As suggested in the Courier-Mail this morning, it is possible the Queensland Government will try to appear it is meeting its fiscal strategy and paying down debt through some creative accounting, involving government-owned corporations (GOCs) (e.g. Energex, Stanwell, Gladstone and Townsville Ports) being taken over by the Queensland Investment Corporation (QIC). QIC could purchase or invest in the assets of GOCs using some of the money the Government has invested in QIC – some $30 billion of assets which are meant to cover the Government’s long-term defined benefit superannuation liability. I suggest this would not be a good use of funds the Government is investing to meet its long-term liabilities.
That said, I can understand why the Government might find the dubious idea attractive. A QIC takeover of GOCs could provide the Government with much-needed cash it could use to fund new infrastructure or pay down debt. Also, I suspect the Government would no longer have to report the debts of taken-over GOCs on the total government balance sheet reported in the Budget, because it relates only to the non-financial public sector, and the GOCs would now sit on the balance sheet of QIC, which is a public sector financial corporation. (I’d note the Government would no longer be able to count the dividends of the taken over GOCs in its operating statement, because they would now belong to QIC.)
The big problem I have with the QIC GOC takeover idea is that QIC should be making the best investments it can in order to ensure it gets the best possible return on the money the Government has invested to meet its long-term defined benefit super liability. But why would investing in a GOC the Government has directed QIC to purchase be the best possible investment? There would surely be much better investments than an inefficient GOC hamstrung by Government ownership. A QIC GOC takeover would compromise the Government’s ability to manage its long-term liabilities.
The only positive that might come from a QIC takeover of a GOC would occur if QIC forced the GOC to become more efficient and act like a privatised entity. But I suspect the Government would say this is not a privatisation and jobs in the GOC would be protected. So there probably wouldn’t be any efficiency gains from a QIC takeover. Also, I doubt such a move would enable Queensland to regain its AAA credit rating, as I doubt it would impress the ratings agencies, which would see right through it.
A QIC GOC takeover would be an audacious, tricky move and extremely bad policy. The Commission of Audit was right to have recommended the sale of QIC. It would certainly have prevented a dubious move of this sort. I really hope the Government isn’t considering this, because this is the type of thing that can give a government a reputation for financial mismanagement for years to come.
Finally, I’d note there is the slightly less creative tactic available of having the GOCs borrow more money and having them pay for new infrastructure or forcing them to pay the Treasury a bigger dividend, which allegedly occurred in some Queensland Budgets a decade or so ago. I can’t wait until 14 July to find out exactly what clever moves the Treasury has come up with to try to convince us the Government really is repairing the Budget, even though indications to date are that it won’t be able to improve the State’s financial situation in any real sense.