is better than government management. Full stop.”

      Except in the case of a natural monopoly, which is what most of the assets being flogged off are.

    • Yeah right,
      Just flog it off. Like the CBA. Got 6billion for it. Today it’s worth 130 billion. Even with poor management it’s a dud deal.
      Not to forget citylink. Cost 1.8 billion to build and today rakes in more than 600 million a year. Another dud deal.
      That’s not to say the private sector can’t stuff it up.
      Look no further than BHP. Bought Magna copper for 3.2 billion. After closing it down and incurring shutdown costs, they lost 4 billion. That’s not to mention the recent US oil asset write downs. Ther goes another 10 billion. Then there’s the merger with Billiton wich was a 40/60 deal. Today Billiton contributes next to nothing to their bottom line.

  6. But has Dan got the guts to buy back MEL airport?

    It has always been a natural monopoly and is a money spinner.

    If it becomes state-owned, the profits will go into state coffers.

  7. Let’s see. He says this now, but after the election, which I think he’ll win, it could be the same old. We the deplorables always get played for fools. What has Dan done to reduce energy, housing, better service from out councils, crime, etc. People are right to think it’s better to keep the one you know than try Guy. All our govs serve the property and corporates which in turn steal from us in one form or the other..

  8. “Public ownership is democratic control” – Tony Benn. It certainly is and Labor dog whistling to its old Labor stalwarts near an election is a well known tune. If the property market turns down and stamp duty revenue collapses I expect to hear a change of tune. “”The first rule of any privatisation should be that it boosts competition within the relevant market, and at a minimum does not lessen competition.”” – that’s a purely economic analysis. Public services should be democratically controlled and their administrators accountable to Parliament. Its about democracy, not just about money. The post war leaders understood this and its time it was understood again. Electricity, water, roads, public transport, central administrative functions such as land titles all need to be accountable to the people through parliament. Boards of such bodies should have community and worker representation on them as well.

  9. For those interested in Privatisation Fallacies, I refer you to Section 7 of Submission 165 to the TPWC Comittee Toll Road Inquiry:

    http://www.parliament.qld.gov.au/documents/committees/TPWC/2018/6TollRoads/submissions/165.pdf

    Asset recycling

    This is a simple semantic fallacy, a type of rhetoric commonly used by those trying to defend the indefensible. Who isn’t in favour of “recycling”?

    If and when the street outside your house is pulled up and re-laid in a new suburb then that will be asset recycling. If – slightly more plausibly – an old generating unit is removed and re-used in a remote power station then that will be asset recycling.

    The sale of strategic monopolies and tax farms to private owners is not asset recycling.

    Also check out Attachment A, “United Kingdom National Audit Office reports”, which systematically debunks every one of the claims made for the the Private Finance Initiative.