First, my thoughts and prayers are with the people of North Queensland as they wake up to the devastation from Cyclone Debbie.
In his extraordinary eulogy for Marie Antoinette, the Anglo-Irish statesman Edmund Burke lamented that the French Queen had not been adequately defended: “I thought ten thousand swords must have leaped from their scabbards, to avenge even a look that threatened her with insult.” Luckily for the government-owned Queensland Investment Corporation (QIC), the Courier-Mail was quick to pull its sword from its scabbard to defend QIC from the threat of insult. In an editorial yesterday, the paper implored QIC critics to “Leave QIC alone over Adani.” The editorial followed on from a story earlier in the paper that QIC may consider investing in infrastructure associated with the Adani Carmichael mega mine, such as the rail line needed to connect the mine with the existing network (see QIC eyes investment in Adani Carmichael megamine infrastructure).
While I have no reason to doubt that QIC is acting independently of the Government and is maintaining the highest of standards, the paper surely must admit that the optics of any QIC investment in Carmichael mine infrastructure would be terrible. Environmental groups, and possibly some market commentators sceptical of the mega mine’s viability, would, rightly or wrongly, allege the Government has used its influence over QIC to invest in a project that may not otherwise secure finance and proceed.
Due to the hundreds of millions of dollars of coal royalties per annum the mega mine would inject into consolidated revenue, and the thousands of jobs it would support in regional Queensland, the Government is keen for the project to proceed. Indeed, the current Government deserves credit for the strong effort it has made to progress the mine’s development. But if QIC invests in the mine, and especially if it uses any funds invested in it by the Government, then the Government will be exposed to the allegation of political interference in QIC, due to its very strong interest in the project proceeding. Given the potential for financial mischief by QIC, which manages a huge pot of money on behalf of the Government so it can meet its super liabilities, it is very important that QIC is independent from Government. But the involvement of QIC in a controversial government-supported project would put the perception of QIC’s independence at risk.
The Government could avoid this exposure to criticism by divesting itself of QIC, which incidentally could raise many hundreds of millions of dollars, possibly up to $1 billion. QIC is highly profitable (around $90M per annum of pre-tax profit) but to earn that profit it takes risks that ultimately are borne by the Queensland taxpayers who own the business. As I have argued several times before, the Queensland Government should not be in the funds management business. There are plenty of private sector operators out there, and a government-owned funds manager, with an implicit government guarantee, has an unfair competitive advantage over private sector funds managers. See my previous post:
Government ownership of QIC becoming less appropriate every day
The 2013 Queensland Commission of Audit rightly recommended the sale of QIC. And, as I discovered in my research for the book I’m currently writing on the history of Queensland’s public finances over the last few decades, the 1996 Commission of Audit, led by highly respected economist Vince Fitzgerald, recommended the Government consider QIC for privatisation (see chapter 16 of the Fitzgerald CoA report vol 2). Alas, the wheels of government can turn slowly.