I was in Canberra on Monday, giving a talk at a symposium for the Academy of Social Sciences on Government and the Risk Society. Those interested can click on the link for the PowerPoint presentation. As is my current pattern, I’m promising to write it up as a paper, in due course.
Also, I talked to a workshop here in Brisbane about abolishing our fuel subsidy and using the proceeds to finance infrastructure investments. As I well, I did my usual critique of Public-Private Partnerships. For this one, I’ve already written the paper, which is here.
John Quiggin 
John, I’m giving a talk to the national leaders in sport conference on Thursday on tax and sport. can’t link to it because it won’t be online until after the conference, but in it I argue among other things that:
“Traditionally tax policy makers have been opposed to what are known as hypothecated taxes – that is, tax revenues that are quarantined for a particular purpose. The logic is simple – if tax revenues are put in to a general bucket then they can be put to their best available use. If they are put aside and can only be spent on a defined purpose or activity, this may not be the best way to use the funds, and total welfare will be reduced.
The only problem with the logic is that it relies on an assumption that governments can determine the best possible use of funds. Increasingly the public doubts that.
Overall levels of trust and confidence in government are in decline throughout the western world, including in Australia. In this climate, my view is that hypothecated taxes are highly desirable – they allow the taxpayer to see a direct link between the taxes they pay and the services they receive.
Recent experience in Australia with the guns buyback levy (which was a short term tax) or the ongoing Medicare levy suggests that this sort of tax is a more acceptable option than simply a general rise in the overall rate of taxation. Dairy and sugar levies to pay for industry adjustment are further examples. Although these are not strictly hypothecated taxes (that is, they are not raised separately and put in to a special account that can only be used for its designated purpose) they are clearly taxes earmarked for a particular purpose.”
I suspect that the same logic applies to your proposal for bonds for infrastructure – they will be more attractive if earmarked for a purpose, because the public does not actually trust government to do the right thing with their money any more.
I despair that state govts. still seem keen on PPPs even though the case is overwhelming that in NPV terms they are a bad deal; I suspect its an empirical proof of the argument that politicians’ discount rates are different from those of the rest of us.
Stephen, are you saying that the PPPs we have had have been a bad deal? Or that PPPs will always be a bad deal because they can’t be designed to be a good deal (for the public)?
Milton – my views on PPPs leans more to your first statement (empirically a lot of them have been bad deals) but in general my position is a bit more complicated. PPPs can potentially be a good deal in some circumstances: 1) where there is a private use that can be made of a facility that is not available to a public owner, and 2) where there is better risk management in relation to the project by a private than a public owner.
A good early example of the former was an air training complex in the UK used part of the time by the airforce, while the owner leased it out for other uses for the remainder (this may still be the case, I have not looked at it for a few years). similar arguments can apply to projects such as arts complexes that might get greater use under commercial owners, or facilities that a private owner could take overseas but a government owner might not be able to.
On the risk side, I am dubious about arguments that the private sector is inherently better at managing risk, but there are instances where there is well developed expertise in managing project risks on specialised projects that means a better deal can be got from a PPP than government doing it alone.
However, the majority of PPPs are driven not by these considerations but by short term financing imperatives (mainly due to government debt aversion) Swapping a long term debt repayment schedule for an even more expensive long term PPP payment schedule to the private operator is fiscally silly but unfortunately common. My general rule of thumb is that if the only thing driving the PPP is the financial deal, then it is likely to be a bad deal. This may be why no big merchant bank has yet offered me a sales job.
I think the days of government debt aversion might be coming to an end. The NSW Government has hired Bernie Fraser to write them a report saying that debt financed investment in infrastructure mightn’t be such a bad thing after all. They already know this, but Fraser will give them the political cover they need, after years of rhetoric by Michael Egan and Bob Carr about how the NSW Government, thanks to their brilliant stewardship, is headed towards the financial nirvana of no debt.
Stephen:
What about linking asset sales to particular infrastructure projects? I always thought that proposals to make environmental projects contingent on, say, the sale of Telstra, were pretty bad economics. Each measure should be decided on its merits. But perhaps your public trust argument has implications there too.