Has Queensland kicked the can down the road? – guest post from Keiran Travers

The still undecided Queensland election has given many of us reason to think about the future of our State, and I’m delighted to publish a guest post from Keiran Travers, a Brisbane-based infrastructure expert, who wonders whether Queensland has kicked the can down the road? 

On January 31 Queenslanders made a choice that Asset Leases (or sales) weren’t for them. Anna Bligh and now Campbell Newman have experienced the wrath of an angry electorate. Both results were devastating for the respective premiers and their parties. Where to from here?

In 2012 I felt for Anna Bligh. With economic conditions turning, she led a tired government and went into a campaign with several key ministers announcing that they were not seeking re-election. She was fighting an election alone facing a LNP with momentum.

Three years down the road and the LNP has expensed its valuable political capital on what seemed needless fights and the massive majority was eroded. A stunning turnaround no doubt.

Ross Gittins, the left leaning Fairfax columnist, has written a great article over the weekend about privatisation and more importantly competition (Searching for our salvation in privatisation). He correctly states that the general public doesn’t like or want “their” assets in private hands. I agree with him. He also makes a point about what happens afterwards: “though many people disapprove of selling off government businesses, once it has happened we get used to it pretty quickly.”

I say that the sale of the Port of Brisbane and what is now called Aurizon by Queensland, the Port of Newcastle by the NSW Government and the many airports by successive (including Labor Governments) and Telstra and Qantas really has not affected the daily lives of the average punter. Nearly all of the businesses have improved and are supplying good service. They are competing in a very competitive market.

More importantly these business operate free of government budget issues and restrictions. Since the previous Qld Labor Government (led by Bligh) sold what was then called QR National (now Aurizon), the new company has invested in new infrastructure and widened its asset base. Could this have occurred under government ownership? I think not. Can you imagine the public outcry if a government entity invested in a private port when hospital waiting lists are still long?

A hidden saving of an asset sale is that it relieves the government of excessive capital expenditure on future improvements. For example, the now sold Port of Newcastle can expand using private sector money rather than government money.

However, assets sales, or more importantly losing government ownership and control, is what the public voted against.  Another option that now needs to be considered is the New Zealand option of a partial sale. This allows the government to sell say 49% and retain control (and most Board positions), but allows the new company to attract private capital (debt and equity). In effect the government is the key shareholder only, but still an owner and controller, and the business can get on delivering products and services. Are the Kiwis showing us the way (again)? Telstra, which followed a similar but slower path than what was done in New Zealand, is a much better business than 15 years ago.

I have heard that there should be no asset sales anytime. A fair point but where is the capital coming from? Most Government Owned Corporations operate with a ROI of less than 5% so they don’t provide the profit to reinvest in infrastructure. Meanwhile our competitors (other states) are moving ahead, as evidenced by the latest net migration results.

The recent LNP Government ran a poorly advertised but technically sound exercise in 2014 when they asked the public what to do with the $80 billion debt. The choices were sell / lease assets, increase taxes or cut services. Well now we have to cut services or increase taxes. I don’t hear anyone saying they want that. A colleague of mine said to me in 2014 ‘the public want another choice – kick the can down the road and let someone else worry about it”.  Sadly this attitude seems to be right.

When a family is under financial stress they can either sell their house or car, get a new job or cut back on spending. The government needs to do the same.

But are we kicking the can down the road? 2015 will be an interesting year.

Keiran Travers,
Harbak Holdings

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5 Responses to Has Queensland kicked the can down the road? – guest post from Keiran Travers

  1. Jim says:

    Keiran

    A good and very welcome guest post.

    You use the example of Telstra in Australia as an example of a successful part-privatisation stating it “is a much better business than it was 15 years ago”. True, Telstra is better than it was in the late 1990s, but could it actually be any worse?
    If the Telstra share price is any indication of performance during the “half pregnant” phase of the privatisation process between 1997 and 2006, it was not a particularly happy one for owners. And I’m not aware of any impartial telecommunications analysts that would put Telstra on the podium for best in class for management and investment during the “half pregnant” phase.

    I think we need to be pretty wary of the “half pregnant” model of GOC ownership. The continuing shackles of majority Government control will limit what the private sector is willing to pay for the assets, as many opportunities for growth or increasing profits will be constrained by the majority shareholder. Hence the benefits of privatisation to the current owner (i.e. taxpayers) are reduced as less capital is raised to invest in new projects. Meanwhile, opportunities to grow and maximise profitability of the “half pregnant” business are also constrained by the shackles. Is this actually the worst of both worlds?

    If the case can be made for privatisation of a particular asset, then an optimal model is probably 100% privatisation. This increases the sales proceeds for the current shareholder and increases opportunities for the new owners to maximise shareholder value.

    What was missing in the recent State election was the transparent, independent and robust analysis to prosecute the case in either direction. We are now probably locked into a suboptimal situation for years to come as a consequence.

  2. Keiran says:

    Hi Jim
    well said – the half pregnant model is not ideal as it is restrictive for both government and the private sector. Unfortunately the 100% model has been voted against in the past two elections so that is dead for the time being. A transparent, independent and robust analysis would have been really worthwhile

  3. The Happy Hillbilly says:

    Australian voters have come to distrust the notion of “reform” according to John Quiggin, a distrust based on decades of market-based reform often failing to improve their lives despite so many promises to the contrary http://www.theguardian.com/commentisfree/2015/feb/10/australian-voters-have-learned-to-distrust-further-reform-and-rightly-so

    • Gene Tunny says:

      Thanks for the comment, HH. I admit the benefits of reform are not always obvious, but our relative living standards are much better today compared with OECD comparators than they were before microeconomic reform started in the 1980s.

  4. The Happy Hillbilly says:

    So what’s the problem then?

    If everybody is so much better off following decades of these reforms, why can’t voters see it? Are the benefits really so well hidden that the average person just can’t grasp how much better off they are as a result?

    And could other factors be at play in determining the direction of “living standards (however so defined)? Over the same period, the growth in the household debt to income ratio has been nothing short of phenomonal, surely this has contibuted to any such measure as households borrowed ever more to consume.

    In any case, if neither Labor nor the LNP can convince the electorate that decades of privatizations has dramtically improved their lives, what will it take to convince them?

    The problem seems to lie in the fact that privatizations have often not delivered as promised and frankly, people know that because they aren’t stupid.

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