According to a report in the Courier-Mail, Queensland Treasurer Tim Nicholls has just announced the sale of seven government buildings in the Brisbane CBD. This transaction has all the dodgy features we’ve come to expect from Queensland asset sales
* The buyers are “assorted funds managed by the [state-owned] Queensland Investment Corporation”. So, as often seems to be the case, we are selling assets to ourselves
* Nicholls says “the sale proceeds will be used to reduce state debt. The government will also save about $130 million in interest payments.” Of course, this is double counting – the whole point of reducing debt is to save interest payments. But what does the $130 million mean? It’s about 24 per cent of the sale price, so I’d guess it refers to savings of 6 per cent a year over the four years usual in forward estimates. But that’s a very short-term way of looking at transactions that will affect the public for decades to come
* The buildings will be rented back on set leases with fixed rent increases. So, we’ll also be renting them back from ourselves. Costs will mount over time, but the big increases will doubtless be outside the forward estimates. So, there might be net saving for the next few years, but there will be losses after that.
And of course, as Shadow Treasurer Curtis Pitt points out, selling assets without a mandate was exactly what this government (elected because of Labor’s mandate-free asset sales) promised not to do.
John Quiggin 
And as recently as 9 April (according to the Courier-Mail “a spokesman for the Premier ruled out asset sales”: http://www.couriermail.com.au/news/queensland/queensland-government-gambles-millions-on-bold-plan-for-new-rankings-and-bonus-pay-for-teachers/story-e6freoof-1226615286785. Tends to make you think the Treasurer does what he likes without reference to the Premier.
This is an extract from a Brisbane Times piece in 2010 (when the ALP was selling our assets):
They’re all the same, ALP/LNP doesn’t matter. They are not acting on our behalf or in our interests or on our instructions. But they all sing the same tune and people are silly enough to think there is some difference between them.
What is Queenslang financial rating?
This is accounting trick to artificially increase GDP while reducing nominal debt of the state. Quick income would pay off some debt while the rent is not counted in debt as interst rate is. It is a wash in real expenses of the state but this will improve indebtness in order to reduce interets rate of the state for future debt issueances. At the same time the party in power can claim that they reduced debt and hence they can be considered frugal and “good” government for voters.
I do not see it as much more then a PR campaign, because the investors will loose that income from higher (IF it gets reduced) interest rates and reduce GDP later on. State will invest in projects no matter the interest rate.
But this issue rises because, even tough there are good fiscal transfers within Australia, States and Teritories can not print money while the country’s CB can. There should be some direct fiscal transfers between CB and states on per capita basis while limiting indebtness.
I forgot to note that rent will be counted in GDP number and that is why it reduces indebtness even tough the rent will be a bill for the state by the state.
This is the major rationalization behind privatization, and it is a total wash when state sells assets to itself.
Mandates! Mandates!
Rudd had a mandate for a carbon price and lost his nerve.
Gillard had a mandate to not introduce a carbon price and did. Did you complain about her lack of a mandate for a carbon price.
Technically, you’re right about renting until they sell the investment corporation. It’s all fun and games until someone loses an eye.
I sold my fishing rod so that I can buy fish for a few months.
Are all neo-cons finance numpties? Debt is always bad, investment is always a cost, savings are always made productive, the market is always right, innovation is private-domain, opportunity is always equal, and the future is already risk-free (climate change).
In the local disposable free Murdoch hate media I saw a very unconvincing half page full-colour ad against asset sales.
The campaign features the actor Tony Barry and goes under the name ‘not4sale’ and has an ‘org.au’.
Great, but it’s just a front for the ETU (the ETU registered the domain name, Peter Simpson is the named registrant, and their PO box is South Brisbane). Being deceptive is probably not a good way to win people over to an idea they probably alreadily heartily support.
From memory the ETU had something of a falling out with Bligh over asset sales, I would have thought that would be an even greater reason to use this campaign to strongly condemn BOTH the ALP & LNP ideological dedication to privatisation and asset sales.
I’m not sure which is more despicable, burying their union backing or spending their money with “Mr Privatisation” Murdoch.
After selling off Telstra it was ironic that the High Court found that some Telstra assets remained property of the Commonwealth and that Telstra had to share those assets. This led to the litigious three amigos putting customer service last on their list leading to a frustrated govt creating the NBN. So the nett result of all this paper shuffling is that the taxpayer has had to pay for two telcos.
