January 18, 2015

Election '15: debt and asset sales

Few would dispute that Queensland should be concerned about its debt, but if you're from practically any other Western economy you might smile wryly as Australians angst about what seems to be a relatively small amount of it, and the near-obsession in this country with getting back to black.

Few ordinary people seem to care about triple-A credit ratings from agencies with silly names. (For years I thought one of them was Standard & Paws. Was its founder, Henry Varnum Poor, being ironic?) The difference between two As or three doesn't mean the state pays that much more interest on loans, some economists say. Others argue that a manageable amount of debt helps you finance infrastructure projects that you'd never begin if you waited until you could afford it.

The LNP have bitched about the debt they inherited from Labor ever since they came to power almost three years ago. They usually add at least $20 billion on to the real figure for effect, and they fail to mention that Labor's woes were added to considerably by costly natural disasters, namely the floods in SEQ and cyclone Yasi in FNQ, in 2011. And possibly the GFC. In the name of that debt, Campbell Newman's government ruthlessly axed tens of thousands of frontline public sector jobs while cutting trifling amounts of funding from valuable programmes such as $97,000 from the Environmental Defenders Office. At the same time, taxpayers were subsidising the expansion of Abbot Point port to the tune of almost $2 billion. The LNP agenda was clear.

Now they propose to lease and privatise certain public assets – namely power generation and distribution, the ports of Gladstone and Townsville, water pipelines and the Mount Isa rail line – to pay off some of the debt, seemingly forgetting that they are in power because the public never forgave former premier Anna Bligh for selling state assets, so they booted her out of office in 2012. Either that or he thinks Queenslanders are so stupid as to not see through the plan. With the demise of coal predicted by many economists over the next decade or two, are any private-sector investors going to pay the monies he needs (to reduce debt and fund his election bribes) for ageing coal-fired power generators or even brand new (hence higher electricity prices) but soon-to-be-obsolete poles and wires (as solar owners go off the grid in future)? He himself has expressed uncertainty about the prices he might get. And he'll have to wait for sales to be completed before he can deliver on his promises.

Labor announced details of its economic strategy last Friday. They have learned from past mistakes, and will not be selling or leasing the state's assets. They propose a longer-term debt action plan: to pay it off over a decade from dividends raised by state-owned corporations they keep as they are. Interestingly, Labor plans to merge the three electricity distribution companies (Ergon, Energex and Powerlink) and the two electricity generators (CS Energy and Stanwell), saving $150 million a year, they claim.

This link includes figures for dividends: https://independentaustralia.

Talking about the past coming to haunt the you, it appears that Deputy Leader Jeff Seeney once wasn't such a fan of leasing. On 23 March 2013, in the Queensland Parliament, he said: 'Leases are a… sneaky, dishonest way to undertake asset sales.' And his colleague, Treasurer Tim Nicholls added, 'A 99-year lease is as good as giving away the farm'. Both were in Opposition then.

Some methods of reducing debt are rarely debated by either of the major parties. Doing away with mining subsidies is one of them. A recent report by TAI (The Australian Institute) claims a figure of $9.5 billion for Queensland, with the coal industry the largest beneficiary. Right-leaning critics dispute many of their claims. So here is another analysis: https://www.academia.edu/9719052/Calculating_Queensland_state_government_subsidies_to_the_minerals_and_gas_industries.

Another way is to increase taxes. Nobody dare mention putting up taxes to voters who complain loudly and frequently about the cost of living. Perhaps someone should be bold: in the Newman government's Strong Choices survey, a significant proportion of contributors expressed a preference for higher taxes rather than the sale of state assets. The LNP has completely ignored this. They claim that leasing is different from selling. This seems to me to be a red herring, to sweeten the privatisation pill. And the waters are muddied further by methods of profit maximisation, the role of the industry regulator, the potential life of the asset, and the terms of the statute defining the terms of the lease. Confused? Read this article written a few months ago: http://theconversation.com/making-the-case-for-selling-off-queenslands-power-assets-32488

There is a more general question, and that is, is privatisation in any form the way forward these days? This is an interesting idea that
I was completely unaware of over here on the other side of the planet: http://www.theguardian.com/commentisfree/2014/jul/09/
tide-turning-against-privatisation. If you're Australian, don't be churlish about the fact that many of the examples are from the UK. Their experiences are pertinent, and the trend is not limited to northwest Europe.

The LNP's campaign rests on the claim that it has strengthened the economy over the last three years. This has been seriously challenged – see http://theconversation.com/the-true-state-of-queenslands-economy-without-the-spin-35959. The art of spinning statistics is a common thread I'm sure, in many a political campaign. The poor voter has to pick his or her way through huge numbers of numbers, most of which will be contested by someone or other.

Good luck.

Update 27 Jan Since writing this I have learned that the state government would benefit from an 'asset recycling initiative' by the Commonwealth government. The state would receive 15 per cent of the price of the asset sold if the proceeds from the sale were allocated to investment in new infrastructure. Read more about
this scheme at http://www.budget.gov.au/2014-15/content/glossy/

This post was last edited on 27 January 2015

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