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Statement on asset sales

December 8th, 2009

I’ve done this as a press release. See if anyone bites

STATEMENT

The government’s announced plans for privatisation show that Queenslanders are unlikely to get a good deal from the proposed asset sales, according to Professor John Quiggin of the University of Queensland. Professor Quiggin was one of a group of 21 leading Australian economists who stated in November that the government had failed to put forward a serious case for privatisation, and that an informed public debate was urgently needed.

Professor Quiggin stated:

* The use of a 99-year lease rather than an outright sale is a device commonly used by governments seeking to make privatisation palatable, but one that makes no commercial sense for assets of this kind. The public loses the asset just as surely as if it had been sold, but gets a lower price because the buyer does not become an outright owner

* The proposed public float of the QR coal and freight business, with the government retaining a minority shareholding large enough to retain effective control makes sense only on the assumption that no trade buyers were willing to pay an effective price. Purchase of shares in such a float would make sense only if they are offered at a substantial discount, meaning that the people of Queensland will almost certainly receive an inadequate price for this asset. The giveaway of shares to employees is typical of the cosmetics used by governments in packaging unsound and unpopular privatisations.

The entire privatisation scheme should be scrapped, and debate over the the desirability of asset sales, and the way to generate the best value for the public should be started from scratch

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  1. ken n
    December 9th, 2009 at 04:07 | #1

    Well and clearly put.
    Another aspect that will reduce the price achieved by the float is continuing government control of the company owning the freight and coal business. Shareholders need to believe that the intererts of the government match theirs over the life of the company. Unlikely, so a discount applies to the price.
    Aside from stubbornness it’s hard to see why the government is going ahead with this.

  2. Graeme Bird
    December 9th, 2009 at 08:45 | #2

    “The entire privatisation scheme should be scrapped, and debate over the the desirability of asset sales, and the way to generate the best value for the public should be started from scratch”

    Accept no substitutes.

  3. paul walter
    December 9th, 2009 at 15:05 | #3

    Came here to find ken n has beaten me.
    Ok, so why do state governments persist with unpopular and inefficient schems like the Qld government one, when the flaws seem so obvious to onlookers?
    Prof Q?
    Anyone?

  4. December 9th, 2009 at 15:17 | #4

    John,

    I’m broadly in agreement with your sentiments. The latest moves look like what you’ve described them as. Except that I think a long lease may not be such a bad way of arbitraging the different discount rates of the public and private sectors.

  5. Alice
    December 9th, 2009 at 16:15 | #5

    @paul walter

    Not only why do they persist Paul but why do they so stubbornly persist and why do they so stubbornly resist the advice of those who’s council they should be seeking (eminent Australian economists) in preference to barely there 30 year olds in Treasury with toy computer models advising their incompetent government with advice likely ten years out of date internationally.

    There is a major inexplicable disconnect between what the electorate wants, what experts suggest and what the stubborn QLD Labor government does (same in NSW). To ignore the elephant (s?) in the room of possible corruption and party benefits is to put all our heads in the sand.

  6. fred
    December 9th, 2009 at 16:17 | #6

    Dollars for the mates.

  7. Alice
    December 9th, 2009 at 16:33 | #7

    I question the lack of consultation with economists. I question the lack of transparency in the process. I question the lack of engagement with the community. I question why QLD government cant or wont respond to the Australian economists letter. I question no referendum for such a major sale of public assets. I question the misprepresentation and apparent meekness of the media. I question why McTaggart has stayed so silent.

    I dont consider that two bit publication aimed at 6 year olds mailed to Queenslanders to be “engagement” and nor does it make it a public process.

    The entire process has been furtive.

  8. Joseph Clark
    December 9th, 2009 at 17:00 | #8

    John, what would be a good price for these assets?

  9. jquiggin
    December 9th, 2009 at 17:43 | #9

    @Joseph Clark
    The starting point is the present value of the earnings foregone, discounted at the real government bond rate. I haven’t got good enough info to calculate this, as recent earnings reports have lots of extraordinary items. But if the government chose, it could do the calculation and make it public, instead of relying on lies, suitable only to deceive children as Alice says.

    Do you have a different basis for estimating a good price?

  10. ken n
    December 9th, 2009 at 17:53 | #10

    JQ: You’re good price is of course a good price to the seller. Almost certainly it is more than a smart buyer would pay, considering the risks and uncertainties. So, as you sa, the government should not sell.
    Fred: Most foolish government action is explainable by stupidity or extreme short term thinking, without resort to corruption.

  11. ken n
    December 9th, 2009 at 18:10 | #11

    “Your” I should have said.