Even more ironic was that by using a Costell accounting device only the cost of servicing NBN debt was to be included in the govt budget.
The customer would have been far better off had Telstra remained public property and reinvestment was not considered to be a budgetary deficit. Privatisation has shifted benefits from the govt to Telstra shareholders.
It all boils down to
tricksterms used by politically motivated accountants (“purchases of non-financial assets” “underlying budget balance” ”headline cash deficit”) used by successive governments.http://www.smh.com.au/business/budget-loopholes-turn-out-to-be-a-pain-in-the-assets-20120601-1zmxm.html
No matter who you vote for you get a neocon. The “con” stands for both conservative and confidence trickster. Both major parties are corrupt and tools of the capitalists.
@rog
Yes, i find politicians surprisingly honest as long as listener is able to comprehend highly specialized professional terminology.
@Ikonoclast
While I agree broadly with your conclusion (ha! “con”) the “con” in each really goes back to the archaic Latin “cum” (meaning “with, together or beside”) and further back still to the proto-Indo-European root “kom” (near).
It’s often used to intensify the stem-word. Thus conserve intensifies the idea of “keeping or holding”. Confide is more like the “with” sense — literally “with trust”. Obviously “confidence trickster” reverses this meaning but has become the portmanteau and aphetic anapodoton, “con-man” and from this the backformed “con” has emerged.
{/end usage note}
this is a routine application of the make or buy decision.
why should the government own the buildings when that risk can be re-allocated to others with a better ability to manage the building.
should a government own every building it uses? where do you draw the line?
Jim@14. Where you draw the line reminds me of all those rented Centrelink offices that ex-NSW Parliamentary speaker, Richard Torbay and a business associate managed to purloin through a confidante within the Federal Government’s planning/purchasing processes, telling the Torbay building partnership where next to set up shop.
It doesn’t answer your question but asks another that interests me about the degree of corruption in Australian government circles, federal and state. Is NSW under Labor a nadir and has much changed? Torbay was still speaker until March after all.
@Jim Rose
If the risk of owning is reallocated then the costs of that risk (insurance etc.) will be still be included in the rent. There is no prima facie case that this saves the government any money. Whether private enterprise is better at managing buildings is debateable. Slum lords, to take an extreme example, can scarcely be called good managers of property and values. To take real examples, I found the quality and reliability inside government buildings (lifts, toilets, carpets etc.) declined markedly when they were taken over by private management.
The government saves on negotiation costs, contract costs, legal costs, relocation costs and certain other costs by having their own buildings. Government ownership of buildings confers advantages which some agencies would need and others would prefer. Greater security of tenure, greater security, greater flexibility in fit-outs and other advantages accrue (including more capacity to co-locate government services).
The government should not necessarily own every building it uses. It would not be cost efficient in all cases. However, for persistent core, adminstrative and service functions, like governance, treasury, justice, military, police, health, welfare and education, the owning of most buildings makes sense.
If private enterprise wants these building to make a profit, the cost to government must go up. In addition to all other costs, the government will now have to pay profits to private enterprise. Government can finance its own buildings in a number of ways so need not take on debt equal to the cost of the buildings. It can finance through budget deficits (federally) and through taxes and charges (state and federal).
Selling off government assets is a deliberate program to minimise and destroy democratic government. Where the capacity of democratic government is reduced the power of corporate and oligrarchic capital increases. This is the real program of neoconservatism. To destroy democracy and transfer power (the power of the purse strings) to the capitalists.
@Jim Rose
Jim, they were non core promises
I agree with Jim there is no obvious reason why government should be involved in owning real estate assets. They should be better managed by those in the private sector with good property management skills and who seek to utilise these buildings in the best-valued purposes. There are better things for pollies and civil servants to focus on than managing real estate.
But unless the sales realised above market prices I agree with John that the stated rationale – in terms of reducing interest burdens by applying revenues yielded to reduce debt – doesn’t make good sense.
@hc
Did you not read my reply to Jim? There are many valid reasons for governments to own facilities and they land they are built on. Terming all government facilities “real estate” as if they were all easily interchangable with residential, commerical and industrial buildings is to conflate different categories.
Also, the blanket assumption that the private sector manages everything better, all the time, is untenable. I have seen plenty of private sector snafus.
