Home > Economic policy > The “People’s Budget” that doesn’t add up

The “People’s Budget” that doesn’t add up

April 14th, 2014

The LNP government in Queensland is launching a massive and expensive campaign to persuade voters to accept the sale of publicly owned assets. This follows an earlier campaign by the Bligh-Fraser Labor government (remember how well that worked out!) and looks likely to make the same claims, with the additional (self-contradictory) claim that the Labor government, whose policies the LNP is now adopting, drove the state to dangerous levels of debt. In particular, the LNP campaign repeats the central error of Labor’s, namely the claim that selling assets provides a way to fund public expenditure without taxation.

Technology moves own. Whereas Labor gave us a printed pamphlet (reproduced on the web), the LNP offers an interactive website where we can make our own choices. This would in principle, be quite a useful contribution to public debate. If it were available generally, it would be possible for voters to weigh up various proposed initiatives, and assess whether new public services are worth the revenue measures that would be required to fund them.

Unfortunately, but unsurprisingly, this version is rigged. The website claims that it is necessary to reduce gross public debt by $25-30 billion and offers three ways to do so: raising taxes, cutting spending or selling assets. The more we do of one, the less we have to do of the others. I assume (and will check later) that the amounts listed for the tax and spending measures are derived from the forward estimates (four years). By contrast, the asset sales are a once-off measure.

The real dishonesty in the setup comes at the end. If we do want the government wants and agree to all the proposed asset sales, the estimated proceeds are $34 billion. The reward is a $1.7 billion saving in interest, which we are then invited to spend on desirable things.

There’s just one problem. The calculation has omitted the fact that, if we don’t own public enterprises any more, we forgo their earnings. Fortunately, there’s a relatively easy fix. The 2013-14 Budget Paper 2 has a section devoted to public non-financial corporations. The total Earnings Before Interest and Tax of these enterprises was $3.7 billion. Of this sum, $1.2 billion was paid to the state in dividends, about $500 million in tax-equivalent payments (state-owned enterprises aren’t subject to company tax, but make these payments in the interests of competitive neutrality) and the rest was either paid in interest on debt or retained to finance future investment.

How much will the public lose from the asset sales?. Most obviously, we will lose the dividends, which virtually wipe out the proposed interest savings. The tax equivalent payments are a loss to us as Queensland citizens, but (assuming the private owners pay similar rates of tax, which is not guaranteed) are offset by a corresponding benefit to the Commonwealth. And the debt calculation almost certainly includes the debt held by these enterprise, so part of interest we save is has already been covered by their earnings which will no longer be available. Finally, retained earnings contribute to future growth and are a real loss when an asset is sold.

So, if we sold everything, we would forgo $3.7 billion in income, far more than the $1.7 billion the government suggests we can gain. However, a close reading of the options indicates that the proposal isn’t for a complete sale. Electricity transmission and distribution assets are going to be retained, with some form of private participation. This is supposed to save $28 billion, whereas an outright sale would fetch more,

Still, an honest presentation of the proposal would have the asset sale yielding a net loss of up to $2 billion. Like its predecessor the LNP proposes to cash in the proceeds of privatisation and ignore the loss of revenue it entails

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  1. Robert
    April 14th, 2014 at 05:53 | #1

    John, the following clause is confusing: “with the additional twist that the Labor government, whose policies the LNP is now adopting, drove the state to dangerous levels of debt”. Do you mean that this is what the LNP are claiming, or do you actually think that Labor drove the government to dangerous levels of debt? Fixed now, I hope – JQ

  2. Ikonoclast
    April 14th, 2014 at 09:07 | #2

    I must admit I have a short heuristic for judging all statements and ads by major political parties. I simply assume they are lying. Then I await comprehensive proof that they might be telling the truth. Rarely, if ever, do I discover they are telling the truth. JQ has positively confirmed my suspicion they are being dishonest in this case.

  3. daz
    April 14th, 2014 at 10:08 | #3

    The strong choices website also states: “That debt costs Queenslanders $4 billion in interest repayments every year. $4 billion could build 25 new primary schools, rebuild a 300-bed regional hospital, and build 900km of new highway.”

    This is completely disingenuous.