  12. Joseph Clark
    December 9th, 2009 at 18:13 | #12

    @jquiggin
    I would use the same calculation, and I agree. I think it would make your argument a lot stronger to have these estimates and to explain the calculations.

  13. fred
    December 9th, 2009 at 18:41 | #13

    I didn’t say corruption, I said ‘dollars for the mates’ which whilst close is not the same thing.
    What Qld appears to be doing is what the Libs did here in SA some time ago using a trumped up excuse.
    They sold everything that wasn’t bolted down to their classmates and ideological allies cos thats what freemarketeers believe and what goes round comes round.
    Musical chairs resulted in ex govt dept heads becoming CEOs whatever of newly privatised corporations, Mr Murdoch looked down from on high and saw that it was good and everybody was happy.
    Except the electorate.

  14. TerjeP
    December 9th, 2009 at 19:09 | #14

    Fred – selling government assets for a dud price has nothing to do with being a free marketeer.

  15. fred
    December 9th, 2009 at 19:11 | #15

    If you say so TerjeP.

  16. TerjeP
    December 9th, 2009 at 19:20 | #16

    I do say so.

  17. nanks
    December 9th, 2009 at 19:22 | #17

    @fred
    corruption occurs through the proximity to power and wealth. The longer politicians stay in power the closer their values align with those that seek them out. Like anyone, politicians fit in with the people they mix with. That isn’t the poor nor is it the middle classes.

  18. fred
    December 9th, 2009 at 19:23 | #18

    You mean there is no commonality of ideology between those who espouse free markets, minimal government intervention in the economy, privatisation of public corporations?

  19. nanks
    December 9th, 2009 at 19:23 | #19

    @nanks
    To clarify, politicians of the Left – those whom I have known – become the people they once opposed. The corruption of bribes etc is far less common, and far less destructive.

  20. fred
    December 9th, 2009 at 19:24 | #20

    I agree nanks.

  21. fred
    December 9th, 2009 at 19:25 | #21

    I continue to agree.

  22. stockingrate
    December 9th, 2009 at 19:38 | #22

    To my mind even a “good” price is unattractive as the proceeds will be squandered – yes the money may be spent on hospitals but this will result in less money being raised from taxpayers and so, for a while, more will be spent on holidays down the Danube and plasma screens etc. We will soon be tennants in our own country. A foolish electorate and its inheritance are soon separated.

  23. TerjeP
    December 9th, 2009 at 19:46 | #23

    fred :You mean there is no commonality of ideology between those who espouse free markets, minimal government intervention in the economy, privatisation of public corporations?

    No that is not what I mean. What I mean is what I said. I said that selling government assets for a dud price has nothing to do with being a free marketeer.

    The converse of the inference you are drawing is to suggest that social democracts think that governments should buy assets for an excessive price.

  24. fred
    December 9th, 2009 at 19:57 | #24

    “The converse of the inference you are drawing is to suggest that social democracts think that governments should buy assets for an excessive price.”
    You’ll have to explain that very slowly.

    As nanks has described, the people who control public corps, aka pollies in govt, believe that free markets/privatisation etc are ‘good’,as in ’2 legs bad, 4 legs good’ [thats an allusion to the final words of Animal Farm where Orwell notes, as does nanks, that its hard to tell the humans and the animals apart in the end], because that is the ethos, the value system, the ideological paradigm within which they circulate in this society.

    So when opportunity or excuse arises they are willing to sell the family jewels to their mates.
    Its no big deal, its not a mystery, not corruption or conspiracy, it is simply a confluence of values between the decision makers and those with the money.

  25. Alice
    December 9th, 2009 at 20:38 | #25

    Im in agreement with Fred and Nanks.

    The process by which politicians become totally disconnected from the majority of the electorate that voted for them and that majority is the lower classes and the middle classes, to have their interests cosily aligned , through proximity to the power and wealth of those who seek their company, ie the wealthier is insidious and far more harmful than overt bribes. It is corrupt employment of political power nonetheless.

  26. Alice
    December 9th, 2009 at 20:51 | #26

    @fred
    The trouble is Fred, the greater the diminution of the public sector through the privatisation or semi privatisation of once public processes, the fewer public service controls are left remaining within institutions to require the accountability of public servants in their dealings with the private sector (transparency, accountability, honesty, ethical behaviour etc – once standard and expected behaviours).

    Hence, as controls / public objectives become cloudy, I suggest the process of privatisation would tend to accelerate as bureaucrats face less oversight and reinforcement of their public responsibilites. Without definite public service objectives, more bureacrats find a way to mix with private sector interests for their own self interest (not the electorates).

