John Quiggin’s interesting new paper on the budgetary impact of asset leases, reported in the Brisbane Times today (Strong Choices will have ‘adverse impact’), correctly points out the adverse budgetary impact of the Queensland Government allocating around one-third of asset lease proceeds to infrastructure projects and the Cost of Living Fund. It means the Government doesn’t receive the interest savings it would from an equivalent amount of repaid debt – interest savings it could have used to partly offset the loss of forgone dividend (and tax equivalent) payments from government-owned businesses whose assets are leased out. For this reason, and because I also want to maximise our chances of regaining our AAA credit rating, I would use all the lease proceeds to pay down debt, as I’ve noted in previous posts (e.g. Reforming solar cross-subsidy is good policy, but unclear why $3.4 billion should be locked up in Cost of Living Fund).
While I agree with several of the points Professor Quiggin makes in his new paper, I have a couple of criticisms.
First, I don’t agree that interest savings from the repaid debt of government-owned corporations should be excluded from the analysis (see p. 6 of Professor Quiggin’s paper), because ultimately that debt is owed by the Government and thus taxpayers, who will benefit if the debt is repaid. By excluding these savings, the paper over-estimates the negative impact of the proposed asset leases (and uses of the proceeds) on the State’s finances.
Second, the paper focuses too much on the budgetary impacts of asset leases to the neglect of productivity and efficiency impacts-i.e. whether the assets would be more efficiently run by the private sector, which I suspect they would be (see my previous post Productivity and Privatisation). A comprehensive cost-benefit analysis of asset leases would consider the full range of economic impacts, and would look further than the budgetary impacts. For example, lower costs of electricity supply (and hence lower electricity prices) under private management than would otherwise occur may be important benefits flowing from asset leases that would need to be considered in a cost-benefit analysis.