Home > Economics - General > Strong Choices or Weak Evasions

Strong Choices or Weak Evasions

January 13th, 2015

That’s the title of my review of the Queensland LNP proposal to privatise most of the state’s remaining public enterprises. There’s a report here from the Brisbane Times covering most of the main points. I also did an interview on Steve Austin’s ABC show, sandwiched between LNP Treasurer Tim Nicholls and pro-privatisation economist Judith Sloan.You can listen here

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  1. I am always Not Trampis
    January 13th, 2015 at 12:00 | #1

    I can’t disagree with a lot of what you said John in the newspaper but that photo has me worried.
    you have lost too much weight!

  2. Uncle Milton
    January 13th, 2015 at 12:06 | #2

    From page 10 of your paper

    “Table 4 illustrates the projected cumulative loss over the period 2015-16 to 2019-20, assuming that the income foregone grows in line with nominal Gross State Product at a rate of 6 per cent per year. ”

    6 per cent? It’s been a while since Queensland nominal GDP growth was 6 per cent. The last two years were 1.2% and 2.8%. Are you expecting another mining boom?

  3. BiBi (@edumak8)
    January 13th, 2015 at 12:49 | #3

    Heard part of ABC interview and thought it interesting that Quiggin was asked about his affiliations with groups but Sloan was not. Unsure if query had come from listener, and time was short, but would have been seen as fairer in the interest of balanced presentation to ask her too.

  4. Jim
    January 13th, 2015 at 12:56 | #4

    The only String Choice has been the decision to evade any meaningful engagement or independent scrutiny of privatisation.

  5. Ken_L
    January 13th, 2015 at 13:01 | #5

    Being strong. That’s what this election is all about. The LNP is strong, it’s got strong plans to make Queensland even stronger, and its got strong candidates. Strong strong strong. That sums up every LNP ad I’ve heard so far.

  6. Ikonoclast
    January 13th, 2015 at 13:20 | #6

    I agree with all of your main points J.Q. Only hedging because I haven’t read the full paper for fine points yet.

  7. Ikonoclast
    January 13th, 2015 at 13:37 | #7

    @I am always Not Trampis

    I don’t agree that J.Q. has lost too much weight. Of course, I would have to know his BMI to make my final non-medical judgement.. plus add in the fact he is clearly a born ectomorph.

    Our judgement of “too thin” is now badly skewed by the fact that so many of us are overweight (like me) or obese (not me!).

    You cannot consciously fully compensate for these misperceptions. I have yo-yo dieted several times, once from 85 kg down to 75 kg. During the process I have noticed people, who I know to have remained at their same weight, go from looking trim to looking chubby in my perception.

    However, it is a medical fact IIRC that over about 70 it’s better to be a little overweight than normal or underweight. The stats show this apparently.

  8. BilB
    January 13th, 2015 at 13:40 | #8

    My issue with both the interviews, JQ and JS, is the one dimensional nature of the evaluations. JQ said the the electricity retailer asset sales went well. It may have “went well” for the government, but it went disasterously for the electricity customers. For decades Australia’s electricity retail price was held at a static and advantageous level that assisted industrial stability and international export product competitiveness. Then courtesy of Queensland’s own Kevin Rudd and his ETS proposal electricity prices were directed to rise to prepare for the arrival of the CPRS. Somewhere in here the Qld distributor was set free. The CPRS failed to eventuate, and electricity prices continued to rise. A price on Carbon made a brief appearance before being trashed by Abbott. Now Australia’s CO2 emissions from power generation are rising back to pre Rudd levels, and we have electricity at more than double the price level. The only environmental gain here is that electricity consumption has declined 15% and that is largely due to a generous kick back from state coffers.

    I fail to see how the tax payer has been well served here. It’s a Fiscal black comedy capers!!

    Judith Sloan slams the message home with her simplistic line “we should sell the assets and put the money in the bank, and she insisted on being credited as a professor of economics. Now Libertarians are known for their simplistic thinking, but she has excelled herself for the shallowness of her evaluation.

