We crown four experts treasurer for a day, asking them which of the 11 government entities up for privatisation they’d sell. The answer? All or nothing.
The debate about which government entities should go in the next round of Commonwealth privatisations has raised deep ideological questions on the role of the state.
Prime Minister Tony Abbott wants to sell off public corporations to pay down debt, but we don’t know which ones he has in mind. Yesterday, Crikey compiled a hit list of the bodies that could be sold off. Medibank Private, Australia Post, the ABC and SBS are on there. So is NBN Co, Snowy Hydro and the bodies that manage rail tracks, air traffic control, Defence housing and submarines. And Abbott could sell off HECS debt.
We’ve put that Crikey list to four experts to see what they would sell. As you’ll see, in a very polite way, they thoroughly disagree with each other …
Saul Eslake, chief economist at the Bank of America Merrill Lynch Australia
Eslake says there’s a good case to privatise some, but not all, of the Crikey list. He doesn’t believe a state-run company is “any more inclined to service the public interest” than a private one, and reckons public companies can become too powerful — and dumping grounds for ministers’ pals, “usually the lazy and inefficient”.
The government should ask whether each corporation should legitimately be in public hands, and if the answer is no, the next question is whether the benefit won from selling it off (and using the proceeds to pay down debt) outweighs the cost of lost dividends.
Eslake says Medibank Private could be sold because it “certainly isn’t doing anything that isn’t being done by a large number of private organisations”, it doesn’t keep premiums low (its original purpose), and the government regulates health insurance premiums anyway. Defence Housing Australia could go because other organisations could do that work, and HECS debt could “certainly” be sold.
He has an open mind on Australia Post; the private sector already does much of what AP does, but Eslake says delivering mail to the bush is an essential service that should remain in public hands.
There isn’t a compelling reason to keep the Snowy power scheme in public hands, according to Eslake, but it would be difficult to privatise because it is used for irrigation and recreation as well (and Alan Jones is against a sale). And he doesn’t advocate selling the ABC (although a function like merchandising could be privatised) but says there could be a case for a commercial broadcaster — or the ABC — to take over SBS.
Bill Mitchell, professor of economics at Charles Darwin University
Mitchell cautions against listening to Eslake. “All these characters who work for investment banks … they’re just selling their own services. They’re held out as if they are experts with good intentions, but they’re not independent at all.”
Mitchell says no body on the list should be privatised. “A public investment can take into account what we call social benefits and costs, whereas a private organisation only considers the private cost and benefit,” he told Crikey. Mitchell says the claim that the private sector performs better is “just plainly the most flakiest proposition”.
Look at Qantas, he says. Sold off in the ’90s, it is now asking for government money and cannot compete with large publicly owned airlines (Emirates, Etihad, etc).
Mitchell also argues against privatising Australia Post. In remote areas the post office “becomes a hub for social activity, for caring and hearing things. For regional Australia those things are really important.” AP is a public corporation that is astutely run and has positioned itself well in new markets, he says. Mitchell points to the privatisation of Telstra, saying the result was poor management.
Mitchell isn’t buying Tony Abbott’s budget logic; “the fundamental proposition that the government has a debt problem and you sell off assets to resolve that is ridiculous.” And governments sometimes sell entities at a low price while bidding a permanent farewell to the revenue — on past examples, “the people who made a killing were the stockbrokers and lawyers”.
Daley says selling assets to pay down debt is a “tried and tested strategy” — but while some on the list could be sold, HECS debt should not be.
He points to a Grattan report to show how government asset sales helped reduce debt. However, Daley says Commonwealth debt is actually relatively low and the bigger problem is budget deficits. “And asset sales do not necessarily help here: by definition they only assist if the future interest on the asset sale price is more than the future dividends. There is no guarantee that the Commonwealth will, in fact, drive such a good bargain for any asset it sells,” Daley told Crikey. “Nevertheless, many of the assets may be more efficiently and better run in private than public hands.”
The Grattan Institute has not gone through Crikey’s list, but it has argued against selling the HECS debt. “Because this is simply a debt (rather than a business that requires active management), it is difficult to believe that it would be a good idea to sell it,” Daley said.
Bill Mitchell says the Grattan Institute’s views should be considered in light of who funds it, and suggests donations by big companies may predispose the institute to certain opinions. To that end, we note the institute’s donors and “affiliates” include BHP Billiton, the Myer Foundation, the National Australia Bank, Ernst and Young consultants, and PricewaterhouseCoopers consultants. Read the institute’s view on its independence here.
Helen Dickinson, associate professor in public governance at the University of Melbourne
“Australia has relatively few remaining collective goods, and I would be sorry to see any of the list to be privatised without careful consideration,” she told Crikey. “History shows that those who do worst out of these privatisation processes are those with low levels of wealth.”
Dickinson says the mainstream media debate over whether to privatise Medibank Private had largely been presented as a done deal, but there is little public support for the move. “Whilst a sale would deliver a welcome injection of cash, there are no guarantees about how this might be spent, and the dividend provided by Medibank Private is a useful form of ongoing income generation,” she said. She says the insurer functions as a working asset that allows the government to reduce taxation. “The groups who arguably benefit most from Medibank Private being government-owned are working Australians who experience a lower tax burden, without losing quality of services,” she said.
Dickinson says the debate about privatisation is too simplistic and “needs to be about more than just economics”.
*Crikey’s aviation guru Ben Sandilands makes the case for why AirServices Australia should not be privatised at Plane Talking