  27. Alice
    December 9th, 2009 at 20:53 | #27

    should say “less reinforcement of their pubic responsibilities” above

  28. fred
    December 9th, 2009 at 21:24 | #28

    I was gonna respond in some detail Alice but I s’pose the best response is “Yep”.

    Mind you [sometimes I can't help but go on a bit] its nice to see an economics site like this one, and the OP in this particular case, offer a dissenting view to the usual guff churned out elsewhere.
    I’m mildly optimistic today.

  29. Peterm
    December 10th, 2009 at 09:14 | #29

    No one seems to be mentioning Labor factional politics. The conflict between the AWU and Trades Hall Unions factions keep Labor out of power for nearly 40 years. I notice the businesses being privatised are the power base of the trade unions. Seems stupid that the Qld. Labor Party would cut off their nose to spite their face but it was thinking like this that reduced them to cricket team of MP in their worst days.

  30. JJ
    December 10th, 2009 at 12:24 | #30

    @Alice
    While the thought process that has gone into the asset sales remains unclear, one hypothesis that I like is founded in the notion of a powerplay within the bureaucracy. Throughout the 90s and early 00s Treasury, led by Gerard Bradley and Leo Hilscher were dominant. The focus on cash budget management saw minimal investment in infrastructure but Treasury held the power. Then the lack of inftrasructure started to bite and the politicians went around the bureaucracy and created SEQIP. SEQIP was never liked by Treasury as it meant they would have to spend money and their cash surpluses would evaporate. In addition, SEQIP saw a lot of power move away from Treasury to those agencies that actually deliver things. It saw a huge increase in power for Transport, Main Roads, Water and Health capital projects. The GFC then gave Treasury the perfect vehicle to take back control and provide questionable advice to the politicians.
    I suspect that it isn’t young analysts proving poor advice but rather the senior Treasury officials who are simply being selective about the picture they paint. In effect the asset sale is Treasury’s way of taking back power within the Bureaucracy, and Anna Bligh and Andrew Fraser simply haven’t got the ability to properly assess the quality of the advice they have been given.

  31. Alice
    December 10th, 2009 at 14:17 | #31

    @JJ
    JJ – Ive always had the creeping suspician that Treasuries wield just a bit much power over politicians and other government departments and that a lot of their advice has been grounded in ideological free market doctrinairres for more than a couple of decades. It is a fact that Whitlam hired his own economic advisers because he didnt trust the advice was coming from Commonwealth Treasury in the early 1970s. He said in the mid 1980s the worst mistake he ever made was listening to their advice on raising interest rates too far and too fast in relation to the 1970s inflation, causing a credit crunch which went on too long basically, and undue pain. Even the whole self aggrandising fanfare made of Costello’s future fund investments with the JH budget surplus (while infrastructure investment has continued to be inadequate and remmittance to the States for same inadequate) is questionable isnt it?.

    Exactly how much should be stuffed away when there are infrastructure needs begging for attention? It only takes something like the GFC as a warning that even surpluses stored nicely in the shares of some of Australia’s largest companies (the interaction with govt and big business again comes into question over storage in the future fund – which once agains rewards large companies by boosting their share prices and the financial sector with commissions) to realise than even government surpluses can vanish in a major stockmarket correction.

    The GFC has bounced back…but have the problems been corrected? I doubt it and there is nothing to say it couldnt happen again and be bigger and uglier than last time. I cant recall just how long ago but I once remember reading some ancient piece on the ethics and morals of Govts not throwing peoples surplus tax incomes into the share market. I presume they stuck to safer investments once? Maybe someone else knows more about whether this was the case historically or not. Im sure it was.

  32. babenco
    December 10th, 2009 at 15:44 | #32

    I might be a bit dumb, but isn’t a selloff ok provided you get:

  33. babenco
    December 10th, 2009 at 15:45 | #33

    Sorry, last post got cut off.

    I might be a bit dumb but isn’t a selloff ok provided you get:
    - a proper price for the assets
    - a proper structure in place so you dont get private gouging of a monpoly

    I acknowledge they are big ifs.

  34. Alice
    December 10th, 2009 at 18:41 | #34

    @babenco

    Short answer babenco? No. Its not JUST a question of price.

    Its a question of future provision of the service or infrastructure at an affordable cost to majority even if it involves subsidies to those who cant afford it, and a question of ongoing job provision. No point just flogging things off to the private sector ffor a good price now – if they then asset strip the service, sue the government for contingest liabilities, pay the private execs a fotune in salaries and fly off to the tax haven with the profits, and shortly after file for bankruptcy as so many seem to so….Doh!

