I’ve been arguing for years that the usual arguments for privatisation are flawed, and that, in fiscal terms, privatisation will normally make governments worse off. In an excellent piece, Ross Gittins develops and amplifies the same argument with respect to Telstra. As he says, the government’s case rests on ‘schoolboy howlers’ like
(i) supposing that the sale or otherwise of Telstra is relevant in assessing what to do about drought and the Murray-Darling
(ii) counting on the interest savings from selling Telstra without noticing the earnings foregone
And, a point which I’ve particularly stressed,

Will the interest payments saved exceed the dividend income lost?

That depends on how much the shares are sold for. But, probably yes, according to the budget’s imperfect accounting – and probably no if you worked it out properly.

Why no? Because, as we’ve seen, the Government can borrow at such a low rate, whereas a company such as Telstra should be yielding a return well above what you can get on a risk-free government bond.

The moral of the story is that, by now, the Howard Government has so much ego riding on its twin obsessions of completing Telstra’s privatisation and eliminating public debt that it’s prepared to use any argument it thinks the punters might fall for, no matter how silly or dishonest.

. Apart from the minor quibble that, in the short run, it’s necessary to look at retained earnings as well as dividends, this is spot-on.