Should progressive Sydney lord mayor Clover Moore receive credit for keeping the City of Sydney debt-free and with the biggest investment pile of any council in Australia? Absolutely. After many years in charge, there has rarely been an attack from the Left or the Right for Clover’s strong financial management, even though it is an unusual outcome for a progressive to deliver. Yet mention Queensland’s debt problems and privatisation possibilities in the context of the upcoming January 31 election and people start sounding off in all directions.
Last Wednesday’s Crikey piece on Queensland’s debt challenges sparked this editorial in the Sunshine Coast Daily, this 12-minute interview on ABC radio across Queensland and a feisty response from Crikey readers. Alex Mitchell even wrote in Crikey on Friday:
“The LNP and its cheer squad are dismissive of the potential pitfalls as they career into another era of ‘capitalism on credit’ and Sir Joh’s corporate cronyism.”
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There are always governance issues around development approvals for state governments, but in Australia over the past 25 years, privatisation processes have rarely become mired in cronyism scandals.
You certainly can slam Newman for once raising $2 million, largely from developers, for a lord mayoral campaign. No Australian councillor has ever got near such a figure. But it’s a bit rough to suggest Sir Joh-style brown paper bags would be back in force just because some boring electricity utilities were being privatised in a competitive auction.
The buyers will be big superannuation funds, plus the likes of AGL, Origin, AusNet Services, EnergyAustralia (nee TRUenergy) and China’s State Grid. The auctions will be run by the same sorts of investment banks that handle these large transactions all the time with a view to maximising the return to the state and thereby reaping the largest fees for themselves.
No one is alleging any form of corruption with the privatisation of Qantas, Telstra, the Commonwealth Bank, Medibank Private, the old Queensland Rail, the Queensland TAB or Brisbane Motorways.
Indeed, the biggest risk with privatisation is that the government deliberately sells an asset too cheaply to the public when a trade sale to foreign buyers would have produced a higher return. Governments also often give too many job guarantees to the workers. That’s what happened with the old State Bank of NSW, which fetched a net $250 million when it should have been sold for over $1 billion in March, 1994. Instead, Colonial Mutual (now part of the $135 billion Commonwealth Bank) pulled off “the greatest bank robbery in history” because the Fahey government foolishly banned the big four from bidding and gave guarantees about branch numbers and job security.
The Bligh government also cost Queenslanders hundreds of millions by giving all sorts of worker guarantees ahead of the Queensland Rail float in 2010. This meant the float managers couldn’t seriously promote the prospective productivity dividends, and the first tranche of 66% only fetched an average $2.50 per share, or just over $4 billion. The company, renamed Aurizon Holdings, is now trading at around $4.50, and the Newman government managed to raise about $3 billion out of its residual 34% stake during its first term.
In fiscal terms, the three things that Queensland has going for it are fully funded public sector superannuation schemes, more than $50 billion worth of saleable infrastructure/utility assets and a relatively low tax environment, which is a legacy of the Bjelke-Petersen years.
But something has to change to stop Queensland’s gross debt rising by almost $10 billion a year. A combination of tax rises and asset sales will be required, or the next government could copy every other state by raiding its superannuation funds.
After all, what’s the point of borrowing $94 billion through the Queensland Treasury Corporation and then having more than $70 billion sitting in the Queensland Investment Corporation, the majority of which is set aside for future public service pension liabilities?