    Any body can turn an ailing supermarket into a corner store and come out with and have a healthy bank account as a result, but it takes real management skills to turn a business around. “Cashing up” is the lamest of approach of all.

    This is the problem with Libertarians, they don’t have the skills to innovate, create, and build, so they take the other approach of hoarding and not paying their community share. And those who are successful (by accident) are just plain greedy in their tax dodging efforts. I have a problem with “Professors” who teach this thinking to our young bright stars.

  9. John Quiggin
    January 13th, 2015 at 13:44 | #9

    @Uncle Milton

    “It’s been a while since Queensland nominal GDP growth was 6 per cent. The last two years were 1.2% and 2.8%.”

    Source on this? Budget papers give 5.75 (3 per cent real growth + 2.75 inflation). Your numbers would imply a big cut in real GDP per person – pop growth is 2 per cent, so we need 4.75 per cent just to stay where we are.

  10. John Quiggin
    January 13th, 2015 at 14:00 | #10

    Coming to the really important question, I currently weigh 73 kg, which gives me a BMI of 23 (I was probably a couple of kilos lighter when the photo was taken)

    On the idea that “it’s better to be overweight”, I’ve always found this silly. The correct statement is “our previous estimate of optimal weight was too low”

    http://johnquiggin.com/2013/06/20/the-obesity-paradox-paradox-crossposted-at-crooked-timber/

  11. Ikonoclast
    January 13th, 2015 at 14:01 | #11

    Well, 1% real growth after adjusting for population growth is weak by historical standards. In the 1960s the world economy was growing in the 6 per cents. I don’t know what QLD was doing then. The general picture of growth in the developed world is consistent with a secular (long-run) stagnation thesis for the developed world. This took effect before Limits to Growth was a near limit. I am interested on views on what this secular stagnation of the developed world since the 1960s means plus views on causes and effects and so on.

  12. Uncle Milton
    January 13th, 2015 at 14:16 | #12

    @John Quiggin

    ABS state accounts

    http://www.abs.gov.au/AUSSTATS/[email protected]/DetailsPage/5220.02013-14?OpenDocument

    Queensland Gross State Product at current prices

    Table 1, tab Data1, column BX

  13. Uncle Milton
    January 13th, 2015 at 14:26 | #13

    @Uncle Milton

    Real GSP growth was 2.3% and 3.1%, so it looks like there’s been falls in the implicit GSP deflator, probably due to falling export prices.

    The inflation in the budget papers is probably CPI. But can’t add CPI growth and real GSP growth to get nominal GSP growth.

  14. Ikonoclast
    January 13th, 2015 at 15:18 | #14

    @John Quiggin

    No doubt you are correct. I did say “a little” overweight. Perhaps what it means is that for over 70s the old “normal” BMI needs to be adjusted up slightly. Before modern health, nutrition, kitchen aids and aged care perhaps some +70 seniors did not quite nourish themselves properly.

  15. Dave Lisle
    January 13th, 2015 at 15:59 | #15

    Tim Nicholls’ case is very STRONG. “There is no fourth way”, you can “MASSIVELY increase taxes”, “DRASTICALLY reduce services” or simply (and sweetly) “lease assets”. How nice! “Queenslanders will still own those underlying assets and will be able to get those back at the end of the lease term”. What a great deal for Qld – shame he omitted to note that the assets would have to be bought back at the end of the lease if they’re still worth a cracker. Anyway I am off to lease out my kidneys.

  16. rog
    January 13th, 2015 at 16:13 | #16

    Ken is right, it’s more about the perception of strength rather than facts (both sides have moved on from using evidence based arguments). The LNP have wheelbarrow loads of strong stuff – mucho macho – don’t mind the polls, it pleases the middle ground.

    Is politics now just another reality show, slotted in between MKR and Survivor?

  17. John Quiggin
    January 13th, 2015 at 16:25 | #17

    @Uncle Milton

    OK, calling it nominal GSP is a mistake, but real growth + CPI is the relevant nominal growth rate for the case in question.