    Trouble with my view is the pollies dont get to have blindingly long lunches with the besuited and elegant private courtiers and conmen…

    What part of this scam cant you see? Your parents and their parents paid with their sweat and taxes for these assets and if they are dead they would be turning in their graves.

    Why isnt there a referendum?

  35. fred
    December 10th, 2009 at 20:12 | #35

    My wife [pardon the possessive] used to work for a particular govt dept and one day informed clients that they could avail themselves of a special service from her dept..
    The clients were shocked.
    They had just paid over a $1000 for that service from an outsourced private consultancy whereas the govt provided the same service [sometimes the same people performing the service] for costs, around $50.
    A year or so later the Federal govt. outsourced that service entirely.
    Now the govt depts costs look cheaper and for those ‘consultants’ who do the work at $1000 a day roughly things are OK.
    But the clients have to pay all that extra money which doesn’t appear on a public ledger anywhere.

    Bottom line ain’t always the one at the bottom.

  36. Alice
    December 10th, 2009 at 21:07 | #36

    @fred
    Fred – I agree. User pays twice (once for fee and once to save some govt department money they can spend on V* supercars or their pensions. So much of privatisation is a cost shift to households and we wonder why private sector debt is up in the stratosphere and Govt debt (if it wasnt for the GFC) was down.

    We are paying taxes twice – once for income tax and once for privately charged once public services. Ever feel like an animal listening to music in an abbatoir to keep it calm before being slaughtered?

  37. Alice
    December 10th, 2009 at 21:09 | #37

    @fred
    Great line – the real bottom line is in the houshold budget.

  38. Donald Oats
    December 10th, 2009 at 23:09 | #38

    TerjPe, I agree with what you said, in so far as the laws of logic go :-P

    Now, as far as the sale of this treasure goes, is there likely to be a pre-Copenhagen price, followed by a (drop in price?) post-Copenhagen price? Will the post-Copenhagen price be substantially different to the pre-Copenhagen price? I know, technically a pre-Copenhagen price should incorporate the effect on future income stream of the most likely Copenhagen targets etc, but now we are into the unctuous part of the Copenhagen process how does that affect the price? Presumably if it looks like strong legally binding targets are going to be adopted, that should mean a lower future income stream for the coal transport, and hence a lower price, than if piss-weak politically desirable targets are going to be adopted. Poor timing of sale, perhaps?

  39. Graeme Bird
    December 11th, 2009 at 07:36 | #39

    The goal of getting a high sale price is directly antithetical to the establishment of a functioning industry post-sale. The goal of getting a high sale price ought then be abandoned. The merchant bankers are advising the governor poorly. And why would we expect otherwise? This is about the most foolish selloff we’ve seen in a long time. We have people who just don’t seem to know what they are doing. To sell it all in one hit to one corporation? Can we not get people who understand the foolishness of this?

  40. December 12th, 2009 at 11:04 | #40

    A ‘good price’ would have to be one which would include an amount that would be equivalent to the loss the loss of democratic control by the Queensland community, and one which would compensate us for the perverse incentives for private managers to shift costs in ways that reduce the real bottom line of the enterprises whilst improving the bottom line to invetors in terms of dollars.

    Examples would be neglect of the environment and cutting back training of its workforce.

    There is no such thing as such a ‘good price’ that any investor would be prepared to pay.

    I should also mention here the petitions I mentioned on the forum discussion “Spinninng Like a Top”.

    The petittions are:

    1. A Queenlsland Parliament e-pettion:

    Queensland citizens draws to the attention of the House the Queensland public, the rightful owners of $15 billion worth of assets which are to be sold, were denied any say over this because of the failure of the Queensland government to reveal those plans during the course of the elections. We consider the stated intention of the government to proceed with the sale in the face of opinion polls, which show at least 80% public opposition, to be amongst the most serious breaches of public trust imaginable.

    Your petitioners, therefore, request the House to call upon the Queensland government to resign immediately to give the Queensland public a chance to elect a new Government which can gain its trust. Your petitioners also warn any private investors considering buying the assets, not to do so and call upon a future State government which does enjoy the trust and confidence of the Queensland people not to honour any such contracts for the sale of assets.

    2. A Sydney Morning Herald petition which calls for a change to the NSW constitution to give to NSW electors the right to make Governments such as that of Kristina Kenneally, which has lost the confidence of the people, to face new elections.

  41. SJ
    December 14th, 2009 at 17:12 | #41

    I see that this got a mention in the Fairfax press on 11th December 09: Bligh risks Telstra-style bath on QR National

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