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50 years later

November 20th, 2014

I once read a remark about the kind of bank advertisement that shows a proud young couple outside their first home, to the effect that it would be better to show them middle-aged, making the final payment on their 25-year mortgage, at which point the home would truly be theirs.

I have the same kind of reaction to the Queensland government’s (publicly funded, I believe) ads showing “ordinary Queenslanders” celebrating the fact that our public assets are going to be leased rather than sold under the government’s plan. Most of those in the ads are young (20s and 30s, I’d say). Even so, many of them will have passed on by the time the lease first comes up for renewal in 2064.

And of course, that’s just the start of it. There’s a 49-year renewal option, which means that, if electricity distribution networks are still valuable assets in 50 years time, the public won’t get them back. The only case under which the assets will return to public ownership is if the private party wants to get rid of them. In this case, we will be obliged to pay for all the investment undertaken over the term of the lease, even though (given the non-renewal) the economic value will be less than this cost.

When making the point that a 99-year lease isn’t exactly the same as a sale, people often point to Hong Kong. But imagine if the lease specified that all the public infrastructure in Hong Kong (roads, the international airport, schools, hospitals and so on) belonged to Britain and had to be repurchased before China resumed sovereignty. Perhaps national pride would have prevailed, but it would have been a very expensive end to the lease.

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  1. November 20th, 2014 at 12:35 | #1

    Thanks, John, the TV ads paid for by Queensland taxpayers are slick and suggest that something progressive, even wonderful is being done with our infrastructure assets. We know that this action to lease the assets is in lieu of the LNP’s preferred privatisation. We will soon realise that they are all-but indistinguishable. You have done the maths and know that we will be no better off and will soon experience escalating prices as monopolistic profit-driven operators flex their market power.

    The next magic trick being served up is a massive .5 billion subsidy to the coal industry also without a mandate for such deals. Campbell Newman can argue that this is normal practice with a long history ignores the new priorities imposed on us by climate change. He should immediately stopped spamming our TV channels with lies told at our expense and face an election sooner rather than later.

  2. November 20th, 2014 at 14:08 | #2

    If we didn’t know better, we’d think that Newman was just trying to give his mates money.

  3. Newtownian
    November 20th, 2014 at 15:22 | #3

    Speaking of which, what has/is going to happen to all the 50 and 99 year leases in Canberra (where notionally you cant actually by a piece of land as I understand it)?

    http://en.wikipedia.org/wiki/History_of_the_Australian_Capital_Territory#Resumption_and_disenfranchisement

    This sounds like a good opportunity for selling off an income stream when they become due which my reading above suggests started in 2013.

  4. Fran Barlow
    November 20th, 2014 at 16:55 | #4

    As you know John, every parliament is sovereign, which means that every parliament can undo what the last parliament did. I daresay that well before 2064, when I will surely have drawn my last breath, the parliament of QLD, if it still exists, will deal with this matter. They might simp,y say that Newman was wrong to have cut the deal and legislate it out of existence.

    They can do that. Only their boss class identity restrains contemporary parliaments from acting in this way.

  5. jungney
    November 20th, 2014 at 20:07 | #5

    I write this at 21:05, wearing a bandanna to keep the sweat off my face, and I’m wondering how anyone could imagine a future in fifty years in which there is anyone surviving who is capable of buying anything other than a glass of CSG poisoned water, just to remember the good old days.

  6. Ben
    November 21st, 2014 at 14:04 | #6

    @Newtownian
    My understanding is that the ACT (or Commonwealth) want no freehold land so that they can always reclaim land that they might want for other purposes down the track. I think it’s unlikely they will move away from the leasehold system.

  7. Jim
    November 21st, 2014 at 16:56 | #7

    I will be dead in 2064 for sure, but I’ll make this prediction. Given the worldwide advances in alternative energy generation and storage:
    1) Whoever leases the distribution assets will want to give them back. By then distributed alternative energy generation and storage (e.g. panels on roofs and self storage) will be so cheap our electricity distribution assets will be significantly under-utilised and effectively a stranded asset. The exception will be distribution to power the remaining economic lives of large industrial users. I wonder if we wouldn’t actually be better off selling these assets as they will be technologically redundant in 50 years?
    2) Ditto for most port assets (particularly those focussing on coal). In 50 years the coal industry will be largely over, and gas exports will be slowing. I’m not sure we’d want the ports back either. Perhaps the best strategy is to flog off the coal ports now and keep the ones that have some use for more general trade (e.g. Brisbane, Townsville).