  18. Obviously Obtuse
    January 13th, 2015 at 16:39 | #18

    Ikonoclast, you seem to be unaware of the work of Dr Michael Mosley. In his excellent BBC program, he follows a bunch of researchers who have found that severe calorific restriction greatly increases life expectancy. From this he came up with the (now famous) 5 2 diet. No slightly tubby over 70 lifestyles are recommended, I’m afraid.

  19. BilB
    January 13th, 2015 at 16:45 | #19

    I think that the photo is just fine.

    I would like to be able to put the face, the voice and the ideas together into one total impression though.

    To me the information in the interview suffered from a sincere attempt to put a good case forward being mangled a little from the compression. But then that is more a criticism of my comprehension of the subject matter.

    I’ve looked at the report, and now I have to say that I am a bit confused as to what is being sold. Furthermore I have trouble believing that that asset parcel returns just 1 billion to the government.

    If that is all those assets can return to their owner, one has to ask why would anyone want to buy them, but then having bought them what do they have to do to make them give realistic returns? No doubt the answer is put the prices up. If that is the case then that is precisely what the Qld Govt should do, and then they do not need to sell the assets.

    Frankly, I think that the returns figures have been falsified to tell a story to justify an action. In this case the sale of the assets. Vote No, then get some honest business people onto the boards.

  20. Bright Spark
    January 13th, 2015 at 18:02 | #20

    I cannot get past the observation that selling an asset that currently results in a positive fiscal position and after the sale, results in a negative fiscal position is in anyway a good thing?

    Have you factored in, how many current permanent staff roles within the distributors will be shipped off shore? Call Centers, IT, Finance, HR, Admin? These relocated staff roles will NOT pay income tax in Australia, no GST in regional cities or towns, no loans from banks for new houses or cars, no holidays in the Whitsundays or the Gold Coast.

    Apart from the fiscal cost to the economy, what about the social cost?
    Real Jobs, Real People, Real Australian…

  21. Oliver Townshend
    January 13th, 2015 at 18:23 | #21

    Apparently according to Judith Sloan you can get a 10% return at Suncorp. Boy they offer competitive rates north of the border!

  22. patrickb
    January 14th, 2015 at 00:14 | #22

    @I am always Not Trampis
    It was all beard.

  23. J-D
    January 14th, 2015 at 07:53 | #23

    ‘… Treasurer Tim Nicholls said ratings agencies took into account total debt when assigning a credit rating.’

    And nobody said ‘So what?’?

    Is the Treasurer admitting he’s not strong enough to stand up to the ratings agencies? Who died and left the ratings agencies in charge?

  24. BilB
    January 14th, 2015 at 08:04 | #24

    I was looking for an article that Robert Merkel found last year about the sordid process that led to the gold plating of our distribution network. In this the power distributors seized upon their upcoming income growth from the CPRS (that never eventuated) and devised a strategy to spend or hide the lot. In that plan they padded out their capital needs using market money costs at 10% interest, then borrowed funds at the 5% rate that governments have available to them, as I recall from my memory of it.

    The point is that the tactics deployed to soak up the increased retail electricity receipts were devious, and I would expect that the same degree of honesty pervades this entire valuation and sale process.

    I remember that when NZ flogged of its rail system for 328 million after spend a billion dollars “getting the asset ready for sale”. The consortium that bought the asset recovered most of that amount by selling of surplus rolling stock. The NZ government later bought back much of the asset, I believe.

    http://www.treasury.govt.nz/commercial/resources/pdfs/mixed-ownership-model/mom-shppnz-wilson-dec10.pdf

    Queensland would most likely do far better by simply restructuring their assets rather than flogging them of by lease or sale.

  25. BilB
    January 14th, 2015 at 08:48 | #25

    Robert found the article for me.

    http://www.themonthly.com.au/issue/2014/july/1404136800/jess-hill/power-corrupts

    I’d be keen to hear what people think about this.

  26. Ikonoclast
    January 14th, 2015 at 10:00 | #26

    @BilB

    That’s a very interesting article. I just read it in full. I even got a laugh. “A roll call of recent NSW energy ministers reads like an ICAC subpoena list.” That’s a goodie! Martin Ferguson makes an appearance as the dolt he always is in supporting the spending. I often criticise Julia Gillard but here she is exactly right. In a keynote speech to the Energy Policy Institute in Sydney, she said;

    “At the heart of all this is a simple market design problem: a clear regulatory incentive to overinvest in infrastructure and pass on costs to consumers.” – J. Gillard.

