There's sometimes a very good case for corporations to be in government hands. But does Treasurer Joe Hockey really need to offer pet insurance?
The Coalition government wants to enter into another round of privatisations to reduce public debt and has set up a fast-tracked Commission of Audit to tell it what to sell. So far, Prime Minister Tony Abbott has only said he'll sell Medibank Private (which does indeed offer pet insurance). That's likely to change when the commission -- which has a very broad mandate
-- hands down its findings in March.
has drawn up a list of the government-owned corporations and services that could be put forward for privatisation. It's striking how much has already been sold off and how little is left -- gone are the days when the feds owned an airline, a bank, airports, pipelines and a shipping line.
About 50 Commonwealth assets have been sold since 1987, the lion's share around 1995-1999. This is what's left (most, but not all, are government business enterprises, or GBEs
). The government will be looking at whether there's a case to retain each corporation in public hands, what dividend it pays, whether there would be a buyer, what price it might fetch, and how much of a stink the public would kick up ...
The health insurance giant is the most likely candidate for privatisation; that's been Coalition policy for some time, and a scoping study is underway. Set up by the federal government in 1976 to keep a lid on the cost of private health insurance, it's now the largest health insurer, with 29% of the market (just over 3.8 million people). Medibank insures pets, travel and your life, but health is the big one.
Medibank is fully owned by the Commonwealth, is a sound business proposition, and is a nice little earner. Last financial year it paid a dividend of $150 million
to the feds. Medibank told Crikey
the dividend averaged $325 million per annum over the last three years (page 33 of the annual report
has details). Revenue has been steadily rising to $5.86 billion last year (there's a flip side -- significant increases in the amount paid out to members). Post-tax profit was $232 million.
So what would Medibank fetch? The Howard government suggested more than $4 billion
, and it's believed the Labor government got a secret valuation of $3.5-5 billion in 2011. PricewaterhouseCoopers has won a Commonwealth tender
to evaluate its price afresh. The most likely purchasers would be other health funds, possibly from overseas.
Finance Minister Mathias Cormann said last month
there was no public interest reason for keeping Medibank in government hands:
"It is a business that operates in a highly competitive, commercial market where they're competing with 34 health funds overall. There is no good reason on why the Commonwealth should continue to be involved in that business."
But opponents of a sale argue that the existence of such a large market player backed by the government may have a dampening effect on the industry's premiums (already rising steeply). Premium rises are regulated by the government.
This is trickier. There's no money in delivering letters these days, but parts of the business are booming -- CEO Ahmed Fahour's salary
for a start, but also parcels, retail and logistics (freight, etc). The Coalition has no mandate to sell AP, and regional communities would fight it because their (unprofitable) mail services would probably suffer. There are mixed messages from the Coalition; the official line is it's waiting to see what the Commission of Audit says, but frontbenchers Malcolm Turnbull and Warren Truss recently said there were no plans to sell AP
. The UK government recently sold off
some of its Royal Mail.
Australia Post is a successful GBE with after-tax profit of $312 million last year
. This shows how much non-mail services are bailing out letter delivery (which lost $218 million). AP paid a nice dividend of $244 million to the feds last year (the biggest dividend of any GBE). Competitors like Toll and FedEx could be tempted to buy the parcel and logistics sections.
Should AP be sold off, who would deliver those bank statements to the bush on the cheap at a significant loss? The government might have to retain that service, or pay new owners to do it, or force them to. Or, controversially, scrap that much-cherished service.
Hold on -- the National Broadband Network isn't even built yet. But NBN Co, which is charged with designing, building and operating the National Broadband Network, is a textbook case for privatisation: the government intervenes in a market to build major new infrastructure, then sells it off (see Qantas, Telstra, etc). It's official government policy to sell it
, but not for some time. Telstra might like to buy it, but would the telco pay the right price?
ABC and SBS.
The Institute of Public Affairs has called for it, state Liberal parties have considered it, and GetUp is in a lather about it, but the Coalition has hosed down talk of selling off all or part of Aunty. Last May Abbott said
"we won't go down the path".
The ABC costs the government a fair bit, and it's hard to see how much of what it does could turn a profit. Saul Eslake, chief economist at the Bank of America Merrill Lynch Australia, said the case to sell was not strong because "it's doing things that are legitimately the business of government, and would probably not be done if the ABC wasn’t doing them". Eslake told Crikey
it might be feasible to sell off sections like merchandising.
However, with the conservatives in the ascendancy and some Coalition figures on the warpath against the ABC's perceived Left bias, this is one to watch.
SBS is in some ways more commercial than the ABC because it carries advertising. There have been suggestions the SBS could be sold or merged into the ABC.
Australian Rail Track Corporation.
This runs much
(but not all) of the interstate train network, which it variously owns and leases. It ferries coal through the Hunter Valley. The ARTC was set up by governments in the '90s as a "one-stop shop" for rail operators. The Commonwealth owns the ARTC's shares but received no dividend last year after the corporation posted an after-tax loss of $202 million
Eslake told Crikey
he had an "open mind" on privatising the ARTC and asked whether the government needed to run railways -- but said there might be no buyer. Chris Aulich, professor of public administration at the University of Canberra, warned Margaret Thatcher's privatisation of the UK railways did not work.
Defence Housing Australia.
Has slipped under the radar, but one to watch. DHA is a GBE that provides pretty good housing to Defence Force members and their families. It buys land and builds homes, and buys and leases existing homes
(and flogs some off). DHA housed 16,000 families last year and funnelled rent assistance to 14,500 people in the private market. Net profit after tax was $85 million
, and the dividend to the feds was $50 million.
"There are plenty of other organisations around that can do that," Eslake said of DHA -- but Aulich said there had long been a "hands-off" approach to Defence (apart from some materiel work). "It's possible, but I would be surprised," he said of privatising DHA.
Airservices Australia has 4000 staff who manage air traffic operations
around the country, provide aeronautical data and run aviation rescues and firefighting. So you certainly don't want a cowboy buying them out.
The feds have sold off Qantas and airports, so there is a precedent for privatisation in aviation. But Eslake told Crikey
there might a public-interest case for retaining Airservices in public hands.
It's hidden on the website and the annual report, but yes, the Commonwealth owns 13% of Snowy Hydro (the Victorian and New South Wales governments own the rest). Snowy Hydro owns various dams and power stations and is a poster child for renewable energy (as well as for bold nation-building infrastructure). Net profit after tax was $280 million last year. It's not technically a GBE
There was a serious but failed push to sell off the Snowy in 2006. The Australian reports
former Victorian premier Steve Bracks recently called for the Snowy to be privatised, but quoted unnamed government sources saying it's not going to happen. The Snowy is used for irrigation and recreation as well as electricity, which means more people opposed to a sale.
This used to be called the Australian Submarine Corporation. Now it's not, but it's still the prime contractor delivering and maintaining those highly expensive Collins Class submarines (it builds warships too). The ASC is wholly owned by the government and paid a rather feeble dividend of $9 million last year. Those at Adelaide HQ, watch out -- the government has hired consultants to estimate the ASC's value
The government has floated the prospect of selling off the massive HECS debt
-- about $26 billion -- to private investors. Economic hardheads say it's just a parcel of debt that could be sold, and Britain has done something similar. But the ALP has promised to fight such a move, warning ex-students would pay more. HECS is already a form of privatisation in that students pay for some of their education.