More emotion is generated by the debate on Government Asset Sales than most issues that are littered around the political playground. Most of the comments are generated by the thought that there are votes to be won by perpetuating this battle — far more so than the remote possibility that there may be deep political convictions involved.
This means it’s time to try to take the discussion out of the hands of political opportunists and elevate it to a rational plane, as the balanced development of the nation will depend heavily the creation of many more new assets.
A good start will be to look at some history.
For most of the time since the arrival of the First Fleet, the establishment and management of public facilities and infrastructure were the unquestioned province of governments. In general terms, it is safe to say that it was only in the era after World War II that the sale of public assets arrived on the political agenda.
It is also valid to comment that the idea of selling assets only arises when governments run out of money. There has been little concern that most public assets were run inefficiently and could have provided better service at lesser cost if run privately.
The issue became firmly on the table when the Loans Affair destroyed the reputation of the Whitlam
Government in 1975. The Mines Minister at the time was Rex Connor, a dyed-in-the-wool socialist and nationalist, who wanted the expansion of Australia’s mining capacity to be firmly in government hands. He tried to raise billions to make this possible by using the services of a doubtful financial trader named Kemlani. He almost succeeded, but finally crashed spectacularly.
Had he obtained that money, he intended to open half a dozen major mines, all of them owned and run by government. This generated a passionate furore about whether or not mines should be developed by private capital (which they eventually were), or whether the nation should own them, thereby finally benefiting taxpayers directly.
The controversy also generated a new debate on what to do with existing government assets. Were they untouchable Australian institutions or could they be a source of cash and a means of greater productivity if managed privately?
Eventually, the debate led to the sale of the Commonwealth Bank and Qantas during the Hawke/Keating era, but this caused little controversy at the time, and now most voters would not recall that they were once government assets.
The passion revived when John Howard announced that he would sell Telstra in three tranches. He succeeded in getting the hotly-disputed Bills through the Senate only by offering Tasmanian Independent Senator Brian Harradine some enormous benefits for his State that no other State received.
He was helped also by Queensland ALP Senator Mal Coulston, who ratted on his Party by accepting Howard’s offer of the position of Deputy President of the Senate in exchange for his vote. This eventually provided a sterling example for Peter Slipper to use in participating in a similar scenario with Julia Gillard some years later so as to become Speaker of the House of Representatives.
But, the controversy was compounded by the extravagant sale price of Telstra shares. It was a long way in excess of real value, causing many thousands of ‘mum and dad’ investors to lose an important part of their savings when the price subsequently dropped rapidly. This put them off participating in further sales of government assets, even to the extent of opposing the concept with very real fervour as they felt they had been robbed by the government.
An even greater political issue is that the funds raised by the Telstra sale were used to pay-off government debt, but this benefit has now been lost with the current debt being currently higher than the debt that Howard paid off. Stated in blunt financial terms, the Telstra sale provided the nation with no cash benefit.
The passion about Asset Sales has grown to a dramatic high in more recent times.
Firstly, a proposal to sell some Energy assets in New South Wales caused the demise of NSW ALP Premier, Morris Iemma, but this was more a political power struggle within the ALP than a fight over the righteousness of asset sales.
Morris Iemma failed to count his numbers before he moved to implement the sale, and his political enemies proved to be real good counters. However, Victorian Premier Jeff Kennett ran into very few problems when he sold assets, but he did lose the next election. This was not because of asset sales, rather more due to his strong impression of arrogance that voters disliked.
Then, Premier Anna Bligh was badly beaten in the Queensland State Elections of 2012, and many commentators said it was because she sold a majority stake in Queensland Rail. I doubt that.
The ALP had been in power far too long and had grown tired, so the voters went for change, particularly as there were some political scandals around as well.
But, let’s look more closely at the QR controversy.
This historic entity had been operating for 150 years and had lost money every year, costing taxpayers countless millions of dollars. It also had a record of poor service to its customers, irrespective of whether they were passengers or movers of freight. It badly needed a management revolution.
Anna Bligh achieved the sale by dividing it into two entities. The first is now a successful and profitable public company, Aurizon, which carries minerals and other bulk freight nationally and is providing its shareholders with dividends and capital gains. Anna Bligh deserves credit for its profitable launch.
The second, which retains the name Queensland Rail, runs Brisbane’s metropolitan rail system, plus the country rail tracks that were not passed over to Aurizon. It remains under government control and is not yet profitable. The end result is that the proceeds of the sale of Aurizon through an IPO on the ASX has still not solved the huge debt problems that the Newman Government inherited from Anna Bligh.
Campbell Newman is now considering more assets sales after he gains a mandate to do so at the next election. In the meantime, the O’Farrell Government in NSW is proceeding with sales of some of its assets, as it is not restricted by the mandate issue. Other states will move in a similar direction, particularly the Federal Government in Canberra — no matter who wins the September Election.
Few can see any benefit in the Australian Rail Track Corporation remaining in government hands, as it is a commercial enterprise.
So what will be the voter reaction?
My feeling is that it will be hostile if the funds are used to repay debt. It will be positive if the funds are used to build new infrastructure or create new services. The key is that voters know that the running-down of debt by one government is an open invitation to the next government to run it up again. Nothing is achieved except the loss of an asset.
It is also a fact that Superannuation Funds are willing to buy existing assets from governments and make them more efficient and profitable. But, they won’t risk funds on greenfield projects that take years to become cash flow positive.
So, the key is to start a perpetual investment turnover program with those Funds — sell them an asset, use the funds to create a new one and then, when it is earning revenue, sell it to them and build yet another one. The voters will get enthusiastic about this, as their government will always own assets.
So, what would I do in the totally unlikely event that I was in government. I would sell every asset on the books, including schools and hospitals, and use the funds immediately to build new ones. This is an urgent task as Australia is decades behind in meeting the nation’s basic infrastructure needs.
The key issue for voters to remember is that, because a government owns an asset, it does not mean that this asset automatically provides a good public service. Many bureaucrats have no greater sense of service to the people than private entrepreneurs do.
The key factor in selling a government asset or service is to pass legislation that covers the conditions of the sale and sets-out levels of service to be provided. Failure to adhere to this must mean that heavy penalties are payable, including, in the final analysis, the terms on which the assets must be returned to government.
One idealistic hope is that, in many cases, not-for-profit corporations can be established to buy and operate assets. In the case of ownership by Superannuation Funds, a plus will be the financial benefit to millions of ordinary Australians who are their members.