    Overall, much money has been wasted and consumers vastly over-charged. Heads should roll for it but will they? I don’t know. On the other hand, this cloud has a silver lining. Our gold-plated network is now far more robust and should be able to handle micro and macro renewable energy feed-ins much better. One objection of the anti-renewables lobby just went out the window. You know, “Moan, moan, the network will have to be upgraded so much to take renewables”. Well, memo: “It’s already been done.”

    The other issue is that these huge price rises drive people to renewables. It’s a good outcome in that sense. It certainly drove me to solar PV and solar hot water. And if they lift connection costs, IDGAF! I will just go off-grid. As soon as my private power pole to bring power into my block needs replacing, I can save a few thousand dollars not doing that and go for battery back-up instead. Easy, peasy it would cost less than a small second-hand car so I can defer / never buy my next small second hand car. Bingo! More environmental pluses. This just gets better and better!

    As the article says;

    “The electricity industry calls this situation “the death spiral”. As more people switch to solar energy and use less from the grid, the networks have to recover their costs from a smaller base. So prices rise, which drives more people towards solar, which makes prices rise again, and so it goes. When feasible home battery storage becomes commercially available in the next few years, this death spiral will only accelerate.

    It already has the networks in a panic. In NSW and Queensland, electricity networks are campaigning vigorously to lift their fixed charges; if they succeed, even people who use less electricity from the grid won’t be able to avoid high network costs.”

    The last sentence is wrong though. If network costs get onerous, people can go off-grid. Off-grid is not the big problem some people make it out to be. People can gold-plate and battery back-up their home system for less than the cost of a second hand car. Plus one can make large changes in power use patterns if one has too. There are all sorts of smart things you could do even if you work all day. Time washing machines and dishwashers to run in the daytime. Time crockpots to cook your dinner in the daytime. Have extra solar panels to run air-con all day in an empty house. Ensure units blow over heat-ballast areas like concrete floors with tiles thus cooling them. Come home to cooled, well-insulated house. If batteries still full, smart-system determines that air-con can run a bit longer. If batteries are a bit down, the smart-system implements early air-con shutdown. A well-insulated room with cool “heat-ballasted” floors will stay cool all night anyway.

    This all Too Easy! Bring it on! 🙂

  27. BilB
    January 14th, 2015 at 10:23 | #27

    Thanks for reading that through, Ikon, and gasping appropriately.

    I don’t mind paying high electricity prices as that gives me the incentive to go solar sooner rather than later.

    What I do object to is that the windfall being collected by the grid industry is meant to be building the complementary renewable infrastructure to give us 24/7/365 power compatible with rooftop solar. Unfortunately the process is being roadblocked by stupidity and greed, and the funds are going astray.

    The next question is how is this put back on the rails?

    I see the Qld asset sales as neither strong choices or weak evasions. I see them as a hiding the evidence of gross incompetence, which would make them strong evasions, of a different kind.

  28. HistoryinTime
    January 14th, 2015 at 11:12 | #28

    It’s a shame the Government didn’t run an honest argument ie there’s no real need for the state to own these enterprises anymore and they’d be more efficiently run by private owners.

  29. rog
    January 14th, 2015 at 11:13 | #29

    As the grid industry has been substantially privatised much of those profits are heading towards shareholders, who may be foreign.

  30. Ikonoclast
    January 14th, 2015 at 12:01 | #30

    @BilB

    I do object to what you object to and I always have and will object to privatisation of natural monopolies. However, in this case the milk is spilt. So we have to learn and even re-nationalise down the track if that can be pushed through. At the same time, we can look at the positives, a system gold-plated to take renewable power feeds and people pushed to renewable power. The greedy power corps. may be caught up in their own nets. Yes, I know perps have headed to the hills, or the gated communities, with great stashes of transferred (read stolen) wealth. That will ever be the case while we run unfettered capitalism.