Sorry Iconoclast but when I read that you saw making a profit by other operators as a reason for owning builings yourself I thought that your knowledge or the make-or-buy literature wasn’t that strong. On that basis you wouldn’t outsource anything that was provided where the operator makes a profit. Nor did I find your arguments about risk compelling since a renter has greater flexibility of choice. Providing low quality cheap accommodation to poor people is better than imposing stringent minimum quality standards and leaving them out on the street – the problem isn’t their housing or such things as rent control but their low incomes and it is the latter that should be targetted.
I agree it isn’t always true that the government should rent. If the building design is specific to a particular purpose – e.g. the new Parliament house – it would not be. But for most adminisrative functions the often palatial accommodation our civil servants work in seems a bit of a waste not an efficiency.
@hc
Is an army base something a government can rent anywhere? Is a school something a government can rent anywhere? Is a data centre something a government can rent anywhere?
Why this assumption of “often palatial” accommodation for public servants? Do you mean the heads of department or the ordinary workers? As an ordinary public servant I worked in places that looked considerably dingier than the average suburban bank ( I was a bank worker too) and other places that were quite passable but not palatial. Have you seen the HQs of mining conglomerates and trans-national corporations? Are they not “often palatial”?
This assumption that private enterprise is always efficient is wrong. I was in a position to observe the very poor implementation of an IT rollout by a private contractor in a federal govt department. This was quite a few years ago now. Basically, public servants worked their butts off to save the rollout from total disaster. Their work went above and beyond the calls of both duty and the contract with the private contractor. Of course there was political pressure to save the contract and the private contractor’s bacon.
Now this is not to say governments should be in the business of IT rollouts. It is to say that the blanket assumption of all-pervasive private enterprise efficiency and competence is wrong. When people make these blanket assumptions I can be pretty sure they haven’t seen enough examples of what really goes on in both the government and private spheres.
Ikonoclast
Frank Knight in Risk, Uncertainty, and Profit (1921) distinguished between interest, or long-run normal profits, and short-run profits and losses earned by superior or suffered by inferior entrepreneurs.
• Interest on capital must be paid in any economic system.
• Profit is the return to the entrepreneur for their superior ability to forecast an uncertain future.
Governments as owners of businesses and assets must forecast the always uncertain future. Are governments good entrepreneurs, good forecasters?
The NBN is an example of the government as entrepreneur – a dynamic risk taker backing its contrarian forecasting of a large demand for super fast broadband in an industry subject to rapid technological progress.
If these entrepreneurial forecasts about the future of ICT demand are wrong, the government will suffer losses because forecasted revenues will not cover the costs incurred.
oops: should be
Does most of this assume the first (and maybe only) priority for the nation is ,and should be, profit/growth/GDP maximisation measured in (US!)dollars ? That all other good will automatically flow from that ? If the cash flow is better in the short to medium term then is there is now no other option ? Maybe thats the kind of world Australia must compete in and it would be suicidal to step away from maximisation measured in dollars . Are we really in such a perilous situation – so little wealth here , only an inch away from sheer desperate circumstances ?. To me it seems we have an over abundance of material wealth but are impoverished morally and spiritually (i use that term in a wide sense ) ,our sense of community is collapsing fast and we are getting less happy and healthy .
@Jim Rose
State is a legal entity.
Please to consider that when thinking about risk and profit.
State as a legal entity (talking about country as Australia that is issuer of a currency, not about state as Queensland that can not issuecurrency) and as such nobody stands to risk or profit from it.
When state invests in NBN, it spends money. Who makes income from it?People/private sector.
Profit is taking more then giving (surplus), when state profits it can profit only from private sector which is taking more then giving. And then it will spend that profit back to private sector. Taking to give. The same is for risk. If state losses, that means it gave more then it took from private sector.
Risk and profit does not play any issue with currency issuer.
State is just a bookkeeping system that have nobody to profit behind it. If profit is taking then it will give it back, as redistribution of such profits.
Deficit is what state spends more then takes via taxes. and it never pays off those deficits, never. It just rolls them over.
@Jim Rose
The interesting thing is that the Sth Korean government backed broadband and Sth Korea now has the best internet in the world.
