Late last year I was among more than 20 economists who published a statement rejecting the case for privatisation put forward by the Queensland government in its ‘The Myths vs the Facts’ booklet. Among the claims to which we objected was one which read
MYTH: The five commercial businesses the Government plans to sell generate a lot of income for the State
FACT: The total return from all five businesses in 2008-09 was approximately $320 million. This is less than 0.9% of the Government’s income. For every $100 of Government income that’s less than 90 cents. When the sale process is completed, it is anticipated the Government will save $1.8 billion every year in interest payments.
The economists’ statement observed
This is an invalid, apples-and-oranges comparison. The $320 million figure consists solely of dividend payouts, excluding retained earnings, tax-equivalent payments and the interest paid by the government business enterprises to service their debts.
The $1.8 billion represent the interests that would be saved, at a rate of about 6 per cent, if the state realised $15 billion from the asset sale and avoided $12 billion in new investment. Most of this interest would be serviced out of the revenues of the GBEs, and can therefore not be compared with dividends derived from earnings after the payment of interest and tax.
The booklet is now on the web, and I’ve just noticed that the $1.8 billion claim has been dropped. If anyone would care to look through the archive, it would be interesting to see when this change was made.
The claim that’s been dropped was obviously bogus. But the error that is in many ways more pernicious remains
Myth: These businesses are cheap to run.
Fact: Keeping these businesses would cost the Government more than $10 billion over the next five years. That’s more than $10 billion spent on new coal trains and new wharves for the private sector that can’t be spent on roads, schools or hospitals.
As the economists statement observed
This claim is economically unsound. Forgoing income generating investments, and borrowing an equal amount to fund investments that return no additional revenue, leaves the government with no flow of income to service the associated debt. The necessary income must be raised by increasing taxes or cutting expenditure.
Moreover, having silently dropped their spurious claim about the benefits of privatisation, the government hasn’t issued a soundly based alternative. Apparently, the people of Queensland are supposed to accept on faith that this is going to be a good deal for them.
fn1. Subsequent Indirect advice from the government was that the $320 million included tax-equivalent payments.