Queensland budget

Big news just now. The Bligh government has abolished the fuel subsidy with effect from 1 July, and announced the sale of a huge range of asset s, with QR coal freight, Port of Brisbane and others to be privatised.

I support the first of these measures (with marginal regret that they didn’t take up my idea for a phase-out starting five years ago when I first put it up).

As for the asset sales, they need to be evaluated on a case by case basis. A crucial requirement is a high reserve price and a willingness to retain the asset in public ownership if this price is not realised. In the current environment, the government’s estimates look optimistic, but I haven’t seen any detail yet.

A detailed response to come, when I get a free moment.

Update: I just did an interview for 7:30 report, so you may get to hear a minute or so of my thoughts on the subject tonight

29 thoughts on “Queensland budget

  1. Congratulations JQ, does this make you a successful lobbyist?

    As for the assett sales, I am in favour of the coal port and rail lines (they will be attractive targets too – highly profitable). Government getting out of these industries will also make it easier to make rational decisions on coal and GHG abatement in the long term.

    Qld Motorways is complex – it will undoubtedly get a good price, but whether it is a good thing depends on the sale conditions, as RTA experience shows to NSW’s cost. Don’t give them too long term deeds (20 year concessions is common in UK PPPs, not 30 years as here) or conditions preventing government acting to manage demand.

  2. Why is this news? Bligh put these major policy decisions front and center of her election platform. she was reelected because the people, well informed thanks to a vigilant and responsible media, endorsed them after careful deliberation.

  3. Gerard, you omitted the irony alerts. Be prepared for an indignant refutation.

  4. Gerard is right. Up here we have a vast array of medium to read and be informed by.

    There’s The Australian, The Courier-Mail, The City News, The North-West News and about 16 other’newses’. Perhaps the problem was too much diversity?

  5. What government does this remind me of? Oh thats right….all Australian governments….on the private road to nowhere..

  6. @ 6 Too much diversity in Queensland.. yep that’s got to be the problem.

    @ 8 I think neo-liberalism was only dead in the sense of De La Soul being dead when they released their 2nd Album “De La Soul is Dead.”
    I’m sure Anna Bligh is only selling these assets because she feels that ‘Stakes is high’ (even though prices will be low for the assets)
    (http://en.wikipedia.org/wiki/Stakes_Is_High)

  7. As a Queenslander I’m only to happy to extend a hand to those who feel the lack of a road system or port facility as burdensome without respite. From the slums of Jo’burg to the penthouses of Manhattan, Queenslanders are renowned for their generosity and Bligh’s asset sale is yet more evidence of our great heartedness.
    I prophesise innumerable billboards and TV promotionals reminding us of the greatness of this current gesture. Our hearts go out to those unlucky enough not to be Queenslanders. May owning our assets relieve your misery, if only for the moment.

  8. It’s good news that the fuel subsidy is being abolished. I can’t imagine anything more wasteful and ludicrous than having one level of government taxing a commodity while another subsidises it.

  9. I was in a discussion today where it was mentioned that economists have been criticizing policies such as fuel subsidies for at least 40 years, but it is very rare for policy makers to listen to common sense. This raises interesting questions about what other factors affect decisions on policy.

  10. I’d be interested John specifically in what you thought of the efficiency advantages of the rail privatisation.

    I think Queensland has publicly-owned ‘below rail’ and ‘above rail’ sectors. The competition policy idea was that the tracks etc are a public monopoly and that an access regime should provide the trains.

    This hasn’t worked out well in other states. The separation doesn’t really work because of economies of scope between the two levels. and there is very little competition.

    Rail hasn’t performed badly in recent years but the states have been pouring a lot into rail infrastructure so hard to tell. A lot of the gains here started to occur before the privatisations.

  11. Thoroughly agree with the fuel subsidy going. I believe it also distorts the market across the border all the way down to Coffs Harbour. But it still leaves the federal diesel fuel rebate scheme so beloved of coal miners etcetera riding the minerals boom for all it’s worth.

  12. Splitting of the freight rail off in NSW was a total disaster. Pacific National which bought most of the assets is just about broke. PN has 1.2 Billion in assets and owes four times that. It’s not official yet, but everybody in this industry knows it’s up for sale.

    They have not properly maintained their trains and infrastructure. They trains fail all over the network. The cost cutting they did 10 years ago is really starting to show now.

    Privatized freight rail in Victoria is on the verge of collapse due to lack of maintenance and under investment.

    The private owners of the train system in NZ had completely failed to invest in the system and left it on the verge of collapse. The NZ government has had to take over and pour enormous amounts of money into the network. In fact, it has had to pour more than the combined investment of the last 25 years in rail just to bring the system up to scratch.

    Rail privatization in Britain was an epic disaster story.

    I work in rail. Despite what ever moronic economist or free market fundamentalist tells you, splitting rolling stock and track is a very bad idea. It takes about 10 years or so, but eventually it all falls to pieces. It’s increased cost and decrease efficiency in the UK. Even the conservatives who privatized the system admit it.

    The first place it was tried (Sweden), it appeared to be very successful, but it fell to pieces later.

    Another slow motion privatization disaster in the making.

  13. Either you sell the system. Rolling Stock, Rail, Workshops etc. as a whole, as one unit or don’t sell it at all. Considering the lack of investment and lack of maintenance that private operators do right now, privatization seems like a poor idea.

    Splitting the system off into separate bits has been shown generally not to work very well. Rolling stock HAS to work with Track, Signals, Electrical, Train Control etc. Having separate organizations for each (or some) increases red tape, confusion, lag time for decision making, lack of direction when it comes to making decisions that effect everybody. etc.

