Selling assets to ourselves, yet again

According to a report in the Courier-Mail, Queensland Treasurer Tim Nicholls has just announced the sale of seven government buildings in the Brisbane CBD. This transaction has all the dodgy features we’ve come to expect from Queensland asset sales

* The buyers are “assorted funds managed by the [state-owned] Queensland Investment Corporation”. So, as often seems to be the case, we are selling assets to ourselves

* Nicholls says “the sale proceeds will be used to reduce state debt. The government will also save about $130 million in interest payments.” Of course, this is double counting – the whole point of reducing debt is to save interest payments. But what does the $130 million mean? It’s about 24 per cent of the sale price, so I’d guess it refers to savings of 6 per cent a year over the four years usual in forward estimates. But that’s a very short-term way of looking at transactions that will affect the public for decades to come

* The buildings will be rented back on set leases with fixed rent increases. So, we’ll also be renting them back from ourselves. Costs will mount over time, but the big increases will doubtless be outside the forward estimates. So, there might be net saving for the next few years, but there will be losses after that.

And of course, as Shadow Treasurer Curtis Pitt points out, selling assets without a mandate was exactly what this government (elected because of Labor’s mandate-free asset sales) promised not to do.

44 thoughts on “Selling assets to ourselves, yet again

  1. @Jim Rose

    The interesting thing is that the Sth Korean government backed broadband and Sth Korea now has the best internet in the world.

    “South Korea leads in the number of DSL connections per head worldwide. ADSL is standard, but VDSL has started growing quickly. ADSL commonly offers speeds of 2 Mbit/s to 8 Mbit/s, with VDSL accordingly faster. The large proportion of South Korea’s population living in apartment blocks helps the spread of DSL, as does a high penetration of consumer electronics in general. Many apartment buildings in built-up metropolitan areas, such as Seoul and Incheon, have speeds of up to 100 Mbit/s. VDSL is commonly found in newer apartments while ADSL is normally found in landed properties where the telephone exchange is far away.” – Wikpedia.

    This notion that private enterprise humans are somehow wiser and more able forecasters of future trends that government agency humans is complete balderdash. The post-war Japanese miracle was assisted by reconstruction but guided by MITI. Look it up.

    This chanting simplism of “private enterprise always good, government enterprise always bad” is blind ideology at its worst. How do you think the Chinese economic miracle has occurred? There are many factors of course but one prime factor has been the strong state guidance of the economy. Dirigisme works. That’s not the same as a total command economy by the way. The empirical evidence is in but the reality deniers on the neocon side just go on denying forever.

  2. @Ikonoclast
    The more I read about South Korea, the more envious I am about them and how well they appear to be managing their economy and human resources.

  3. @Ikonoclast JR does like to go on; the recent financial meltdown was caused by the failure of the private financial sector requiring assistance from central banks including communist China.

  4. Thinking about it this evening my last post sounds a bit idealistic (admittedly that’s usually ok with me anyway I suppose ) and maybe off topic . Im not good on the nuts and bolts of asset sales . I feel sorry for Queenslanders having to endure C Newman . J Kennett had a bit of what the press called larakin panache at the time, it can disappear fast .He one threw a silver shovel full of sand over tv camera and photographers at a grand prix ceremony . Also outside the treasury building there is 3 or 4 statues of premiers who served more than a certain number of days – his idea but no Kennett one as he lost the next election .

    Austerity seems like wealth distribution ,it’s class warfare if removing tax breaks for super is . Enabling the less fortunate may be a good long term investment for society. Good return rate on $ .Gonski reforms would work like that . Throwing more resources at those who already have the most is what abbott govt will do . Many of them simply hoard it anyway . Is a huge financial sector a national treasure . Labor not brave enough to get much done in current circumstances either . How long until the other mob admits it dont work ? 5 years , 10 years ?

    Jordans point about how the state may be able to roll over deficits for a long time makes sense to me . One day we will have optical fiber the South Koreans will talk about .

    I find it hard to know what to make of the positions market liberals take, as they say they act in market places primarily out of self interest like all participants should . That doesnt inspire much trust in me as a listener .To me there normally seems a close fit between their positions and their self interest in the real world . What role does truth play in their logic ? Enough people in wider society are thinking like they do to stop change .

  5. One example of privatisation failure is in public housing. Thatcher sold off public housing and left it to the private sector to fill the gap. It did and with spectacular results, an unregulated bubble in housing and finance.

  6. This is accounting trick to artificially increase GDP while reducing nominal debt of the state.

    Not sure the above is correct. Given that these assets were already constructed and that this transaction is taking place in the secondary market wouldn’t any contribution to GDP from these assets have been counted in previous periods?

    Wouldn’t the only contribution to GDP this transaction would have would be in the form of any work undertaken to facilitate the transaciton in this period (e.g. legal, accounting, other advisors, etc)?

  7. @Pete Moran

    Ho hum – more attacks on straw economic men on Quiggin’s blog (although to be fair in the comments). Apparantly these “neo-con” people believe, inter alia, that debt is always bad, savings are always made productive, the market is always right, opportunity is always equal, and the future is risk-free.

    So, Pete, would you like to name even just one person who believes that? I know of no-one, neo-con or otherwise, who holds those things to be true. It follows that, unless you can find some people who do subscribe to these views, you’re just smearing people by making stuff up.

