Productivity and Privatisation – panel discussion at Griffith University, Southbank

I was delighted to speak alongside productivity expert Dean Parham at a Griffith University panel discussion earlier tonight on productivity and privatisation. Thanks to Alex Robson of Griffith for organising the excellent, well-attended event. My prepared remarks are below. I varied them slightly in the delivery but the main points I made were the same as below.

Good evening. The issue of privatisation or asset sales is obviously very topical in Queensland, with the Government seeking to raise over $30 billion from a range of privatisation proposals. These include the sale of power generators CS Energy and Stanwell, the long-term leasing of Townsville and Gladstone ports, and private equity injections into Energex , Ergon and Powerlink. The Government, however, has appeared somewhat unprepared for the lively debate that has occurred and which I expect will continue right up to the election.

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Unclear whether Qld Govt will have evidence needed to win asset sales debate

The Queensland Government is right to have begun advertising for advisers on asset sales, to ensure that assets such as CS Energy and Stanwell are sold in a timely fashion after the next election (Government advertises for asset sales advisors). The Government needs to get these assets ready for sale, and will no doubt benefit from advice from professional services firms and investment banks.

The Government, however, seems to have missed the important step of undertaking comprehensive cost-benefit studies of the sale proposals. I’ve written before on the failure of the Strong Choices campaign to provide useful information to the public regarding the impacts of asset sales on the economy and community. I was disappointed the Government spent $6 million on the campaign which could have been better spent undertaking comprehensive studies of privatisation proposals and marshalling the evidence that could help convince the public these proposals are in the public interest (see my post Failure of Strong Choices now obvious – missed chance to persuade on asset sales).

As a supporter of asset sales, I’ve disagreed with a number of my fellow economists around town on the merits of assets sales, but one thing I think we can all agree on is the need to do the rigorous analysis of the costs and benefits to the community of proposed sales. This does not appear to have been done so far, and the Government is now highly exposed because it is basically signalling that it will sell assets after the election, but it may not have the evidence and arguments it needs to justify its actions.

For more on the issue of asset sales, please consider attending a panel discussion tomorrow night at Griffith, Southbank, at which I’m speaking:

Productivity and Privatisation panel discussion

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Qld has three of top five regional areas with most expensive residential lots

The Housing Industry Association released a very interesting note today on median lot prices in capital cities and regional Australia (i.e. non-Capital City Australia): Land price pressures signal policy failure. The data should prompt a number of Queensland Councils to review their planning policies, to see if they are unnecessarily constraining development. Given how important housing construction will be to the strength of the Queensland economy in coming years, it’s somewhat concerning to see three Queensland regions represented in the top five regional markets for most expensive residential lots (see chart below). Of course, these are all attractive regions to live in, but three Queensland regions in the top five seems excessive.

medianlotprice

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Reality check for Townsville – no metropolis of 1 million before end of century

Judging by recent articles in the Townsville Bulletin, Townsville appears obsessed with the idea it will grow to 1 million people from its current population of just under 200,000. The Townsville Bulletin reported yesterday (Townsville tipped to hit 1 million people):

WHAT would Townsville look like if there were a million people living in the city?

That’s what Townsville Enterprise hopes to find out through a concept design competition it is running to find the best ideas for ensuring the city retains its great lifestyle as it grows.

Townsville Enterprise deserves some credit for being so forward-looking and visionary, especially given current Queensland Government population projections only have Townsville growing to around 300,000-350,000 people over the next couple of decades (see the chart below with projections for low, medium and high population growth scenarios). If you (crudely) extrapolate from these projections, Townsville wouldn’t reach 1 million people until around 2081 at the earliest and most likely not until around 2101.

So Townsville Enterprise is being very visionary indeed. As well as thinking about the very long-term, I hope Townsville Enterprise is also focussing on the pressing need to promote business development in a city that is over-reliant on Government and defence jobs.

Townsville

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Wise words from the PC on capital/asset recycling

I’ve been a strong supporter of the Queensland Government’s privatisation agenda, but have been unimpressed by the Strong Choices campaign promoting the agenda, which is uninformative and based on questionable logic. In its just-released Public Infrastructure Inquiry Report, the Productivity Commission nicely explains the logical problems with the capital/asset recycling argument that partly underpins the Strong Choices campaign (p. 262):

Capital recycling involves the linking of two separate decisions; the decision to privatise state-owned assets, and the decision to invest in a new infrastructure project or set of projects. While the linking of the two decisions may be a useful mechanism to alleviate community resistance to privatisation, this should not replace the need to undertake these sets of analyses separately. Ideally, both sets of decisions would be made within a transparent decision-making environment, where a robust cost–benefit analysis is undertaken…

The main risk from the capital recycling model is the potential for it to distort either of these decisions. In particular, an arrangement where the proceeds of sale are automatically hypothecated to investment in new infrastructure projects may create risks for over-investment in new greenfields infrastructure…

…A further potential risk with capital recycling is that the availability of funds from privatisation may mute the incentives for state governments to properly consider the extent to which user charges can be used to ‘fund’ the new infrastructure…

…A final problem with capital recycling is that it might cement in the public a view that the only time an asset should be privatised is if there is some new infrastructure project in which to invest — that is, that privatisation is not of benefit in and of itself.

This is what I’ve been saying all along. Privatisation is potentially good because it improves the efficiency of privatised businesses and the productivity of the economy overall. Budgetary impacts should be considered, but are not necessarily of primary importance.

I’ll say more on these issues at an upcoming panel discussion in Brisbane at Griffith’s Southbank campus Wednesday night next week:

Productivity and privatisation – panel discussion

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Carbon tax repeal good news for Qld economy

I’m very pleased the Senate will allow the repeal of the carbon tax (Carbon tax to be abolished on third attempt), given that:

  • Queensland would have been disproportionately affected due to our heavy reliance on coal-fired power generation; and
  • it never made any sense for Australia to undertake signficant, unilateral greenhouse gas mitigation (i.e. in the absence of any action from the major economies of the US, China, Japan and the EU). It was always wishful thinking to suppose that other nations would be impressed by the example of Australia wearing a hair shirt.

My earlier posts criticising the carbon tax include:

UQ study confirms carbon tax will hit Qld the hardest

Carbon tax will disproportionately impact Qld, so Newman has good reason to oppose it

Queensland has to make the biggest adjustment to carbon price

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Qld doing poorly at attracting interstate visitors (as well as international visitors)

According to new National Visitor Survey data, Queensland is doing poorly at attracting interstate visitors, compounding the difficulties faced by our tourism sector, which isn’t seeing growth in international visitors (see my post from Monday, International visitor numbers increasing – but Qld doing poorly in attracting them). Furthermore, Queenslanders don’t appear excited about visiting other regions in Queensland, with intra-state holiday visitor numbers down. I’ve copied and pasted the relevant charts below from the latest Tourism and Events Queensland Domestic Tourism Snapshot.

domvisitorsThis is somewhat concerning given the significance of tourism to the Queensland economy  - indeed it’s referred to as one of the four pillars (see my earlier post How important is tourism to the Qld economy?). The only qualification I’d make is that the year ending March 2014 data don’t include the 2014 Easter, which, anecdotally, saw strong visitor numbers in Queensland holiday destinations. That said, it seems reasonably clear to me that Queensland’s current tourism promotion efforts have failed and it’s worth considering whether tourism funding could be put to better uses.

Pete Faulkner also covered today’s new tourism data:

Domestic travel result good for TNQ but poor for Qld

 

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