Updated: Following some criticisms by the Queensland Treasurer, I’ve updated the estimates to exclude gains made by the Port of Brisbane on the sale of its shareholding in Brisbane Airport. Obviously, there are other adjustments that ought to be made to get a proper comparison between the interest savings from privatisation and the income foregone. Treasury has the resources to do this, but instead has chosen to present a totally invalid apples-and-oranges comparison between current year dividends and projected whole of government interest savings
I have a piece in today’s Fin criticising the Bligh government’s case for asset sales. I will probably post it here tomorrow. In the meantime I’ve picked up and confirmed a bit of additional information.
(i) Although the estimated sale price is $15 billion, about $7.5 billion will go to repaying debt held within the Government Business Enterprises themselves. That’s currently being covered out of the revenue of the GBEs, so this debt repayment will make no difference to the fiscal position of the government. The net return to general government is also about $7.5 billion, and it’s only this money that can be used to repay general government debt.
(ii) The estimated interest saving from a AAA rating is $266 million over four years
(iii) The Port of Brisbane and QR produced pretax profits of $553 million in the last reporting year. These state-owned enterprises don’t pay tax to the Commonwealth, but make tax-equivalent payments to the state so it’s pretax income that is relevant.
Port of Brisbane: Pretax 2009 $332 million 
QR: Pretax 2008 $221 million
This provides a simple basis for assessing the short-term fiscal impact of privatisation. The gain from privatisation, assuming the sale took place now, the estimated price is realised, the risk-adjusted interest rate is 6.5 per cent and sale costs are ignored would consist of
(a) interest savings from debt repayment, 6.5 per cent of $7.5 billion or $490 million
(b) savings from the AAA rating, $66 million per year
for a total of $551 million per year
So, the short-term effect of privatisation is roughly neutral. In the long term, it seems likely that returns would grow at least in line with inflation, while interest savings would remain fixed in nominal terms. Hence, privatisation would result in a long-term fiscal loss.
Perhaps there is a case for privatisation that would outweigh these fiscal losses, but, if so, the government hasn’t put it forward.
fn1. The alternative would be to do a whole-of-government comparison, taking account of all debt repayments and using Earnings Before Interest and Tax (EBIT) as the comparator.
fn2. Note that this calculation does not include Queensland Motorways or Forestry Queensland. These organisations roughly broke even in the most recent period, but they hold assets that can be expected to grow steadily (and, in the case of forests, literally) in value in future years.
fn3. This excludes a $275 million profit on the sale of shares in Brisbane Airport, but includes other valuation gains, which have been earned consistently in recent years.