All through the Bligh government’s three year campaign to sell public assets, I challenged Treasurer Andrew Fraser to a public debate on the issue, or at least to a response to the criticisms I and other economists made of the government’s case. Fraser never responded: even when we spoke at the same event (to a friendly business-oriented crowd) he gave his speech and left before anyone else was allowed on the platform. Doubtless, he made the judgement that this was the politically clever thing to do: by sticking to events that could be scripted, and relying on the authority of Queensland Treasury, he maintained controlled of public discussion. We all know how that worked out.
Now there’s a new Treasurer, pushing the same arguments. I challenged Tim Nicholls to a debate on the “StrongChoices” campaign. I don’t suppose he’s going to respond in person, but he has at least acknowledged my criticisms (as reported by Paul Syvret) and attempted to rebut them in this piece in the Courier-Mail.
Nicholls’ argument is confused, as the case for asset sales has always been, but he does make at least some progress. The usual magic pudding is in evidence: selling assets is supposed to repay debt, finance new infrastructure spending and obviate the need for higher taxes to maintain services, all at the same time.
But there is one point of light: responding to my observation that the StrongChoices website counts the interest savings from selling assets and paying down debt, but not the foregone earnings of public enterprises, Nicholls says
the value of a government-owned asset is not the same in private sector hands. Governments are not well placed to act nimbly when it comes to changing markets and commercial decisions. Who thinks the value of Telstra would be the same if it reverted back to full government ownership? What about the Commonwealth Bank?
While Nicholls’s specific examples don’t work well (see below), he at least expresses the right general principle. Privatising assets is a good deal for the public if their sale price is greater than their value in continued public ownership (and assuming that the gain isn’t achieved by raising prices or reducing service quality). Indeed, that’s true of every kind of sale: there’s a net benefit only if the item sold is worth more to the buyer than to the seller.
So, there’s a simple fix for the StrongChoices website. Instead of quoting the total sale price for assets, give an estimate of the difference between the sale price and the value in continued public ownership. I did this for both of Nicholls examples, the Commonwealth Bank and Telstra (all three “tranches”) and found a net loss to the public in every case except T2, the second Telstra tranche where the value was inflated by the Internet bubble. Even in that case, we would have done far better off by selling the overvalued Internet assets and using the proceeds to buy back the rest of Telstra, as I advocated at the time, just before the bubble burst.
fn1. If, as has been reported, the Queensland Government paid good money to a PR firm for this ludicrous name, then there is certainly an opportunity to cut waste and efficiency by dumping.