I’ve been very critical of the Queensland government’s proposed asset sales, which, I think, will worsen the fiscal position of the state in the long term. But, the combination of economic downturn associated with the global recession and continuing needs for infrastructure expenditure mean that the government is right to point out the problems and to state the need for politically unpalatable responses. I don’t have the resources of the Treasury, which means, among other things, that I can’t tell how big the problem is now, given that there has been a substantial recovery since the budget in June. So, I’ll just list some possible responses, some of which can be undertaken unilaterally, others requiring co-operation among the states, and, last but not least, action required from the Commonwealth government.
First, although the government’s case for asset sales has been entirely spurious, it’s reasonable to infer that they think a private owner could improve profitability. It seems likely that Queensland Forest Products gives timber processors more favorable terms than would be strictly commercial, and that a range of other services are being provided. For QR, a private owner would almost certainly try to reduce labour costs – the asset sale has a two-year guarantee against forced redundancies, but two years isn’t all that long. Queensland Motorways and the Port of Brisbane are basically landlords, but the experience of privatisation, most obviously airport privatisation, has shown that there are all sorts of ways to extract more from users.
In the absence of privatisation, the government could, if it had the political courage it claims, implement some or all of these changes itself. That would entail making the case to the public rather than adopting the backdoor route of privatisation.
Second, there’s the option of a congestion charge for the City of Brisbane (I was talking about this on Radio National Breakfast this week). This would both raise revenue and increase the efficiency of the road network, reducing infrastructure costs in the long run.
Moving to actions that could be taken by the states collectively, there is a lot of inefficient and wasteful competition between state governments. The worst is the payment of bribes to attract big corporations, a field in which Queensland has the leader. Then there is promotion of interstate domestic tourism, something all the states do quite a bit of. The net effect is presumably zero, so the only industrty that benefits is the advertising industry (predominantly based in Sydney, I think). Finally, there is payroll tax. It’s not my favorite, but it’s among the least bad of the state taxes, if the states hadn’t competed over the years to raise thresholds and narrow the base. If unjustified exemptions for small businesses were scaled back, the rate could be lowered for everyone, and there would still be a net revenue gain.
Finally, there’s the elephant in the corner – the Commonwealth government. Put simply, the lesson of the crisis, stated clearly by Kevin Rudd himself is that government needs to take a more active role in managing the economy and providing services. That can only be done with more revenue, at all levels, and nearly all the good options for increased revenue are in the hands of the Commonwealth. Unsurprisingly, the states are agreed on this point