Vic Labor backflips on privatisation

It’s amazing how an election campaign suddenly forces politicians to speak in the public interest.

Fresh from flogging-off the Port of Melbourne, Victorian Treasurer Tim Pallas last year confirmed that more asset sales were on the agenda:

“I have said since before we formed government that we were committed to the idea of asset recycling”…

At the time, Pallas immediately moved to sell Victoria’s monopoly Land Titles business. Pallas also stated that there are many other state assets that could be sold and run by the private sector.

Labor has also recently completed a shady $6.7 billion deal with Transurban to build the West Gate Tunnel Project, which will see Transurban contribute $4.4 billion towards the cost in exchange motorists paying $15 billion in additional tolls on CityLink until 2045. Moreover, Labor has outsourced $4 billion dollars of badly needed repairs and upgrades to Melbourne’s most stressed suburban roads via a PPP that will leave taxpayers repaying huge costs over the next 20 years.

With this background in mind, it’s interesting to observe that 100 days out from the State Election, Premier Daniel Andrews has suddenly warned against further privatisations. From The Australian:

Premier Daniel Andrews will warn against privatisation, austerity and what he calls a “free market free-for-all” in Victoria in a speech laying out Labor’s agenda 100 days from a state election…

Mr Andrews will flag more public ownership…

“We should never — and we can never — go back to the days of a free-market free-for-all…

[Andrews] will say privatisation has failed and deregulation has gone too far in the state. “You don’t have to be an economist to realise that something is broken. We were promised that a privatised electricity market would lower prices. Wrong. Privatisation has not worked. It’s only made things harder for families.”

While Labor’s hypocrisy is palpable, its new found concern surrounding privatisation is justified.

David Hayward – a professor of public policy at RMIT – recently penned a stinging critique of the Victorian Government’s PPP trickery, which have forced-up user costs without reducing taxes:

…the scale of the PPP commitment built up over the last decade is now a story in itself, although not one easily discovered.

Fully one-third of Victorian Government debt is now accounted for by borrowings entered into with private parties to build, own and operate public assets.

Even more remarkably, almost half of the Government’s interest bill is accounted for by private lease payments.

It sounds a bit like a magic pudding, except there are none in public finance…

PPPs are rather costly, thanks to the high interest rates attached to private debt, compared to that issued by the Treasury Corporation of Victoria (around 3-4 percentage points)…

These privatisations wouldn’t be so bad, of course, were it beyond dispute that they delivered value for money to end users and not just a nice return. Trouble is the Auditor-General keeps pointing to evidence that goes in the opposite direction.

From trains, trams, and buses to prisons and even electricity and gas, the one thing that is common is the lack of transparency in performance measures.

Also consistent is how well the private operators manage to game the measures, whether by skipping stations or stops or using pricing systems that are so obscure, no-one knows what they are buying, on what terms or for how long…

It is quite striking that in the case of Victoria — Australia’s most ardent privatiser over the last three decades — there is no evidence of user charges falling, or government spending abating.

This is what you’d expect were the privatisers to deliver the promised efficiency gains.

ACCC head and long time supporter of privatisation, Rod Sims, also recently called for a moratorium on further privatisations because of the damage that they are doing to consumers and the economy:

“I’ve been a very strong advocate of privatisation for probably 30 years. I believe it enhances economic efficiency [but] I’m now almost at the point of opposing privatisation because it’s been done to boost proceeds, it’s been done to boost asset sales, and I think it’s severely damaging our economy…

“It is increasing prices – let’s call it out… I want them to stop and think about the fact that when they’re privatising these things without effective regulation you are going to have increases in prices, and just think about the effects of that on the economy.

Stop and think. And don’t be surprised that your electorates think that privatisations increase prices. Of course they shouldn’t [increase prices] but the history tells you differently”.

The first rule of any privatisation should be that it boosts competition within the relevant market, and at a minimum does not lessen competition.

Yet most recent privatisations have broken this golden rule, placing achieving a heavy sale price above the interests of users, in turn stifling competition and productivity.

As experience shows, the new private owners will almost always use their market power to force-up user costs and boost their profits. We have seen this time and time again with ports, airport parking, public transport, toll roads, and utilities. In many cases, the cost-of-living burden for users is worse than raising their taxes, with the added drawback that it is less transparent since monopoly profits are easier to hide from public view.

The end result is likely to be higher costs for users along with possible increases in taxation as the State Government seeks to replace dividends that were formerly derived from the publicly-owned assets.

We know this because that is precisely what many of the privatisations over the past 20-plus years have done.

Let’s hope Labor’s new found caution about privatisation carries over should it win the upcoming Victorian Election.

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