“South Korea leads in the number of DSL connections per head worldwide. ADSL is standard, but VDSL has started growing quickly. ADSL commonly offers speeds of 2 Mbit/s to 8 Mbit/s, with VDSL accordingly faster. The large proportion of South Korea’s population living in apartment blocks helps the spread of DSL, as does a high penetration of consumer electronics in general. Many apartment buildings in built-up metropolitan areas, such as Seoul and Incheon, have speeds of up to 100 Mbit/s. VDSL is commonly found in newer apartments while ADSL is normally found in landed properties where the telephone exchange is far away.” – Wikpedia.
This notion that private enterprise humans are somehow wiser and more able forecasters of future trends that government agency humans is complete balderdash. The post-war Japanese miracle was assisted by reconstruction but guided by MITI. Look it up.
This chanting simplism of “private enterprise always good, government enterprise always bad” is blind ideology at its worst. How do you think the Chinese economic miracle has occurred? There are many factors of course but one prime factor has been the strong state guidance of the economy. Dirigisme works. That’s not the same as a total command economy by the way. The empirical evidence is in but the reality deniers on the neocon side just go on denying forever.
@Ikonoclast
The more I read about South Korea, the more envious I am about them and how well they appear to be managing their economy and human resources.
@Ikonoclast JR does like to go on; the recent financial meltdown was caused by the failure of the private financial sector requiring assistance from central banks including communist China.
Thinking about it this evening my last post sounds a bit idealistic (admittedly that’s usually ok with me anyway I suppose ) and maybe off topic . Im not good on the nuts and bolts of asset sales . I feel sorry for Queenslanders having to endure C Newman . J Kennett had a bit of what the press called larakin panache at the time, it can disappear fast .He one threw a silver shovel full of sand over tv camera and photographers at a grand prix ceremony . Also outside the treasury building there is 3 or 4 statues of premiers who served more than a certain number of days – his idea but no Kennett one as he lost the next election .
Austerity seems like wealth distribution ,it’s class warfare if removing tax breaks for super is . Enabling the less fortunate may be a good long term investment for society. Good return rate on $ .Gonski reforms would work like that . Throwing more resources at those who already have the most is what abbott govt will do . Many of them simply hoard it anyway . Is a huge financial sector a national treasure . Labor not brave enough to get much done in current circumstances either . How long until the other mob admits it dont work ? 5 years , 10 years ?
Jordans point about how the state may be able to roll over deficits for a long time makes sense to me . One day we will have optical fiber the South Koreans will talk about .
I find it hard to know what to make of the positions market liberals take, as they say they act in market places primarily out of self interest like all participants should . That doesnt inspire much trust in me as a listener .To me there normally seems a close fit between their positions and their self interest in the real world . What role does truth play in their logic ? Enough people in wider society are thinking like they do to stop change .
One example of privatisation failure is in public housing. Thatcher sold off public housing and left it to the private sector to fill the gap. It did and with spectacular results, an unregulated bubble in housing and finance.
Not sure the above is correct. Given that these assets were already constructed and that this transaction is taking place in the secondary market wouldn’t any contribution to GDP from these assets have been counted in previous periods?
Wouldn’t the only contribution to GDP this transaction would have would be in the form of any work undertaken to facilitate the transaciton in this period (e.g. legal, accounting, other advisors, etc)?
@Pete Moran
Ho hum – more attacks on straw economic men on Quiggin’s blog (although to be fair in the comments). Apparantly these “neo-con” people believe, inter alia, that debt is always bad, savings are always made productive, the market is always right, opportunity is always equal, and the future is risk-free.
So, Pete, would you like to name even just one person who believes that? I know of no-one, neo-con or otherwise, who holds those things to be true. It follows that, unless you can find some people who do subscribe to these views, you’re just smearing people by making stuff up.
@ TN
Errr… Heiress Gina Rinehart, Campbell Newman, Cory (Barnyard) Bernardi, Dennis (Don’t Call me Denis) Jensen, Mattias Corman, Circus Clown Barnaby Joyce ….
…. should I go on??
@Pete Moran
Go on for as long as you like, Pete, but perhaps also try to add some proof – such as, for example, statements by the people you are listing that “the market is ALWAYS right, opportunity is ALWAYS equal, debt is ALWAYS bad, and the future is risk-free” – to back up your assertions.
The truth is, you are simply attacking a straw economic man – which is quite typical behaviour on this blog, but that doesn’t make it any more defensible.
Indeed, just think about the effective management of assets by Rio where they announced $14 billion in writedowns in January. If that doesn’t make the commentators question the efficiency of private sector decisions about asset allocation, what would?
