NSW Premier, Gladys Berejiklian, has flagged another round of privatisation via ‘asset recycling’ to help fund a new regional fast rail network.
According to Fairfax:
- “The asset recycling agenda is definitely renewed for us”, Premier Berejiklian said. “When talking about asset recycling we’re serious, instead of owning something that might not be very creative and active on the balance sheet, you can convert that into schools and hospitals and roads and rail”.
- “NSW is poised to enter a new golden age of infrastructure delivery”, according to Berejiklian.
- Berejiklian wants to build a network of fast trains linking Sydney with Gosford, Goulburn and Newcastle.
- Record low-interest rates also mean the state isn’t too concerned about accruing debt over coming years.
The obvious question arises: if the cost of servicing debt is at a record low, why sell assets to fund investment rather than just borrow the money?
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While the NSW Government would receive funds up-front from asset sales, it will also lose the ongoing cash flow (dividend stream) from these assets. In effect, it would substitute a future income stream for a lump-sum today.
Whether such privatisations are beneficial to taxpayers will, therefore, depend on whether the upfront funds received outweighs the expected net present value of future dividends. If not, then this ‘asset recycling’ will be detrimental to long-term budget finances.
Given that borrowing rates are at record lows, it is far more likely that asset recycling will be detrimental to taxpayers from a pure financial viewpoint.
Then there are efficiency and equity considerations.
Many argue against privatising essential infrastructure since these type of assets are natural monopolies facing minimal competition from other players.
The new private owners almost always use their market power to force-up user costs and boost 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.
For these reasons, ACCC head and longtime supporter of privatisation, Rod Sims, has called for a moratorium on future privatisations because of the damage caused 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”.
Premier Berejiklian should reconsider going down the privatisation route to fund public investment. With borrowing rates so low, it is totally unnecessary and will very likely harm NSW taxpayers. Just borrow the money instead.
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