  4. April 14th, 2014 at 10:19 | #4

    Ah, but to whom does Queensland pay the tax-equivalent payments from state owned enterprises? If they simply go to Queensland, it is merely an accounting exercise so that the ordinary revenue isn’t inflated, but there is a real difference from the situation after privatisation: those amounts go to Queensland before and to the Commonwealth afterwards. That is also an artefact of the legal framework, but it is a real difference to Queensland’s payments received even if it shows up differently from ordinary revenue.

  5. derrida derider
    April 14th, 2014 at 12:13 | #5

    Fortunately, there‚Äôs a relatively easy fix [to correct the rigged accounting]. The 2013-14 Budget Paper 2 ….

    I suspect that the government’s response to this unfortunate oversight in their information management strategy will be some changes to the 2014-15 Budget Paper No. 2 …..

  6. April 14th, 2014 at 12:13 | #6

    This sort of tool would be an extremely useful addition to the public debate IF it was only set up to be truthful rather than to push an agenda as this article describes.

    I would be happy to throw some $ at a crowd sourced website that attempted to do this in an independent and honest way. That would be an innovation.

  7. TerjeP
    April 14th, 2014 at 13:50 | #7

    “those amounts go to Queensland before and to the Commonwealth afterwards.”

    I presume this is why Joe Hockey is prepared to pay a bounty to states that privatise stuff.

  8. Dave
    April 14th, 2014 at 22:50 | #8

    Having completed my budget in the naive hope that the choices would allow for fair evaluation I was disappointed to find that sale and/or lease of assets was the only means provided for such massive debt reduction (goal is over 30% reduction).

    It is glaringly silent on the lost revenue and.further it’s is deliberately vague when it says something about using private investment in return for future returns

  9. daz
    April 15th, 2014 at 08:08 | #9

    > I would be happy to throw some $ at a crowd sourced website that attempted to do this in an independent and honest way. That would be an innovation.

    This is a great idea.

  10. April 15th, 2014 at 12:32 | #10

    alex :
    I would be happy to throw some $ at a crowd sourced website that attempted to do this in an independent and honest way. That would be an innovation.

    Tricky, but interesting. How do you escape the perception of bias? It sounds a bit like the ABC’s fact checker.

  11. Mary
    April 15th, 2014 at 20:42 | #11

    Yes it is interesting that the revenue from the sales does not come into the argument at all. But what about other choices that we are not entitled to help with? We know there are many many ways that this government could save millions don’t we.

  12. Richard Bale
    April 16th, 2014 at 10:58 | #12

    If Newman and his cronnies take a 2.2% payrise ( equal to what he gave the public service after a couple of years of trying to stop any pay rises) instead of the 42%, then the government would have enough to pay off the debt without having to sell any assets. I also wonder if Newman does sell any assets, will he get top dollar for the asset or will his LMP mates/supporters get the asset at bargin basement price. If that happens the cost of the service will be unaffordable for the average worker.

  13. Tom
    April 16th, 2014 at 11:09 | #13

    This Government has lost it way and does not have any idea where they are going.
    Before they got into power they said they would listen to the people but that was only a ruse to get into power.
    They want to get into the black as soon as possible to keep an election promise but at the same time willing to break other election promises.
    They have no plans for the future as they don’t know how to budget, if they did they would see selling off assets is not the answer.
    If we look at history like the discontinued rail line to the Gold Coast so some body could make big money freighting by road to the Gold Coast, the cost of replacing rail to the Gold Coast.
    When a Government sells an asset they don’t sell it for what it is worth they only get a portion of the value.

  14. Collin Street
    April 16th, 2014 at 12:00 | #14

    First time as tragedy, second as farce.

    [because the first time something's done it's done by people who see problems with the old approaches and are trying new angles, and the second time around it's done by "it worked last time!?" people.]

  15. John Freeman
    April 16th, 2014 at 13:19 | #15

    I thought the same as you, pay, choices they want and maybe pollies could wait ’till they’re 60/65 for their pensions & only get one, like everyone else. No more continueing with projects, like Traverston Crossing, after they’ve been told it won’t suceed. The money from the last selloffs has been spent, what will they do when they’ve sold off everything?

