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Australia

Jan 22, 2014

Let them take taxis: what else the Audit Commission can flog off

ACIL Allen Consulting public policy and governance expert Stephen Bartos has some suggestions on what else the federal government should cut (well-fed diplomats in cushy overseas housing, watch out).

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The National Commission of Audit is, among other things, considering the privatisation of Commonwealth government assets. Last week Crikey provided a helpful list of businesses the government could potentially sell. Although it was a smaller list than in the days when the Commonwealth owned banks, telecommunications and aviation companies, it still contains possible candidates for a public share offering.

But these corporate entities are not the only potentially saleable Commonwealth assets. In addition to the shares in companies it owns, the Commonwealth has a vast array of what its accountants term “non-financial assets”: that is, land, buildings, equipment, vehicles, artworks and numerous other physical assets, together worth some $113 billion.

The majority of these are not realistically for sale. Nobody to date has publicly advocated selling the Australian War Memorial or National Gallery of Australia. Much of the plant and equipment on the government’s books comprises IT or communications required for normal day-to-day operations. But it is likely that a proportion of the non-financial assets — how much is hard to tell without detailed analysis of confidential government information — are potentially no longer needed. Even if it is only 10%, $11 billion is worth having.

The Department of Defence, for example, occupies prime waterfront land on Sydney Harbour. It owns dozens of golf courses around the country; proceeds from their sale could buy lifetime golf club memberships for every Defence member who wanted one and still leave money in taxpayers’ pockets. Defence owns a fleet of luxury vehicles — cars, not military vehicles — to transport top brass to functions that even members of Parliament take a taxi to attend. Although the government is committed to increasing Defence’s operational budget, it might have a different view about rationalising the Defence balance sheet.

Other departments have similar stocks of highly valuable assets. A letter writer to the Canberra Times earlier this week suggested that various overseas embassies owned by the Department of Foreign Affairs, including Australia House in London, could be sold. There is precedent; in the 1980s part of the historic gardens of the Australian Embassy in Tokyo were sold for what would be billions of dollars today. Australia’s diplomats occupy not only embassies but high-quality residences in numerous countries. Yes, some degree of amenity for our overseas missions is desirable, but Australia’s international reputation relies far more on our policies than the quality of our furnishings.

The Finance Department’s list of Australian government bodies runs to 666 pages of the many departments, statutory authorities, business operations partnerships, trusts and the like owned and operated by the Commonwealth. While many are no more than committees (including 100 ministerial councils and joint Commonwealth-state bodies) there are plenty that could be candidates for privatisation.

In addition to sale of physical assets there is also the prospect of privatisation of activity, or outsourcing.

“There may be good arguments for now doing these activities inside government, perhaps even regathering them centrally.”

Outsourcing was pursued as a matter of policy in the early years of the Howard government. Former minister for administrative services David Jull coined the “Yellow Pages test”: if an activity was provided by a business listed in the phone book it ought not to be provided by government.

Some of that outsourcing has lasted, but much has been brought back in-house. For example, public service legal advice on commercial matters such as contracts, employment, property and the like was outsourced from the Attorney-General’s Department to the private sector (some sensitive matters such as constitutional advice stayed inside government). Over the intervening decade-and-a-half that approach fell apart. The public service has now virtually doubled the bill for taxpayers by continuing to use outside lawyers but creating large in-house legal units. A similar situation has occurred with IT outsourcing, also pursued by the Howard government.

There may be good arguments for now doing these activities inside government, perhaps even regathering them centrally. It is hard to see any good argument for doing them twice, both inside and outside.

Which leads to an important consideration in the debate: while there are a number of activities it might be possible to privatise, that is by no means an argument for doing so. There is a big difference between what could and what should be privatised.  A body or an activity should be privatised only if that results in a net benefit not only to the Commonwealth balance sheet but also to public policy.

A classic case of an activity that could be privatised is the army, navy and air force, but it is far more important that armed forces in Australia remain part of the state and subject to democratic rule. It might be possible to outsource, but we would never want to do it.

For some other assets the dividing line between “could” and “should” is finer. Those with nostalgic memories of the wooden racks of week-old crinkly newspapers, world-weary counter staff and long queues for election voting in the musty caverns of Australia House in London may argue it should never be sold. Modern web-enabled generations who travel around Europe without ever venturing into Australia House may differ.

Sometimes where you draw the line depends on where you live. For example, any proposal from the Commission of Audit to privatise Australia Post would attract far more opposition from the bush, where the local post office can be the mainstay of a small town, than from the city.

These are not easy matters to sort out. Treasurer Joe Hockey has given the Commission of Audit an extra two weeks to present its first report. That won’t be enough time to develop definitive answers, but neither would an extra two months or years. Privatisation decisions are rarely clear-cut — they require balancing the short-term financial gains with the public policy objectives an asset or an activity is designed to help deliver.

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