  8. @ TN

    Errr… Heiress Gina Rinehart, Campbell Newman, Cory (Barnyard) Bernardi, Dennis (Don’t Call me Denis) Jensen, Mattias Corman, Circus Clown Barnaby Joyce ….

    …. should I go on??

  9. @Pete Moran

    Go on for as long as you like, Pete, but perhaps also try to add some proof – such as, for example, statements by the people you are listing that “the market is ALWAYS right, opportunity is ALWAYS equal, debt is ALWAYS bad, and the future is risk-free” – to back up your assertions.

    The truth is, you are simply attacking a straw economic man – which is quite typical behaviour on this blog, but that doesn’t make it any more defensible.

  10. Indeed, just think about the effective management of assets by Rio where they announced $14 billion in writedowns in January. If that doesn’t make the commentators question the efficiency of private sector decisions about asset allocation, what would?

  11. @ralph

    It’s hard to give too much weight to asset write downs being evidence of inefficiencies in the private sector, especially when we’re talking about a large corporation like Rio Tinto which have about $117 billion total asset as at 31 December 2012. I have no looked into Rio Tinto that closely to give a detail analysis, but $14 billion asset write down (slightly less than 10% of total assets) is not something like a ‘SHOCK’ for the industry Rio Tinto is involved in which can be significantly affected by the volatile in mining related commodity prices.

    Another possibility is that the $14 billion impairment may be a result of prior asset prices being overvaluated. This further reduces the usefulness of asset impairment as evidence for private sector inefficiencies.

    Overall, like Ikonoclast, I also question the assumption of private sector being always efficient. However asset write down (thus profit & loss) may not always be useful evidence against market efficiency.

  12. @ TN

    Read the first speech of Mattias Corman for example. He’s a tea-party economic lightweight that would have the country in austerity recession in an instant.

    He and Dennis Jensen (as WA Liberal Senators) gave perhaps the most bizarre presentation on a near-pure Tea-Party vision I’ve ever been to.

  13. @Tom RIO spent $38B on Alcan only to see the price of aluminium plummet – evidence of expert opinion? RIO then had to sell assets to raise some cash.

    There was also the purchase of Rosemount by Southcorp – end of Southcorp.

    And it was govt regulation that straightened out Australian banks.

    Despite their alleged expertise the private sector are always making big mistakes.

  14. @rog

    I do not dispute your comment. I was however, only pointing out changes in accounting numbers are not always reliable evidence against market efficiency because accounting numbers can be volatile due to various reasons such as actually poor performance, earnings management, changes in the company’s accounting policy and changes in accounting standards etc. I do not have expert view on Rio Tinto to give a comment on its recent performance.

  15. @Tom
    Tom, your point is correct to which nobody is disputing, but Ralph was specifically referring to RIO and it was indeed a myriad of monumental stuff ups that eventually & rightfully cost Tom Albanese his job. RIO were lucky a rich Chinese appetite for iron ore came at a very convenient time to keep the organizatoin out of the real poo (ie. they were floating on oceans of debt in 2008).

  16. @Pete Moran

    Against my better judgment, I read Mathias Cormann’s first (15/8/2007) speech and it provides no basis, Pete, for your attribution to him of the absurd views – for example, that debt is ALWAYS bad, or that the market is ALWAYS right – that you claimed that “neocons” hold.

    Thus, while Cormann is for sure a supporter of market forces, he also sees roles for government. To provide a specific example, his speech states:

    While the private sector does and should own, build and operate a large proportion of the infrastructure requirement, there is a growing demand for government funding for multi-user facilities. This need will grow as new areas open up.

    Other examples from the speech are that he supports “less regulation” and “low taxation” – not zero regulation and zero taxation.

    Pete, I have called you out for your sloppy and absurb characterisation of the views of so-called “neo cons”. It turns out that the set of people who hold the absurd views you mentioned is an empty one – and that you have been attacking a straw economic man of your imagination’s own creation. Still, as I’ve said, your not the first on this blog to do so.

  17. @Tom No need to look at changes in accounting procedures, just reflect on the (near or actual) collapse of nearly all the commercial banks in the developed world.

    Derivatives have seeped their way into almost all balance sheets.

  18. @ TN

    Lets look at examples of Cormann’s voting record perhaps as well.

    He’s voted against the NBN claiming that it is both a “cost” not an investment, that the private market would do it better if they were “allowed” to (markets). He voted against a Green amendment to ensure a safety-net for single mothers (opportunity). He voted against a price on Carbon, twice (future). He’s voted against taxing profitable mining companies for their unsustainable short-term pillage (taxation). He voted against means testing the private health rebate (taxation again).

    On and on and on it goes ….. He’s a pure Party-hack, and as has been my experience with him; truly believes his libertarian, Tea-Party, laissez-faire rubbish. He has supported precisely zero amendments that would move him away from debt is always bad and the market is always right.

    In his world, like the Republican methods they’re trying to import, “no” is always the answer to a proposition from the Left. I’ll continue to claim him in the set of neo-con economic numpties. He would only need to repeatedly refer to the blessed-Constitution to be a fully fledged three-cornered hat-wearer with a Don’t Tread On Me badge.

  19. Once again Pete, none of the “evidence” you have brought forward justifies the statements you made in your initial post about the (extroardinary) views (eg markets are ALWAYS right) that you believe “neocons” hold. You can of course “continue to claim” whatever you want about these neocons who seem to haunt your imagination. You just can’t do so with any credibility.

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