    Both electricity distribution and port assets have very high fixed costs even of no return on the regulatory asset base is possible (renewals annuities). I suspect the fixed costs will exceed revenue in 50 years purely because throughput will be a fraction of current levels, and market caps on prices charged will be too low to enable full cost recovery.

  8. Megan
    November 21st, 2014 at 18:03 | #8

    @Jim

    Re: Port of Brisbane – too late. Bligh and Fraser flogged that off in November 2010 for 2.3 billion on a 99 year lease.

    That’s one of the reasons the ALP got so severely mauled at the 2012 election.

    Nicholls wants to do the same to Townsville.

  9. Ernestine Gross
    November 21st, 2014 at 18:28 | #9

    “The only case under which the assets will return to public ownership is if the private party wants to get rid of them. In this case, we will be obliged to pay for all the investment undertaken over the term of the lease, even though (given the non-renewal) the economic value will be less than this cost.”

    Unless the public does not wish to have ownership returned. What are the details of the lease?

    (In general, a lease makes sense only iff there is a non-trivial difference of the financing costs for the lessor and lessee. In the case of public assets and assuming the QLD’s cost of capital is not higher than that of the Federal government, then the arrangement makes no financial sense.)

    Do Treasury departments have finance experts in addition to macro economists and accountants? I sometimes wonder.

  10. hix
    November 21st, 2014 at 20:30 | #10

    Bad tax funded adds selling questionable government policy instead of genuinly informing under the disguise of political education, now that is something i can relate to. Curious what kind of things are all the same 15000 km away.

  11. Stockingrate
    November 22nd, 2014 at 10:42 | #11

    So the option in the lease becomes a public liability and a private asset – worse than I thought.
    Some other ways that these are poor deals.
    1.Erosion of the tax base- eg the depreciation shield once held unused in public hands will flow to the private sector, foreign tax havens will be used in various ways. 2. There will be substantial foreign beneficiaries – for generations to come these deals will be forcing Queenslanders going about there business, to pump cash out Australia. 3. Fees for bankers/tax avoidance advisors/lawyers will be large, often hidden, and frequently ending up outside of Qld.

    These problems will apply not only to the assets sold but

  12. Stockingrate
    November 22nd, 2014 at 10:48 | #12

    Also to the assets funded from the proceeds of the asset sales, by the taxpayer using private arrangements. Presumably we can also look forward to more publicly funded adds for those assets.

  13. Disenfranchised
    November 24th, 2014 at 14:14 | #13

    Who would agree to lease for fifty years a coal fired power station, or electricity distribution network, unless there existed in the lease agreement, clauses that safeguarded the financial interests of the leaseholder ? In the case of the above examples any such clauses would almost certainly be at the expense of the public interest. The spin in the government adds that the leasing of assets retains government ownership and control is nonsense. Government ownership is retained, but control is another matter. Leaseholders have rights under law. Any companies willing to take up the leases on offer would certainly be big and powerful enough exercise their legal rights under the lease agreements. Hopefully the voting public sees through the government’s charade before the state election.

  14. Right
    November 26th, 2014 at 05:59 | #14

    Given the unrealistic aspirational attitude of people around 25 I thinks it more appropriate to show a middle age couple buying their first home not paying it off.

  15. Julie Thomas
    November 26th, 2014 at 07:10 | #15

    @Right

    “unrealistic aspirational attitude”?

    Could you perhaps explain this concept further so that it is clear what your point is?

    Clearly I am not as smrt as you are and can think of no rational reason why it should be a good thing that the appropriate level of aspirational attitude toward home ownership is for a middle aged couple and not for couples around 25 years of age.

    How did it come about that this has happened? Are you not old enough to remember how, back in the good old days of the ’70’s many many 25 year old couples in which only one partner worked could and did aspire to buy a home?

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