As I’ve commented on previously, I’d prefer the Queensland Government to allocate all of the privatisation proceeds to debt reduction to maximise our chances of regaining our AAA credit rating. By allocating a sizable fraction – now $12 billion according to today’s Courier-Mail – to infrastructure projects, the Government runs the risk of not regaining AAA and, further, adversely affecting the State budget balance, given that it would lease out some assets but invest the proceeds in assets that are either:
- non-income producing and costly to maintain, such as regional roads; or
- unlikely to fully recover their costs such as the Townsville Super Stadium.
Many of the assets the Government invests in out of privatisation proceeds may cost the Government money over the long-term, and it will have forgone any gain from lower interest payments through debt reduction. Sure, the Government might argue that it would need to borrow money and pay interest to invest in many of these new assets anyway, so it’s not really forgoing the reduced interest payments, but it’s unclear if there is an urgent and unavoidable need for the new infrastructure in the first place. Given Queensland’s $80 billion debt and the need to regain our AAA credit rating, the Government should think carefully about the merits of its $12 billion infrastructure package. Some of the items, particularly the Townsville Super Stadium, appear to be of dubious merit and designed mainly to secure support for the Government in a community with marginal seats (see Privatisation proceeds should be spent wisely).
Finally, I’d note that the information provided to the Courier-Mail for its exclusive today shows just what a bad idea the original non-share equity injections proposed for Energex, Ergon and Powerlink were, with proceeds being boosted by over $3 billion by switching to leases instead. Incidentally, I still expect we’d get even more from the outright sale of the businesses (see ABC radio interview on asset leases).