@ralph
It’s hard to give too much weight to asset write downs being evidence of inefficiencies in the private sector, especially when we’re talking about a large corporation like Rio Tinto which have about $117 billion total asset as at 31 December 2012. I have no looked into Rio Tinto that closely to give a detail analysis, but $14 billion asset write down (slightly less than 10% of total assets) is not something like a ‘SHOCK’ for the industry Rio Tinto is involved in which can be significantly affected by the volatile in mining related commodity prices.
Another possibility is that the $14 billion impairment may be a result of prior asset prices being overvaluated. This further reduces the usefulness of asset impairment as evidence for private sector inefficiencies.
Overall, like Ikonoclast, I also question the assumption of private sector being always efficient. However asset write down (thus profit & loss) may not always be useful evidence against market efficiency.
@ TN
Read the first speech of Mattias Corman for example. He’s a tea-party economic lightweight that would have the country in austerity recession in an instant.
He and Dennis Jensen (as WA Liberal Senators) gave perhaps the most bizarre presentation on a near-pure Tea-Party vision I’ve ever been to.
@Tom RIO spent $38B on Alcan only to see the price of aluminium plummet – evidence of expert opinion? RIO then had to sell assets to raise some cash.
There was also the purchase of Rosemount by Southcorp – end of Southcorp.
And it was govt regulation that straightened out Australian banks.
Despite their alleged expertise the private sector are always making big mistakes.
@rog
I do not dispute your comment. I was however, only pointing out changes in accounting numbers are not always reliable evidence against market efficiency because accounting numbers can be volatile due to various reasons such as actually poor performance, earnings management, changes in the company’s accounting policy and changes in accounting standards etc. I do not have expert view on Rio Tinto to give a comment on its recent performance.
@Tom
Tom, your point is correct to which nobody is disputing, but Ralph was specifically referring to RIO and it was indeed a myriad of monumental stuff ups that eventually & rightfully cost Tom Albanese his job. RIO were lucky a rich Chinese appetite for iron ore came at a very convenient time to keep the organizatoin out of the real poo (ie. they were floating on oceans of debt in 2008).
@Pete Moran
Against my better judgment, I read Mathias Cormann’s first (15/8/2007) speech and it provides no basis, Pete, for your attribution to him of the absurd views – for example, that debt is ALWAYS bad, or that the market is ALWAYS right – that you claimed that “neocons” hold.
Thus, while Cormann is for sure a supporter of market forces, he also sees roles for government. To provide a specific example, his speech states:
Other examples from the speech are that he supports “less regulation” and “low taxation” – not zero regulation and zero taxation.
Pete, I have called you out for your sloppy and absurb characterisation of the views of so-called “neo cons”. It turns out that the set of people who hold the absurd views you mentioned is an empty one – and that you have been attacking a straw economic man of your imagination’s own creation. Still, as I’ve said, your not the first on this blog to do so.
@Tom No need to look at changes in accounting procedures, just reflect on the (near or actual) collapse of nearly all the commercial banks in the developed world.
Derivatives have seeped their way into almost all balance sheets.
@ TN
Lets look at examples of Cormann’s voting record perhaps as well.
He’s voted against the NBN claiming that it is both a “cost” not an investment, that the private market would do it better if they were “allowed” to (markets). He voted against a Green amendment to ensure a safety-net for single mothers (opportunity). He voted against a price on Carbon, twice (future). He’s voted against taxing profitable mining companies for their unsustainable short-term pillage (taxation). He voted against means testing the private health rebate (taxation again).
On and on and on it goes ….. He’s a pure Party-hack, and as has been my experience with him; truly believes his libertarian, Tea-Party, laissez-faire rubbish. He has supported precisely zero amendments that would move him away from debt is always bad and the market is always right.
In his world, like the Republican methods they’re trying to import, “no” is always the answer to a proposition from the Left. I’ll continue to claim him in the set of neo-con economic numpties. He would only need to repeatedly refer to the blessed-Constitution to be a fully fledged three-cornered hat-wearer with a Don’t Tread On Me badge.
Once again Pete, none of the “evidence” you have brought forward justifies the statements you made in your initial post about the (extroardinary) views (eg markets are ALWAYS right) that you believe “neocons” hold. You can of course “continue to claim” whatever you want about these neocons who seem to haunt your imagination. You just can’t do so with any credibility.