  16. Anthony Metcalf
    April 16th, 2014 at 13:56 | #16

    The Government is following the Illuminati Agenda of One World Government(which will be the UN)one world currency and one world religion.
    Nothing the Australian Government does has been of benefit to the working class of Australia.We are always made to pay more in utilities/taxes/GST to make up the so called shortfall of the government.How much of Queensland debt is REAL MONEY AND NOT JUST SOME FIGURE ON A COMPUTER?
    We always have to foot the bill and go green to help save the Barrier Reef/our rivers/wetlands etc but we not allowed to have cars that run on water or compressed air?Why are the oil companies not taken to task for forcing us to ride petrol or diesel cars which are supposed to be causing climate change.Australia is a dictatorship with big business-oil and mining companies dictating to the Australian government.
    Why must politicians be paid so much when all they do is slag EACH OTHER IN PARLIAMENT EVERYDAY!Our worst enemy is not some (CIA engineered )terrorist threat overseas it is our own “elected government” which is doing its best to destroy the working class of Australia!

  17. Dee
    April 16th, 2014 at 14:09 | #17

    Our public servants are committed and dedicated but we need ongoing commitment to improved management practice and structure to change our classification of being worst run state. Contracts between Ministers and CEOs adjusted annually taking into account developing issues to ensure Ministers have full knowledge. We cannot subject ourselves any longer to this ongoing increase in debt which has accumulated with both political parties. Greater commitment to good planning from the public service, less responsiveness to short term party political party decisions.

  18. Dee
    April 16th, 2014 at 14:19 | #18

    Concern about high cost of travel for people to travel to their places of work. Issue of concern over subsidy should be real commitment from Government that there are many people on low incomes who are overcome with the charges. It is not an acceptable agreement that high operating costs are to be passed on to the people. Firstly, why are operating costs so high? is it possible with more efficiency these operating costs would be reduced? If we are being charged to pay for improvements to infrastructure then this should come from the public purse and real assessment of charge for the journey estimated.

  19. Dee
    April 16th, 2014 at 14:33 | #19

    Queensland people deserve ongoing commitment from the Government to support the care of our health needs by fully supporting our dedicated Surgeons, Doctors and Nurses. We are fortunate to have such a high degree of healthcare through excellent training and high standards of professionalism.

  20. Dee
    April 16th, 2014 at 14:38 | #20

    I attempted to go through the questionnaire and found that I was unable to proceed further as I had not found sufficient savings. It seems they are not interested in any comments I had to make – I had hoped bearing in mind the principle of democracy that I would have been welcomed to continue with the questionnaire.

  21. wends312
    April 16th, 2014 at 20:37 | #21

    It makes me sick that yet again the rich are getting richer and the poor are just something for the rich to wipe their feet on! Maybe the Politicians in this country should go back & learn from the French revolution history!! As for them wanting us to drag on working till 70+ and who knows how old by the time the next couple of gens get to nearing ‘retirement’ age….!!! lets see them set the example and keep working til past the allocated ‘retirement’ age!! Not too mention NOT being able to access their entitlements or superannuation at all until then!! Let see how well you cope Mr Abbott, Mr Newman, & Mr Hockey!!! I don’t mean cope on your salary now I mean cope on what the low income earner & the pensioner has to cope with & still be expected to pay bills & eat etc;!!

  22. B Barry
    April 17th, 2014 at 08:01 | #22

    Just over two years ago the LNP were screaming bloody murder when the Bligh/ Beattie government sold off publicly owned assets. Now that they are in power they find nothing wrong with selling off the family farm. The big end of town makes millions from public asset sales as does the friends and relatives of the politicians.

    The best we can hope for, is this is the LPN’s way of committing Hari Kari and recent polls point to them losing over half their seats.

    Go get’em Clive.

  23. Anthony Metcalf
    April 17th, 2014 at 17:12 | #23

    We are not living in a democracy we are living in a dictatorship.We are brainwashed into THINKING we live in a democratic society but we are not.
    We have the government interfering in every aspect of our lives and dumping new taxes on us every day and not allowing us to have a say or choice in what is best for us- the working class.We are the people that matter not those arrogant clowns that sit in Canberra!

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