Qld Treasury needs to explain logic of asset sales much more clearly

In her terrific book On Speaking Well, former Presidential Speech Writer Peggy Noonan argues convincingly that people ultimately are moved by logic, and you shouldn’t underestimate the intelligence of your audience. She writes:

A good case well argued and well said is inherently moving. It shows respect for the brains of the listeners. There is an implicit compliment in it. It shows that you’re a serious person and understand that you are talking to other serious persons.

Peggy Noonan’s words came to mind when I learned about the Queensland Government’s Strong Choices campaign, which unfortunately doesn’t present the strongest case it could for privatisation. The campaign seems vulnerable to the standard attack that privatisation doesn’t really improve the budget balance because of the forgone earnings (e.g. see John Quiggin’s post The “People’s Budget” that doesn’t add up), and, alas, it seems a bit of a gimmick.

A problem with the campaign is that it appears to assume it is absolutely necessary to cut the State debt by $25-30 billion. Well, in my view, it’s highly desirable to do so, but it isn’t absolutely necessary. The Government faces higher borrowing costs because of its large debt, but the Government is not at risk of defaulting on its debt. The Queensland Government can borrow at a rate of 4.44% p.a. for a ten-year term, which doesn’t suggest the bond market is too panicked about our capacity to repay. (We are, of course, penalised by the bond market for our level of debt and lack of a AAA rating though. Compare Queensland’s borrowing rate of 4.44% p.a. with the Commonwealth’s borrowing rate of 4.02% p.a. for a ten-year term).

The Government needs to explain more clearly why it needs to sell assets. In my view, the two strongest arguments are:

  • the assets will be better managed by the private sector, boosting efficiency and productivity across the economy and improving the State Budget (see Brad Rogers’s great post Queensland ports for sale), and
  • the Government will save hundreds of millions in borrowing costs every year (through a lower interest rate) if we can regain our AAA credit rating by using the proceeds of asset sales to pay down debt.

I’ve made these points in several posts, including:

Govt should embrace Costello Commission of Audit privatisation recommendations

Qld budget surplus delay not a big deal, but reinforces need to consider Energex & Ergon sell off

It’s not too late for the Government to win the debate on asset sales, but it needs to present more compelling logic. The Government’s current arguments for asset sales are too simplistic and probably won’t persuade the public. The Government should ask the Treasury to produce a solid report presenting the pros and cons of privatisation – analysing in detail the merits of selling particular assets such as energy businesses and ports, directly addressing the question of whether they would be better run by the private sector. The Government should then present this analysis to the public in speeches and informative publications and websites.

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4 Responses to Qld Treasury needs to explain logic of asset sales much more clearly

  1. Jim says:

    Gene

    I think you are right. The Queensland Government needs to explain their logic. But before they do that, don’t they need to analyse the benefits and costs of privatisation to develop a solid logic first?

    The $6 million “Strong Choices” campaign of three thought bubbles (more tax, spend less, sell assets) does not a benefit-cost analysis make.

    A better investment would be to spend 10-20% of the “Strong Choices” spin budget on good independent analysis to prove/disprove the benefits and costs of asset sales and then present the logic. Genuine logic is a very powerful thing. Flimsy spin is not.

  2. Gene Tunny says:

    Thanks, Jim. Yes, that was what I was trying to suggest – it needs to do the work first. Cost-benefit analysis would certainly be a good framework to assess the merits of particular privatisations.

  3. Katrina Drake says:

    Gene, I completely agree with your argument that the taxpayer and voter are convinced by logic.

    I had a bit of fun playing the strong choices game – I must say the options presented to choose from were not particularly creative . For instance there wasn’t an option to buy back the $6M wasted on the strong choices campaign, which is all propaganda and spin. Nor an option to increase property and land tax on the $5.4B of Queensland sold to Chinese investors each year. We can no longer rely on any government to present the facts – all we can ever except sadly is spin and lies.

    I must say I did considerably better at reducing the state debt than your attempt on ABC612. I managed to achieve a new debt level of $40B, considerably under the Government’s target of $55B. I simply applied my policy of removing rorts and increasing self reliance, stopped taxpayer money going around in circles – no assets sales and no infrastructure reductions.

    Having saved $2B in interest pa , I was then asked how I would spend it – simple. I wouldn’t spend it.

    Simple ! Wish monopoly was so easy !

    Also, on assets sales, I agree that assets will be managed better by the private sector – but you don’t have to sell assets to achieve this. All property investors will have experience of this concept – you don’t sell your asset to the tenant – you just charge them to use it. I strongly disagree with asset sales. Queensland should retain assets and make them earn for all of us.

    • Gene Tunny says:

      Thanks Katrina. I agree with your point, in principle. You could run a tender for the rights to manage the assets for a limited period rather than selling them.

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