The real winners and losers from public asset sales

By Rob Burgess

Friday January 22, 2016

All across Australia, governments are worried about money. Revenue is under pressure at state and federal levels as income flows from mining royalties, stamp duty, capital gains tax, GST receipts and corporate tax fall.

So what’s a cash-strapped treasurer to do? One popular option in recent years has been to sell off publicly owned assets — the dreaded privatisations so hated by unions and public servants.

“Those kinds of considerations do not have to be junked when such an agency is shifted to the public sector.”

But should they be hated by voters? The answer really depends on the circumstances — though for ideological reasons, some voices will always come down on one side or the other.

In Western Australia, which goes to the polls again in 2017, there are a couple of politically sensitive options being considered at present. The WA Chamber of Commerce and Industry wants the government to get out of the gambling game by selling the state-owned TAB. Given most other states have already done this, that plan looks reasonably likely to gain traction — particularly as Canberra is still offering a 15% top-up fee for any sale, as long as the money is reinvested in new infrastructure.

There are plenty of energy generation and transmission assets lying around in WA too, though as one renewable energy expert has pointed out, WA’s rapid uptake of solar means they’d be hard to give away — and could be a definite vote-loser for any politician that tried.

That’s frustrating for the embattled WA government, which has lost tens of billions of dollars of mining royalties due to the commodities downturn. It must be doubly frustrating for Premier Colin Barnett, because on the other side of the country, New South Wales golden boy Mike Baird is winning awards for his government’s privatisations and getting to reinvest the spoils in popular infrastructure projects.

Some plans are much more controversial, however. The federal government has copped criticism for looking at selling off Hearing Australia — a possibility that Labor Senator Doug Cameron has warned is “too risky” in public health terms. Cameron last week wrote:

“… with up to one in six Australians experiencing hearing difficulties … we need a trusted public provider, one that looks after children and pensioners, one that takes care of people in remote areas.”

Those kinds of considerations do not have to be junked when such an agency is shifted to the public sector.

When Telstra was privatised, for instance, it was lumped with the “universal service obligation” to ensure it didn’t just cut off low-revenue customers or pay phones. That, in itself, was small consolation for the fact that a public monopoly became a private behemoth with far too much market power — something Labor tried to correct with its all-public National Broadband Network plan.

Labor was effectively trying to re-nationalise the wholesale arm of Telstra — and for good reason. The tens of billions of dollars raised in the Telstra privatisation could never compensate for the uncompetitive landscape created. Australia still ranks an awful 46th in the world for average broadband speeds as a result.

Big picture costs and benefits

The Telstra experience provides many lessons about the true benefits, or costs, of shifting an asset to the private sector. They are not always easy to calculate.

When rail freight company QR National was sold off by the Queensland government five years ago critics complained that Australia was losing its “biggest training college on wheels” — that is, it provided benefits to the nation that are not part of the private-ownership calculus.

“Privatisation zealots have sometimes let their passion of ‘efficiency’ overpower any sense of what’s right for the public.”

An even more stark example is being debated in NSW, where the unstoppable Baird is looking at selling the Land and Property Information office — a government agency that describes itself as “your one-stop shop for land title registration, property information, valuation, surveying and mapping”. The government has promised that any money raised will be reinvested in sports stadium upgrades, but critics think that’s aimed at distracting the voting public from the risks that they’ll simply pay more for the same services.

Prosper Australia commentator David Collyer argues, for instance, that “land titling is a monopoly function, and cost-insensitive as well: citizens will tolerate a very high price for fault-free land title registration”.

Quite true — nobody closing a deal on a million-dollar house is going to worry whether a document search fee is $100 or $200. And directors of a private company would have a fiduciary duty to shareholders to try to raise prices in that way.

Privatisation zealots have sometimes let their passion of “efficiency” overpower any sense of what’s right for the public.

In the United  Kingdom in the late 1980s and early ’90s, for instance, the Thatcher and Major governments had great success selling off electricity and water assets, and consumers benefited from retail competition and lower prices. But when the same idea was applied to British Rail assets, the result was a disaster. Some private sector rail operators delivered such shoddy, overpriced services that their lines had to be re-nationalised.

UK Labour politician Val Shawcross boasted in 2013 that:

“When [private firm] National Express withdrew from running the East Coast Main Line there were concerns that the state-owned Directly Operated Railways would not be able to deliver a good service. But not only has DOR succeeded in doing so, it has also just returned a £200m surplus to the Treasury, rather than to shareholders.”

Privatising and then un-privatising assets is a boon for investment bankers, but a disaster for the asset’s original owners — the public.

So as tax revenues tighten, it is doubly important to look at the big picture of each potential privatisation in turn. Some will be excellent ideas. Some will be stinkers. And in each case, single-minded ideologues should be ignored. The public good, carefully teased out through case-by-case arguments, will help avoid repeating the mistakes of the past.

This article was originally published at The New Daily

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