Billions of benefits from selling Gladstone and Townsville ports

My colleague and friend Brad Rogers, who is also Secretary of the Queensland branch of the Economic Society of Australia, has written a nice post arguing for privatisation of Queensland’s Government-owned ports at his new blog:

Queensland Ports For Sale

Brad neatly explains how the State of Queensland would benefit from selling both the highly profitable Gladstone port and the unprofitable, heavily subsidised Townsville port.

I’ve previously commented on the desirability of privatising government assets in a number of posts, including:

Govt should embrace Costello Commission of Audit privatisation recommendations

On other matters, for coverage of today’s new building approvals data from the ABS, see these posts from fellow Queensland bloggers Pete Faulkner and Mark Beath:

Bldg Approvals weaker than expected but the Trend is still positive

Building momentum slows for the wet season

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7 Responses to Billions of benefits from selling Gladstone and Townsville ports

  1. The Happy Hillbilly says:

    And when the money from the sale of a profitable government enterprise is gone………..? We seem to have this fixation that it is necessary to sell even our healthiest dairy cows in order to buy milk. Since this in itself makes no economic sense it seems clear that there is a deep ideological bias underpinning such decisions. Why the assumption that we will all be better off in the long run if everything is privately owned? Greg Jericho recently demonstrated that the privatisation of the Victorian electricity industry has had roughly zero benfit to Victorian consumers in the long run – and if anywhere in Australia is ideal for electricity generation as a fully private profit making venture it is surely Victoria, with around 90% of the states electricity consumers living in an area a mere 100km in diameter – you need great deal more main line infrastructure to reach the same number of people here in QLD, being so much more decentralised and spread out along a 2000km long stretch.
    Really – when something returns a healthy profit to the state of Queensland and will do so for the forseeable future, why are we even considering selling it? Surely it helps pay for social spending that might otherwise have to be levvied through higher state-based taxes and the like.

  2. bjreconomics says:

    Hi Hillbilly
    Thank you for your reply to my post. You suggest a question of, what do we do when the money from the sale is gone? The profit from the port will still be in the Australian economy and the Government will still recover the tax from the profits. The point is a private company will run the current port more efficiently and have a strong incentive to increase its activity. Increased activity by the port will mean a bigger company than otherwise would be available under the Government. The driver to do this is profit. The larger company will provide more jobs, capital spending and tax. Therefore the entire economy is better off when private companies own and run most of the services.

    An example of the same issue on a different scale would be if the Government opened up a hamburger store next to all McDonalds stores and sold food at half the cost of McDonalds. Would this be of benefit to the economy? The Government may make some profit from the venture but the economy would be much worse off. The Government burger store would run McDonalds out of business and then would only provide a very basic service.

    You point to Greg Jericho as a source of information on the benefits from privatisation of the Victorian electricity market. I do not know much about Greg except he is trained as a lawyer and is a political blogger. My blog is looking at the economics not the politics which is hard to separate but is clear in this case. Also, separating the benefit from privatisation to what would have been is very difficult and there would need to be significant effort by a professional economics firm to find the actual difference. I would suggest you read the reports done by the Australian Productivity Commission at the link below. One of the PC key findings on electricity said:

    “State-owned network businesses have conflicting objectives, which reduce their efficiency and undermine the effectiveness of incentive regulation. Their privately-owned counterparts are better at efficiently meeting the long-term interests of their customers.
    – State-owned network businesses should be privatised.”

    Happy to discuss further and please visit my blog.

    Thanks
    Brad

  3. The Happy Hillbilly says:

    Hi Brad, thanks for your response.

    Technically, we run a persistent CAD so the money will eventually leak out of the economy anyway, and it also matters what the government intend to do with it. My savings are “in the economy” but as long as they remain put to a surplus – which is an overriding political goal of the government – they aren’t going to do much overall good. Note that this is not an argument against prudence, just an observation. But this is peripheral to the point I was endevouring to make – that the QLD government are considering exchanging a large, solidly and consistently profitable public asset – that is, a dependable revenue stream – for a one-off lump sum.

