I have no sympathy for those who take an ideological approach to the
privatisation of government-owned businesses, whether they support all
selloffs because governments are always inefficient or oppose all
selloffs because the private sector can never be trusted.
No, each proposal should be judged on its merits - with a lot of boxes to be ticked before privatisation is justified.
Even
so, it seems likely we'll see a fair bit of privatisation in coming
days - particularly at the state level - as part of Joe Hockey's efforts
to get his budget back in the black while avoiding having a
contractionary effect on economic activity and, indeed, while ensuring
the economy accelerates to the point where we get unemployment down
again.
What squares this circle is staggered savings in the
recurrent budget combined with increased spending on public
infrastructure. Though it's getting late, a surge in infrastructure
investment would also be a good counter to a possible collapse in mining
investment over coming years.
While only Hockey's former
scaremongering about supposedly soaring federal debt stands in the way
of the feds stepping up their own infrastructure spending, they prefer
it to be done by the states.
Trouble is, those state governments
that haven't already lost their triple-A credit ratings are on the edge
of doing so should their debt grow. In an ideal world, the (discredited)
ratings agencies could be ignored and told to do their worst. But in
our imperfect world it's probably not such a bad thing that politicians
worry so much about their ratings.
So how can the states do a lot
more infrastructure investment without increasing their debt levels? By
privatising existing businesses and reinvesting the proceeds in new
infrastructure. This is what Hockey hopes to encourage.
One
disincentive the states face is that, as well as paying them dividends,
the businesses the states own in effect pay company tax to their state
owners, whereas privatised businesses pay company tax to the feds.
Although
he's yet to spell out the details, Hockey has signalled his willingness
to overcome this disincentive by passing that tax revenue back to the
states.
On the face of it, the prospect of more state
privatisations suffered a setback last week when the ACCC effectively
vetoed the NSW government's plan to sell Macquarie Generation, the
state's largest power producer, to AGL, one of the state's three largest
power retailers. The commission judged that the deal would have
resulted in a substantial lessening of competition in the electricity
market.
This brings us to the first test of whether a proposed
privatisation is in the public interest: it ought to involve an increase
in competition within the relevant market and certainly shouldn't
lessen competition.
Governments should resist the temptation to enhance
the sale price of a business by adding to its pricing power, or sell off
a natural monopoly without adequate regulation of its prices.
So
it's a good thing the commission put its foot down. But, equally, it's a
good thing NSW Treasurer Mike Baird expressed his intention to press on
with plans to build up his privatisation recycling fund, and do so
without selling any asset for less than its "retention value" to state
taxpayers.
This raises the second test to be passed. The stream of
dividends governments receive from the businesses they own (and are
about to forgo) could easily exceed the saving in interest payments to
be made from using the sale proceeds to repay government debt, unless
the sale price is sufficiently high.
This is the main factor
determining the business's retention value. To sell assets for less than
that value is to put ideology ahead of the public interest.
Polling
shows privatisation is greatly disapproved of by voters. But this is
the punters wanting to have their cake and eat it. They demand better
infrastructure, but don't want to pay higher taxes for the privilege,
nor give up government services, nor see government deficits and debt
build up.
Well, they can't have it both ways. And an obvious
compromise is for governments to sell businesses for which there's no
good reason for continued public ownership and use the proceeds to get
on with meeting new needs.
It's notable that polling suggests such
recycling deals attract significantly less voter disapproval. Note to
diehard rationalists: hypothecation is the key to escaping the budget
impasse.
But there's one last test to be passed to make such deals
good economics: the new infrastructure's social benefits have to exceed
its social costs. And public transport projects are more likely to do
that than yet more motorways.