  31. David Irving (no relation)
    January 14th, 2015 at 12:06 | #31

    @HistoryinTime
    Probably because they know that won’t fly, for two reasons:

    1. They won’t be run more efficiently by private operators; and
    2. There is a need for them (and any other natural monopoly) to be in public hands to avoid profiteering.

    Most of the electorate is aware of this, so that’s why the politicians are using their dishonest excuses rather than the “honest” reasons you suggest.

  32. Dave Lisle
    January 14th, 2015 at 12:39 | #32

    Ikonoclast – I am not as enthusiastic as you about the “environmental pluses” of everyone disconnecting from the grid. As you note, the system has been “gold plated to take renewable feeds”. There may be an economic incentive for stand-alone power but I am guessing that the shift to batteries carries some serious environmental consequences (and would appreciate someone that knows either disabusing me or elaborating on my theory). Storing the power we generate “in the network” seems to be more environmentally efficient, especially now that the network has been so scandalously gold plated.
    And yes, this really is a powerful (groan) teachable moment about the perils of privatizing natural monopolies.
    (BTW: for those that can’t read and prefer a podcast, RN carried a version of Jess Hill’s report on Background Briefing last year titled “The price of power”.)

  33. ZM
    January 14th, 2015 at 13:02 | #33

    Dave Lisle,

    “Storing the power we generate “in the network” seems to be more environmentally efficient, especially now that the network has been so scandalously gold plated.”

    I think this is right – it’s going to be better to have a RET system especially with smart meters and so on – in periods where energy generation is poor for instance it may be more socially responsible to limit energy consumption in the homes of healthy and fit people in order to divert more energy to hospitals, nursing homes, elderly or inform people living in their own houses etc.

  34. BilB
    January 14th, 2015 at 13:07 | #34

    The next part of this is, Ikon, that the prices were pushed up

    to pay for the gold plating

    the gold plating is done and paid for

    the prices should now come down by the same amount that they went up by.

    The sly part of what will happen now is that the reconditioned assets are poised to return a real profit to the shareholders,….presumably the Qld taxpayer….., but they are being sold off at that exact point where the profits should role in……or the prices should come down…….or they should carry on and build the renewable infrastructure at the urgent rate that we know is needed.

    This is what I meant by the one dimensional approach to this by all commentators. We are being hurried through this process in the form of an early election so that the ideologues can play out their fantasies at the public expense.

    Then comes their get out of jail phrase….”you voted for it”!

  35. Donald Oats
    January 17th, 2015 at 20:28 | #35

    Campbell Newman uses the word “string” 23 times in one interview, part of which is below:

    “We have a strong plan … one other point I make today is the opposition leader can talk about jobs until the cows come home, and she has been doing a lot of that, but I make the point, you cannot create jobs unless you have a strong economy and you only have a strong economy if you have a proper strong economic plan and you have a strong stable government to deliver that plan,” he told reporters on the Sunshine Coast while announcing the duplication of the railway line between Beerburrum and Landsborough.

    “That is what the LNP is offering. We have an economic plan. We have a strong team.”

    String, string, string, string, All you need is string…

    Personally, I think he is just stringing you Qlders along.

  36. Donald Oats
    January 17th, 2015 at 20:29 | #36

    @Donald Oats
    Gosh darn it, I missed one 🙁

  37. paul walter
    January 18th, 2015 at 08:23 | #37

    Am glad I found this up and thank the posters (eg BillB) for opening much of it for me.

    Quiggin traces the trickery back through the figures and terminology, back to bigoted intentions and greed.. for my part, I feel like the person with a computer having a fault explained by a techie. I dont get the esoterics because I’m not trained/never learned..typical ozzy.

    But correct me if my impression isnt that óur Dreamtime is ending, that we are in an análogous postion to native Australians two centuries ago: ‘”elite”sources are now interested in a clumsy harvesting of places like Qld rather than a cultivation of real potential, akin to and driven by the same mentality that brought about the destruction of the Goose That Laid the Golden Eggs.

    Yet, these are the same people who try to berate the ALP and Greens for robbing future generations of a fair chance at life.

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