    Why would we swap a dependable revenue stream for a one-off payment? As near as I can gather by your post, the answer appears to be simple faith. Faith in the notion that privatising nearly anything automatically leads to better, more efficient performance, greater growth generating greater revenue in the future. But what I see lacking is solid, tangible, broad-based evidence that this notion is actually a fact. First of all, if you observe the performance of the GPC (Gladstone Ports Corporation) you will see how well it has performed in returning dependable revenue to the QLD government and how it has been continuously growing for a long time – exactly how much better do you really think it will perform in the interests of the state of Queensland than it does already for nothing more than a change of ownership? Second, we can see that the performance of some government-owned enterprises has left a lot to be desired after they were fully privatised (ie Telstra). There is no reason that privatising them has automatically generated the kind of growth in which we can all share – did you see Gene’s next post just above yours? Making TAFE funding contestable is likely to lead to job losses and the loss of some courses, not growth in these areas. When something is privatised, the focus is usually on cost-cutting.

    Regardless of whether Greg Jericho is a lawyer or an economist, the point he is making is sound – the promised benefits to Victorian households of privatising Victoria’s electricity industry have not emerged – electricty prices have simply moved in lock-step with and are only very marginally cheaper than anywhere else. However, if you would prefer a senior economists take on the Victorian situation, Bill Mitchell has a post…http://bilbo.economicoutlook.net/blog/?p=21157

    In conclusion, the question of whether or not to privatise something should be considered on a case-by-case basis. Sweeping ideological judgements that private always equals better have been show to be false.

    • Gene Tunny says:

      Thanks for your comment, HH. There are definitely quite a few examples of where privatisation went wrong, and hence privatisations need to be carefully managed. On the budgetary impact, you’re right that we’re swapping a revenue stream for a one-off payment, but if the private sector can run the operation more efficiently than government – and we expect they can – then the one-off payment should exceed the present value of the revenue stream to the budget.

      Also, given there’s no real rationale for the Government owning ports, electricity businesses, etc, we should take advantage of the cash injection from privatisation and pay off debt, reducing the Government interest bill and bringing forward the date at which we can regain our AAA credit rating, which would reduce our borrowing costs.

      Regarding VET, I support a contestable training market and think it will be better for the State in the long-run. I expect TAFE will contract but private providers will expand.

  4. The Happy Hillbilly says:

    Hi Gene.

    I think the whole crux of this issue is whether or not the Queensland goverment and by extention the state of Queensland – ie, us – will be left better off by selling off the port of Gladstone. The first thing that stands out is that we are not talking about getting rid of some broken-down old hack here – the GPC is a dependably profitable enterprise that not only pays for itself but also generates revenue that the state can direct toward other areas of need (whether we feel that the state spends this wisely or not is another matter). The reasons for this are simple and obvious – it is an inherint monopoly. Queensland is blessed with vast mineral wealth that is desired by the world and the port of Gladstone is one of the very few places that those wishing to exploit it can sell/buy through. Wouldn’t you like to own a monopoly like this one? I’m damn certain I would. As long as the world wants our resources, the port of Gladstone will be cash flow-positive and a reliable source of revenue for the government.

    So what about exchanging it for a one-off payment then? For starters, I’m unclear about how this thing will work. I have a relative in a managerial role at the GPC who tells me that the various resource companies who export their dirt through Gladstone are perfectly happy with state ownership. Not because they are ideologically predisposed but for a simple and obvious reason – as long as the government owns the port that they are 100% reliant on, a private competitor cannot. We can say for example, privatise power stations but there is only one means of delivering what they produce – through a single grid. The port is like the grid, whoever owns it can exert control over the price and pretty much anything else. So now that we are privatising it, the government are going to have to engineer a whole bureaucracy to oversee and ensure fair pricing since it can’t arise from natural competion since their is no such thing in a monopoly. The GPC creates it’s own bureaucracy of course…..but it pays for itself. This bureaucracy will have to be funded from other sources.

    So now we are swapping something that is reliably profitable to the government and pays for itself for a once-off wad of cash and the knowledge that we will need another/an expanded government bureaucracy that will not be self-funding in order to engineer and maintain artificial competition – and we will need to keep paying for it forever. Exchanging an asset that by it’s nature a source of healthy profits in a situation where the owner really can’t go wrong – for the assumption that a private owner will re-invest it’s profits back into Queensland rather than channel them offshore. Remind me again why we are considering doing this.

    This is why it is so crucial to carefully consider privatisations on a case-by-case basis. In this particular case, I think it is difficult to find any long term rationale for giving up ownership of a lucrative monopoly.

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