    It is a recipe for disaster. People who tell you can split all this off usually (9/10) have no idea how the actual industry operates.

    An example would be the NSW Metropolitan system run by RailCorp. Freight operators would love to introduce more heavier and more powerful locomotives and haul more loads. However the increase in loads and greater traction being applied to the track generally results in greater damage. It’s unavoidable.

    In the past when all this was vertically integrated, the extra profits from the haul would easily pay for any track damage. RailCorp at the moment receives a small fraction of the profits from each freight haul. There is NO INCENTIVE to allow more powerful locomotives. If RailCorp actually charged the rail operators for the damage they do, many of the small operators would simply go broke. This is quite well known throughout industry.

    This wouldn’t change if RailCorp were privatized. Track and Rolling Stock is still split.

    Splitting Rolling Stock and Rail is a ridiculously stupid idea that only an economist or politician could come up with.

  14. Sorry this will be my last spiel.

    The wheel/rail interface is the integral part at the centre of what makes a railway run. Splitting the rail industry at this part is such a misconceived idea, as an engineer working in rail, I simply cannot find the words to describe how stupid this idea is. It smacks of a lack of understanding of the engineering and technical considerations of making a railway run.

  15. Bobalot, before nationalisation the private structure of railways worked pretty well, e.g. in Britain – because it was vertically integrated (though it faced problems from having had to defer essential capital spending in both world wars, under government direction and in a way that masked the shortfall to conceal that it was happening at the time – so the private structure got blamed later, and not the constraints of acting under direction earlier). It’s not a feature of privatisation that it ends up split this way, it’s a feature of a poorly structured privatisation that aims at asset stripping, consciously or not.

  16. Whatever happens, the structure needs to be vertically integrated to operate effectively. This has the problem of creating virtual monopolies in the regions where a vertically integrated railway is. Which is why the least worst option of a public monopoly was chosen in the first place in many countries.

    I have my doubts by private operators operating rail systems. The privatisation of British rail has been a disaster (and still is). It has cost the taxpayer billions, prices have gone up in real terms and subsidies have almost tripled in real terms. The private operators in charge of RailTrack screwed up so badly the government had to bail them out to the tune of 10’s of billions of pounds after they realised they had done no maintenance and had no idea if their tracks were safe(after sacking most of their qualified technical staff who could find out).

    NZ railway was a vertically operated railway which was privately owned which was on the verge of collapse when it came back into government hands due to underinvestment and lack of maintenance over decades by the private owners.

    The entire philosophy of running a business has changed. Short term profit making trumps long term viability. Just look at Pacific National, which slashed maintenance 10 years ago and is paying the price now. Unfortunately they are the only really big freight operator in NSW (there is only room enough for one or two), so the whole stay pays if they go belly up or get into trouble.

    The railways need to be operated with long term goals kept in mind. Maintenance schedules and programs lasting a decade(s) need to be diligently funded and kept on track. Expecting the private sector yahoos of today to do this, in today’s business culture and environment is asking for trouble. I think it is best to stick with the least worst option of public ownership.

    Privately operated Railways work in Japan because they have a radically different business culture to what we have here. They wouldn’t dream of doing the cost cutting that delivers short term profits and long term pain (See PN).

  17. I have to laugh at the scare campaign FarmGrab (aka AgForce) is already running on price of food and other rural produce. It is just false. They claimed on TV that the effect on food prices would be five times the actual fuel price increase. Rubbish. Rural producers and sellers often use transport costs as an excuse to raise prices but they are less than most people think. Typically transport is 10% of costs or less, unless you are talking about long haulage of heavy bulk ore. Fuel is usually 1/3 to 1/2 of transport cost at most.

    I partly agree with Bobalots comments on rail operations (keep them together) but NOT for Qld Coal. WA mining has proven that private interests can run trains properly when it is profitable to do so. Qld coal trains are certainly profitable and generally separate track and rolling stock from other mainline operations so I don’t see a problem.

    The real dilemna is that it will expose cross subsidies used to hide losses in QR main line freight. That being said, IMO Qld Rail is the most efficient State rail freight operator in Australia, so I don’t suggest the rest of the QR system should be broken up.

  18. Does this means NSW will be abolishing the latitude based fuel subsidy? God help us if we have Banana Benders coming the border to buy cheap petrol!

  19. The Coal operation in Queensland is miles ahead of anything the private operators have done in NSW. QR does have it’s problems, but I agree with Socrates. QR is the most efficient railway network in Australia. It destroys the myth that government operated companies always does worse than it’s private counterparts.

  20. Bobalot, I think the idea for the split is that competition will drive efficiencies in the ‘above rail’ sector. it hasn’t happened elsewhere.

    In the US they sold off the lot as a unit and they got good productivity gains. But i think theuy are worried about the monopoly power of the services since prices have risen strongly in recent years. I have read they are looking at the
    Australian system with a separation.

  21. hc, Take it from someone who works in the Australian system. Separation of track and rolling Stock has been an unmitigated disaster. It has been a disaster in Victoria, NSW and Britain. It will be a disaster in Queensland. The concept has such a fundamental misunderstanding of how rail operates, it boggles the mind.

    In the U.S the railways have always been private (except for a short period where they were nationalised during WW1). Their operations always have been vertically integrated. The operators pay a fee when using other peoples tracks, but for the most part the vast majority of their operations are vertically integrated.

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