The Queensland Treasurer’s media release yesterday regarding QIC’s purchase of a large stake in a Northern Australian cattle business should have raised eyebrows:
Treasurer Curtis Pitt has welcomed today’s announcement that the Queensland Government’s investment manager, QIC, will acquire 80 per cent of one of Australian’s oldest and largest agricultural enterprises, North Australian Pastoral Company.
Mr Pitt said the investment was a strong vote of confidence in Queensland.
It may well be a strong vote of confidence in the prospects for the beef industry, possibly the broader economy, but how can we be sure when QIC is actually owned by the Queensland Government, and the Treasurer is one of the shareholding Ministers? While QIC remains Government owned, how can we be sure its investment decisions are entirely free from political influence and that they will maximise the return to the State’s funds under management (for an appropriate level of risk)?
I am very concerned about the risks being put on the State Government’s balance sheet through QIC’s operations, given its wide range of activities, including private funds management, and its interesting mix of investments, including shopping centres in regional Queensland towns such as Townsville and Toowoomba. In the interests of risk management, the State Government should sell its financial business, QIC, and adopt an arms-length approach to whomever it appoints as its fund manager.
Additionally, it is undesirable that QIC receives a competitive advantage from State Government ownership (e.g. an implicit government guarantee that makes investing with it attractive), which means it is competing unfairly against private sector fund managers. For this reason, as well as the issues of risk and whether it is appropriate for the State Government to own QIC after it has already sold banking and insurance businesses, the Queensland Commission of Audit in 2013 (in its Final Report, Volume 2, p. 173) rightly recommended the sale of QIC, which is unique in Australia as a government-owned funds management business:
There is no compelling public policy rationale for an agency of Government to provide these financial services. They can be accessed on a competitive basis from private investment managers.
Furthermore, it is highly questionable as to whether Government should bear the risk of managing investment funds for the private sector.
The continued participation of QIC in this activity creates a distortion in financial markets. By means of its status as a crown entity, QIC has a competitive advantage that is not available to its private sector competitors…
…This advantage is inconsistent with long-standing principles of competitive neutrality…
…In an era of open, competitive and dynamic financial markets, there is no strong rationale for government provision of investment funds management services.
We should listen to the Commission of Audit because it was well advised on QIC. One of the Audit Commission members was none other than Dr Doug McTaggart, former head of QIC and Under-Treasurer.
I have long advocated the sale of QIC (e.g. see Why is QIC Government owned anyway?). And other Queensland-based economists, such as John Quiggin, have identified problems with QIC being a government-owned fund manager: Bligh and Fraser sell Port of Brisbane…to themselves.
I am even more convinced of the desirability of selling QIC after the latest announcement from the Treasurer and from a recent inspection of the QIC website, which revealed QIC staff are pretending they are a privately-owned funds management business, with some of its key personnel calling themselves partners (see the QIC website).
But QIC is not yet a private business. As noted above, there are clear economic and public policy reasons for selling QIC, and a sale would be supported by a former CEO and likely by many of its current staff, who are obviously embarrassed by its government ownership. The case for selling QIC is compelling.
The Queensland Commission of Audit report will have a long shelf life